What is “new regionalism”

2. Is regionalism a viable development alterative in the 21st century?

3. What was the impetus for the new Asian regionalism?

4. Is the Pink Tide putting forward an alternative to neoliberal globalisation?
Asia’s Post-Crisis Regionalism: Bringing the State Back in, Keeping the (United) States OutAuthor(s): Paul BowlesSource: Review of International Political Economy, Vol. 9, No. 2 (May, 2002), pp. 230-256Published by: Taylor & Francis, Ltd.Stable URL: http://www.jstor.org/stable/4177421 .Accessed: 27/05/2013 03:47Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp .JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected] .Taylor & Francis, Ltd. is collaborating with JSTOR to digitize, preserve and extend access to Review ofInternational Political Economy.http://www.jstor.org
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
RJ outledge Review of International Political Economy 9:2 Summer 2002: 230-256 Taylor &FrancisGroup Asia’s post-crisis regionalism: bringing the state back in, keeping the (United) States out Paul Bowles’ University of Northern British Columbia ABSTRACT The Asian financial crisis has significantly changed the way in which region- alism in East Asia is taking place. Prior to the crisis, regionalism in the area was noted for its relative lack of formal institutions; many analyses stressed the role of private businesses in fostering a ‘regional economy’. Post-crisis regionalism is being led by the state and encompasses both monetary and trade dimensions. The reasons for this change are analysed and the regional policies of China and Japan examined. The spur to post-crisis regionalism is argued to have been provided by a desire to limit the influence in the region of the US and the international financial institutions. KEYWORDS Regionalism; Asian financial crisis; China; Japan. 1 INTRODUCTION The 1997 financial crisis has proved to be a turning point for regionalism in Asia.2 As Higgott (1998: 333) astutely observed soon after the crisis, ‘the political manifestations of these events [the financial crises] will linger long after the necessary reforms have been introduced to return at least a semblance of economic normalcy to the region’. One significant politi- cal manifestation has been the emergence of a new form of regionalism in Asia as indicated by the emergence of regional monetary cooperation and by proposed sub-regional trade agreements, developments which signal sharp changes in direction for the region. Chameleon-like in its qualities throughout the past century, regionalism has been transformed once more; it has again demonstrated itself to be a flexible policy tool which can used to meet a variety of objectives, economic and political.3 It is the argument of this paper that regionalism in Asia after the finan- cial crisis departs significantly from its pre-crisis incarnation. Specifically, an understanding of the post-crisis regionalism requires a state-centric Reviezv of International Political Economy ISSN 0969-2290 print/ISSN 1466-4526 online C 2002 Taylor & Francis Ltd http: / /www.tandf.co.uk DOI: 10.1080/09692290110126100
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM approach and an analysis of power relations in the global economy. The assumptions that regionalism in Asia should be analysed primarily in terms in private actors or that it is based on a benign interdependence between countries that span the Pacific, assumptions which underlay much visioning of the ‘Pacific Rim’ in the 1990s, are untenable. The contours of post-financial crisis regionalism are, by state design, aimed at restoring to Asia a greater degree of political power and autonomy vis-a-vis the rest of the world, and the US and the international finan- cial institutions it controls, in particular. The implications of this are profound, not only for our understanding of ‘the region’, but also for our analysis of the current phase of the global economy.4 In the next section, a brief description is given of the characteristics and analysis of regionalism in pre-financial crisis Asia. Section 3 analyses in more detail the emergence of a new post-crisis regionalism and exam- ines the reasons for its emergence. Particular attention is paid to the motives of the two most significant powers in East Asia, China and Japan. The implications of this regionalism for theoretical analysis of the global economy are discussed in the concluding section. 2 ASIAN REGIONALISM PRIOR TO THE FINANCIAL CRISIS Embroiled in the military conflicts of the Cold War period, the coun- tries of Asia did not participate in the wave of regionalism which proved popular with other developing countries in the 1950s and 1960s. When regionalism re-emerged as a preferred economic policy in the 1980s and 1990s, Asia again lagged behind the rest of the world in terms of the formal political institutionalization of regionalism. Indeed, a distin- guishing feature of Asian regionalism for many scholars was precisely the fact that the ‘region’ itself was ill-defined (or capable of multiple definitions) and that the ‘regionalism’ that was taking place was the result of market-led, rather than government-led, integration processes. As Stubbs (1995: 786), for example, has argued: although the state has been instrumental in nurturing business growth, regionalization in the Asia-Pacific region – unlike the other major regions of the world – has been driven by the private sector not by governments. Hence, the boundaries of the region do not coincide neatly with state boundaries. In many ways the region’s governments are still trying to come to grips with the rapid economic changes that swirl around them. The ‘regional economy’ in Asia, and in a number of sub-regions, was therefore identified by economists and policy analysts based primarily on the activities of Japanese multinational corporations (MNCs) and of 231
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY overseas Chinese businesses. These activities were highlighted as oper- ating on the basis of a series of ‘networks’ based on the production prerequisites of post-Fordism and the personal connections which facil- itated and characterized much of the overseas Chinese diaspora. It was these business networks, rather than the existence of supra-national polit- ical institutions, which led to the identification and integration of a ‘regional economy’.5 This was also true at the sub-regional level. For example, ‘Greater China’ was identified as one such sub-region, com- prising of an international division of labour which integrated produc- tion in the southeastern coastal regions of China and companies in Taiwan and Hong Kong. Here, too, the impetus for economic integra- tion was identified as largely business driven rather than state driven. As Naughton (1997: v) writes, ‘firms, especially small and medium-size family firms, play central roles in the story, with government policies playing secondary, reactive roles’. These analyses tended to overstate the role of ‘the market’ in fostering integration in the region. They present us with something of a paradox in that most of them accept that national economies can be described as ‘developmental states’ where governments play key roles in ‘guiding the market’ but where, it seems, inter-national and intra-regional integra- tion are played out beyond the reach of the state. Such a paradox is, in fact, a false one and is solved by a better appreciation of the role that the state played in fostering intra-regional trade and capital flows. For example, Japan’s policy with regard to foreign direct investment (FDI) changed critically during the post-war decades to one favourable to, and supportive of, FDI during the 1980s. The emergence of a hierarchical division of labour in the region fostered by Japanese MNCs was not a chance occurrence but one premised in no small part on Japanese policy.6 Similarly, the ability of Japanese (and other) MNCs to expand in this way was due in no small measure to the investment liberalization under- taken by host governments. The emergence of the ‘China Circle’ was not entirely an accident either in which states were only ‘reactive’; in particular, China’s initial choice of venue for its four Special Economic Zones (SEZs) in 1984 was based on exploiting cultural, ethnic and geographic links between the SEZs and the overseas Chinese commu- nities in Taiwan and Hong Kong. The subsequent rapid growth of the four cities initially chosen as SEZs and the extent of the spread of invest- ment into other parts of Guangdong and Fujian Provinces could perhaps not have been predicted by Chinese policy makers, but the emergence of a ‘Greater China’ economic zone certainly owes something to their policies. However, while the above analyses may underestimate the role of the state in promoting regional economic integration, they do make the valid point that Asian regionalism was based on a lower level of formal 232
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM inter-governmental regional institutions and policies than were observed in other regions, most notably, in Europe and North America. In this comparative sense, the above analyses are right to stress the relatively greater role of the ‘market’ and relatively less importance of the ‘state’ in regional integration in Asia than elsewhere, even if there has been a tendency to push the argument too far in that direction. At the level of formal regional economic arrangements, it is true, Asia lagged behind. While Europe was moving full speed ahead with the ‘Single Market’ project and the US was abandoning its traditional sole reliance on multilateralism as a route to free trade and signed free trade agreements first with Canada and then with Canada and Mexico, Asia remained reluctant to join in. The initial response to the emergence of North American and European ‘blocs’ included calls, made particularly loudly by Malaysia’s Prime Minister Mahathir, for an East Asian Econ- omic Group. This idea was, however, stillborn and Asian countries settled for the different version of regionalism embodied in APEC.7 This body is much looser in regulatory design that the other ‘blocs’, operates by consensus and voluntary action (or inaction) rather than by legal stric- ture. APEC’s formation in 1989 owed as much to the perceived political need to ensure that trade across the Pacific remained open and to prevent the emergence of three closed blocs as to any substantive trade liberal- ization initiatives. As the fear of the emergence of three protectionist blocs receded, APEC formed, in 1993, an Eminent Person’s Group under the Chairship of Fred Bergsten to devise a ‘Vision’ for APEC which would justify its continued existence. APEC committed itself to ‘open regionalism’ and to the goal of establishing a free trade area in region by 2010 for developed country members and 2020 for developing country members, a goal which was subsequently adopted at the APEC meeting held in Bogor, Indonesia in 1994. This ‘vision’ represented a victory for the pro-globalist thinkers and established for the institution a framework which stressed the interdependence of economies, the mutual advan- tages which existed for all in trade liberalization, and which minimized the differences between developed and developing country members.8 In establishing this framework, APEC was simply following, and con- tributing to, the ways in which the ideological construction of the ‘Pacific Rim’ was being pursued in the wider intellectual and policy commu- nity.9 The boundaries of the ‘region’, at this level, were ever- expanding.10 The idea of ‘open regionalism’ – of using regionalism to further inte- gration into the global economy – was also central to Asia’s most deliberate attempt at formal economic regionalism, the ASEAN Free Trade Area (AFTA).11 The formation of AFTA, proposed in 1991 and coming into effect on 1 January 1993, marked ASEAN’s most ambitious attempt at regional economic cooperation since its formation in 1967 and, indeed, put ASEAN on a path which it had rejected several times in the 233
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY past. The formation of AFTA came after many of the ASEAN countries had struggled with the need to boost export earnings during the 1980s in response to the debt crises of the early years of that decade. The res- ponse of the ASEAN-4 (Indonesia, Thailand, the Philippines, Malaysia), following the advice of the international financial institutions, was to engage in trade liberalization, albeit at their own pace rather than collec- tively, and to shift towards policies more conducive to export promotion. In addition, individual countries adopted policies more favourable to FDI in an effort to attract the foreign capital needed to spur continued industrialization. These policies were fortuitous in that Japanese firms were expanding rapidly overseas in response to the massive appreciation of the yen which followed the Plaza Accord in 1985. Japan’s FDI grew at an annual average rate of 62 percent over the 1985-9 period. At the same time, the East Asian NICs were also investing heavily overseas with the ASEAN-4 and China being favoured destinations. As a result, FDI as a percentage of GDP quadrupled in the ASEAN-4 between 1985 and 1990. Having shifted to a strategy of FDI-sponsored export-led growth, ASEAN states were keenly aware of the need to ensure that ASEAN as an investment site remained competitive. At the end of the 1980s there appeared to be a significant threat to this in the form of competition from China, the former Soviet bloc following the dramatic events of 1989-91, the poten- tial investment-diverting effects of greater European integration in 1992, and the NAFTA, particularly the threat of investment diversion to Mexico. The increasing concern about possible investment diversion is clear from the joint communiques of the ASEAN ministerial meetings with the ASEAN foreign ministers responding to the ‘increasing competing demand for capital and investment resources from Eastern Europe, from the indebted countries of Asia, Latin America and Africa, as well as to meet the needs of reconstruction in the Gulf and in the Soviet Union”12 by supporting the call for an ASEAN free trade area in 1991. A regional economic agreement was seen therefore as the best way of maintaining ASEAN’s investment appeal and of fostering its continued integration into global trade and capital flows. Thus, the formation of AFTA was in large part a response to the changing external environment, and in particular the fear of investment diversion.-3 The spur to create AFTA also owed something to ASEAN’s desire to remain relevant in the face of the rise of APEC and, in this sense, also had political motives. Regional projects typically contain a political dimension, a dimension which, as will be argued in the next section, has come fully to the fore. To summa- rize, regionalism in Asia in the early to mid-1990s was premised on the emergence of an economic region increasingly integrated by the activi- ties of multinational corporations, particularly Japanese MNCs, and by 234
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM the network capitalism epitomized by the Chinese diaspora. This pro- cess was undoubtedly a more private-sector-driven process than that in evidence in other regions, although even in Asia state policies played important roles in shaping the kind of regional economic integration that took place. At the level of formal regional economic institutions, the ‘region’ was more spatially ambiguous with APEC acting as a loose consortia of countries notionally acting to preserve open trade across the Pacific. The most concrete form of regional economic arrangement was provided by the AFTA, an arrangement premised on the need of ASEAN countries to remain competitive in attracting investment in the changed post-Cold War international political economy. The use of trade and investment liberalization agreements to promote integration into the international economy was supplemented with the domestic liberaliza- tion of financial markets with the result that financial capital also poured into ASEAN and other Asian countries in the 1990s. However, this was to lay the seeds for the financial crisis of 1997, as the money which poured into the region equally quickly poured out, and led to a crisis which profoundly altered the economic landscape in Asia and which has changed the basis for regional economic cooperation.14 3 ASIA’S POST-FINANCIAL CRISIS REGIONALISM 3.1 The Crisis and the IMF The events of the Asian financial crisis are well known and will be summarized only briefly here.15 The main focus in this section will be on the response to the crisis and the implications of this for our under- standing of regionalism in Asia. The Asian crisis was triggered by the decision of the Thai central bank to float the baht on 2 July 1997. The Thai government decided that it could no longer defend the currency, announced a managed float, and called upon the IMF for technical assis- tance. The ‘contagion’ spread to other countries in the region including the Philippines, Malaysia, Indonesia, South Korea, Hong Kong, and Vietnam. By the time the dust had settled, the IMF had instituted the largest bailout in its history with the US$ 54 bn loan to South Korea. Indonesia received US$ 40 bn, Thailand US$17.2 bn and the Philippines US$1 bn.16 While the facts of the crisis are well known, the causes of the crisis remain disputed. For some, financial panic provides the most plausible explanation with the irrational behaviour of foreign investors to blame for the sudden dramatic reversal in capital flows to the region.17 For others, the weakness of domestic financial institutions, their lack of regu- lation, and the general malaise of ‘crony capitalism’ was to blame.18 It is clear that one of the critical actors in the drama – the IMF – saw the 235
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY cause of the crisis as emanating from essentially domestic factors which required the tried and trusted methods associated with the stabilization and structural adjustment programmes which the IMF and World Bank had been applying to other developing countries since the early 1980s. As MacLean et al. (1999) noted, the IMF intervened in Asia both at the macroeconomic and structural levels. The policies recommended at the macroeconomic level were, by and large, the typical ones that char- acterized IMF interventions in the past. To stop currency depreciation and restore confidence, the IMF prescribed its traditional austerity med- icine. This involved, first of all, a tight monetary policy, i.e. an increase in interest rates and the adoption of strict limits on the growth of the money supply. In order to cover the carrying costs of the financial bailout, the IMF also asked for the curtailment of government budgets (achieved mainly through the reduction of social programmes, the scrapping of large public infrastructure projects and the elimination of subsidies). These fiscal measures have been criticized since none of the countries in question was particularly profligate in the spending. In fact, since 1993, only Korea had run a budget deficit – equal to 0.1 per cent of GDP – and this only in 1996. Thailand and Indonesia had run average budget surpluses of 2.3 and 1.2 per cent of GDP respectively. Critics argued that the tightening of state budgets would inevitably worsen the recession brought about by the crisis and it did. The recog- nition that these policies were not bringing about the desired effects (exchange rates continued to slide, the outflow of capital worsened and output fell more than projected), and the perception that they might trigger social unrest, led the IMF to modify some aspects of its pro- gramme. However, the damage caused by the financial crisis and, in the view of many in Asia, exacerbated by the policies of IMF had been done as economic crisis followed the financial crisis and brought with it unprecedented output declines after a decade or more of rapid growth.19 A noticeable recovery in output and the trade account has taken place since the depth of the crisis. However, the cost has been high in terms of the development objectives of the countries concerned and have been achieved almost entirely through deflation. For example, in the ASEAN- 4 and South Korea the change in the current account went from a cumulative deficit of US$ 54 bn in 1996 to a cumulative surplus of US$ 69.2 bn in 1998, a total adjustment of US$ 123.2 bn. However, as Table 1 indicates, a full US$ 116.6 billion of this adjustment was due to a fall in imports and only US$ 6.6 bn was due to increased exports. As Table 1 shows, the restriction of domestic demand caused by the financial crisis and the IMF imposed austerity measures was sufficiently large to cause a dramatic decrease in imports and thereby lead to a turn around in the trade balance. Thailand, for example, went from having a current account deficit equal to 8 per cent of GDP in 1996 to a surplus 236
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM Table 1 External adjustment (US$ bn) Current Account Merchandise Imports 1996 1998 Adjustment 1996 1998 Adjustment 1996-8 1996-8 Thailand -14.7 14.2 28.9 63.9 36.5 -27.4 Malaysia -4.6 9.1 13.7 78.4 58.3 -20.1 Indonesia -7.7 4.0 11.7 44.2 31.9 -12.3 Philippines -4.0 1.3 5.3 31.9 29.5 -2.4 Korea -23.0 40.6 63.6 144.9 90.5 -54.4 Total adjustment 123.2 -116.6 Source: Ferguson (2000). of 12 per cent of GDP just two years later – a staggering change brought about almost entirely by collapsing imports. To the short-term decreases in living standards implied by the drop in imports must be added, therefore, the longer- term development costs of import reductions. The policies undertaken by the IMF at the structural level were espe- cially criticized in Asia. Policies under his heading can be divided into two categories: (1) those designed to reform financial systems and (2) those aiming to open up the economies of the crisis countries. Under the first category, the IMF pushed for the closure of insolvent – and, in some cases, simply illiquid – banks, the enforcement of capital adequacy standards and the adoption of Western accounting practices and disclo- sure rules. Bank closures in the midst of financial panic, however, invited even greater panic, while the hasty enforcement of capital adequacy stan- dards, in conjunction with the general credit squeeze, contributed to recession by making it impossible for many companies to obtain even working capital. Under the second category, the IMF encouraged the dismantling of national monopolies, the sale of state assets to the private sector, the elimination of tariffs and non-tariff barriers to trade, and the opening of the financial and insurance sectors to foreign investors. These policies of ‘intrusive’ or ‘deep’ conditionality went well beyond what could be justified by economic theory alone. For example, countries were pres- sured into accepting greater foreign ownership even though this ran counter to much of the literature on ‘firesale FDI’. As Bhagwati (1998: 9) noted: ‘Economists have usually advised the exact opposite in such depressed circumstances: restricting foreign access to a country’s assets when its credit, but not that of others, has dried up’. In South Korea, the IMF also pushed for changes in the labour laws to make redundancies easier although it is difficult to argue that this was necessary to solve the financial crisis and was seen as having more to do with engineering a 237
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY transition to Anglo-American style capitalism than with solving South Korea’s crisis. The perception that the IMF was acting to protect the interests of Western lending institutions and to open Asian markets for Western firms at the expense of Asian workers and the sovereignty of Asian countries was widely held in the region. As Bello (as quoted in Higgott 1998: 345) noted at the time ‘never has the IMF’s connection to its principal stock- holder been displayed so prominently’.20 This view was not restricted to leftist critics either. Bhagwati (1998), a prominent neoliberal economist, also argued that what he termed the ‘Wall Street-Treasury complex’ had got it all wrong in pushing for speedy capital account liberalization in Asia. The Wall Street-Treasury complex was not easily convinced of the error of its ways, however, and its leading exponents added insult to Asian injury by declaring, in triumphant mood, that the Asian crisis proved the superiority of American free market capitalism over Asia’s ‘managed capitalism’.2′ In the face of these policies and perceptions, it is not surprising to find that this has led, in Higgott’s (1998) words, to the ‘politics of resent- ment’. One manifestation of this resentment is that Asian countries have embarked on a new path of regional economic cooperation incorporating both monetary and trade dimensions. These forms of cooperation are explained fully below. Before embarking on the analysis, it is important to first recognize that the degree of enthusiasm for the new regional mechanisms and the intensity of the ‘politics of resentment’ do vary by government in the region.22 As with all regional integration initiatives, individual member countries may have varying motives for participating. In the following discussion, the focus is on the broad contours of the newly emerging regional arrangements followed by an in-depth analysis of the two leading countries in the region, China and Japan. 3.2 The regional response The idea of establishing an US$ 100 billion Asian Monetary Fund (AMF), more attuned to the needs of Asian economies and less bent on imposing Anglo-American style capitalism on the region, was initially proposed by Japan at the height of the crisis. This received support from some of the countries in Southeast Asia who were shocked by the initial refusal of the US to support Thailand in its crisis and by the spectre of IMF conditionality. The proposal was rejected, however, by the US as poten- tially undermining the role of the IMF and as being potentially too lax on conditionality, by the IMF itself, and by China which continued to oppose Japan’s leadership aspirations in Asia.2′ Despite the immediate rejection of this plan, the failure of other regional institutions such as ASEAN and APEC to play any significant role in 238
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM responding to the crisis, and the widespread resentment at the imposi- tion of conditions by a Washington-based, US controlled, international institution, the IMF, more concerted regional initiatives have neverthe- less more recently appeared. It should be noted that a regional response was neither guaranteed nor perhaps even probable. On the assumption that regional initiatives require a sufficiently powerful and/or respected regional leader, candidates for this position in post-crisis Asia were not conspicuously evident. Japan rather belatedly began to pump money into the region but was partly blamed for the crisis in the first place. As Higgott (1998: 336) notes ‘Japanese capital created overcapacity in the region without fulfilling the role of a market of last resort to absorb it’. Furthermore, the willingness of the Japanese government to allow the yen to depreciate in the wake of the crisis led to accusations that Japan was more interested in maintaining its own competitiveness than in solv- ing Asia’s problems. Japan’s capitulation in the face of US pressure over the initial proposal for an AMF did not enhance its leadership claims and neither did its continuing domestic economic malaise.24 China’s 1994 devaluation of the renmenbi was seen as a contributing factor to the cur- rent account deficits run up by the ASEAN-4 and South Korea, deficits which played a key role in triggering currency flight in 1997. Although China pointed to its maintenance of the value of the renmenbi during the crisis, it continued to have less than cordial relations with its ASEAN neighbours on other issues such as the Spratlys and, of course, there were continuing cross-strait tensions with Taiwan. It is quite possible there- fore, perhaps even probable, that regionalism would simply become a spent force under the dual weight of the financial crisis and the tarnished images of possible regional leaders. Interestingly, this has not happened and, after the initial rejection of the AMF, closer monetary and trade ties are now being actively fos- tered in the region; a new regionalism, geographically well-defined and located in East Asia, involving all of the major countries of this region, is now being forged.25 As Bergsten (2000a) has noted, the East Asian Economic Group has held summit meetings for three consecutive years under the ASEAN+3 rubric (i.e. the ten ASEAN countries plus China, Japan and South Korea) and a ‘Vision Group’ has been formed to advise on the future role and evolution of this group. Following rejection of the initial Japanese proposal for an AMF, Japan implemented the Miyazawa Plan which made available $30 bn to countries in the region. Subse- quently, in May 2000, a regional network of foreign currency swaps aimed at enabling Asian countries to address any future currency crises them- selves without resort to the IMF was agreed. This development, a coop- eration between central banks in the region, constitutes a de facto AMF, providing a mechanism to meet the aims of an AMF but avoiding the more politically difficult task of establishing a formal institution which 239
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY might encounter US opposition. This measure, adopted by the finance ministers of the ASEAN+3 countries, expands the network of bilateral regional currency deals previously agreed between Japan and Thailand and between Japan and South Korea which had provision for loans of up to $7.5 bn.26 While details of the expanded plan are still vague it is clear that Asia has the resources to finance such an initiative with the collective reserves of the ASEAN+3 countries being over $800 bn (over twice those of the Eurozone countries and close to ten times those of the US).27 Officials from Japan’s Ministry of Finance will also be stationed in Thailand and Vietnam to provide advice on international debt management, the use of yen loans and other economic issues.28 At the same time as these developments in ‘monetary regionalism’, there have also been initiatives to create free trade pacts in the region spearheaded by Japan. These include studies being conducted examining the possibility for a North East Asian regional trade agreement between Japan, China and South Korea.29 There have also been important bilat- eral trade negotiations between Japan and Singapore and between Japan and South Korea. This represents a considerable departure for Japanese trade policy, and in South Korea’s for that matter, as these two coun- tries are the only members of the OECD which are not members of a regional trade agreement (if APEC is excluded from such a designation) and represents a sharp reversal of Japan’s previous exclusive reliance on multilateral trade agreements. In analysing the emergence of Asia’s new monetary regionalism, the disenchantment with the IMF and the US has been widely recognized and accepted. However, two important issues remain in need of further analysis and which require a closer examination of the motives of the two major powers in the region, namely Japan and China, without whom a broad regional project would be difficult to sustain. The first issue is simply a lacunae in the existing literature, namely, why did China oppose the proposal for an AMF in the immediate post-crisis period but sup- port the currency swap arrangement some three years later? And what, if anything, do the reasons for this change of position tell us about Asian regionalism now? The second issue concerns the emergence of propos- als for regional trading arrangements, proposals which analysts such as Bergsten (2000a) and Noland (2000) have attributed mainly to Asian frus- tration at the ineffectiveness of trade liberalization through APEC and the uncertainties facing the new Millennium Round of the WTO after the debacle in Seattle. Thus, much as the US was argued to have departed from its sole reliance on the multilateral trade track in frustration at the slow pace of the Uruguay Round in the late 1980s, history is now argued to be repeating itself with Japan showing a similar interest in regional liberalization initiatives in response to the frustrations over the slowness of the Millennium Round in Seattle a decade later. In advancing such an 240
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM analysis, it is implicitly being argued that the monetary and the trade dimensions of the latest round of Asian regionalism are essentially caused by different factors and are responding to quite different external forces. This assumption needs careful examination. 3.3 China’s changed position on ‘monetary regionalism’ Let us first consider China’s position. Put simply, why should China, which initially opposed the creation of an AMF for fear of Japanese dom- ination, and which has sufficient foreign exchange reserves (in excess of US$ 200 bn) and capital controls to ward off any speculative currency attacks, now back an Asian only currency swap arrangement? To under- stand this requires an analysis of the shifting sands of wider Sino- U.S. and Sino-Japanese relations. Although China was not directly affected by the Asian financial crisis, indirectly the crisis posed signifi- cant challenges for China and its response to the crisis offered some opportunities. The immediate challenge was how to respond to the crisis affecting neighbouring countries. China’s response was to provide finan- cial resources to the region through the IMF and to pledge not to devalue the renmenbi. In both of these ways, China sought to establish itself as a bulwark for stability in the region and as a ‘responsible’ member of the international community, a responsibility which it hoped would be rec- ognized and acknowledged by a strengthening of Sino-US relations. To this end, China committed US$ 4.5 bn to the operational budget of the IMF to support financial packages to Thailand and Indonesia.30 Thus, China opposed the initial proposal for a Japan-led AMF, threw in its lot with the IMF, and made its first financial contributions to IMF packages since 1949. The second part of the strategy for demonstrating its inter- national responsibility was the pledge not to devalue the renmenbi. This undoubtedly had some domestic advantages; China’s weak state-run banking system was sitting on deposits in excess of 500 trillion yuan and any devaluation which might spark a run on the banks could have poten- tially serious consequences for economic and social stability.31 Further- more, Hong Kong had just been returned to China and the leadership in Beijing was keen to provide economic stability in the new ‘Special Administrative Region’. However, there is no doubt that the ‘no deval- uation’ policy also had risks in that the painful process of state owned enterprise reform had begun and, in the leadership’s view, needed to be accompanied by an economic growth rate of at least 8 per cent p.a. in order to prevent a potential social backlash. The policy of maintaining the value of the renmenbi made such a growth target difficult to meet in the light of falling regional trade volumes and depreciating currencies in competitor economies in ASEAN and South Korea. Nevertheless, the Chinese leadership decided to maintain the exchange rate and to inject 241
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY additional demand into the domestic economy through a massive infra- structure spending programme. The stability which China’s ‘no devaluation’ policy brought to the crisis economies in the region, together with its support for the IMF, was expected, in the calculations of the Chinese leadership, to lead to a rehabilitation of China as a ‘responsible’ member of the international community and to an enhanced regional and international role. This recognition, however, appears to have been slow in coming. For example, at the APEC Summit in Vancouver 1997, China’s role in was, in China’s eyes, undervalued. Chinese academics argued that: in its strategy to solve the Southeast Asian financial crisis, the United States has not fully recognized the importance of China. On 24 November last year, at a press conference in Vancouver, Clinton suggested a three-point plan to solve the crisis, but he overlooked the role of China, which had not been affected by the crisis.32 China’s feeling that its ‘constructive strategic partnership relationship’ with the US ought to be reaping more rewards in terms of international recognition was given chance for further expression and correction in June 1998. It was in this month that the Japanese yen slid to a seven- year low against the US dollar prompting fears of a new round of financial turmoil in Asia. It was also the month that President Clinton made an official visit to China, when the Chinese side at least, expected some breakthrough on China’s WTO accession process.33 The continued depreciation of the yen provided China with another opportunity to contrast its policy of responsible exchange rate management with that of Japan which was accused of failing to ‘shoulder its responsibility as a major power’.34 In the end, Japan and the US were forced to intervene to support the yen although not before concerns were expressed about why the two countries had taken so long to undertake such an inter- vention. Japan’s non-intervention could be understood simply in terms of it wishing, in China’s eyes, to offload its economic problems onto other countries. The reasons for US reluctance drew upon analysis from elsewhere in the region in arguing that the U.S. would gain by being able to buy up Asian enterprises with over-valued dollars.35 China did nevertheless have the pleasure of drawing President Clinton on his official visit into criticism of Japan’s exchange rate policy.36 China continued to promote its own role in solving the crisis and in using the opportunity to enhance its claims for greater international recognition. As Wang Menkui, Director of the State Council’s Development Research Centre, indicated: Through the crisis, China’s image as a major power has become even more prominent … In the multipolar development of ‘one 242
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM superpower and many great powers’, China, as one of the great powers, is still not powerful enough. This crisis has conspicuously shown that China has taken a step forward on the path to becoming a major power in the world structure.37 Chinese sensitivities were assuaged at the December 1998 APEC Meeting where, in contrast to the neglect of China’s role by President Clinton in Vancouver a year earlier, the Chinese press reported that ‘the “Kuala Lumpur declaration” fully affirmed the “mainstay” role played by China in stabilizing the Asian economy during this financial crisis. The docu- ment used the English word “anchor” to describe the role played by China in stabilizing the Asian financial crisis’.38 Thus, for the year and half after the outbreak of the financial crisis China had followed a consistent policy of supporting the IMF (and its policies)39 and of maintaining a ‘no devaluation’ policy for the renmenbi, a policy which it contrasted sharply with that of Japan. China did partic- ipate in the ASEAN+3 meetings but the main focus of its diplomacy was on promoting itself both inside and outside of the region as a major power that could be trusted and which acted responsibly.40 The expected gains from this policy were not only economic – an economic recovery in the region – but also political in terms of an enhanced role and status for China in regional and international affairs. These gains were slow in coming as China met with what it perceived as US indifference and a lack of understanding of the strains that the ‘no devaluation’ policy was placing on its economy while Japan and the US moved only slowly to resolve their exchange rate imbalances. Despite the expectations that the US would offer some WTO conces- sions this did not occur and it was left to Chinese Premier Zhu Rongji to visit the US in early 1999 to offer more concessions to kickstart the negotiations. However, the policy of seeking to strengthen the Sino-US relationship was soon to come to an end not because of economic issues but because of the US-led NATO war in Kosovo. This war, premised on the need to defend human rights in a sovereign state, deeply worried the Chinese leadership. The bombing of the Chinese Embassy in Belgrade, and the ‘wrong map’ explanation, led to anti-US riots in China much as there had been similar riots in South Korea, Thailand and Indonesia against IMF/U.S. economic policy earlier. The Cox Report and the ‘demo- nization’ of China in the US meant that China’s ‘responsible image’ disappeared; by mid-1999 Sino-US relations had turned irrevocably for the worse. China’s post-crisis policy had not reaped the political gains that it had hoped for; put simply, China had backed the wrong horse. Faced with this changed international situation, China joined others in the region as seeing the US as the main threat to its interests and China moved to view regional solutions as more valuable in this changed 243
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY context. In reporting on the currency swap agreement, reached in May 2000, China’s awakened interest in regional economic solutions was clearly shown. Thus, the Economic Daily reported the agreement in the following terms: In the past, the importance of economic co-operation was not fully realized. Compared with other parts of the world, especially North America and Europe, economic co-operation within Asia lagged in the past 10 years. Asia-Pacific Economic Cooperation, a regional organization, is only a forum; it lacks binding force. However, the financial crisis that devastated the region three years ago has made Asian countries realize the pressing need for working together. Many Asian countries may still hold bitter memories of receiving loans from the International Monetary Fund . . . The combined for- eign exchange reserves of Japan, China, Singapore and South Korea, and Hong Kong and Taiwan regions is US$ 800 billion, money that will definitely promote the economy in Asia if managed well.41 China had joined ranks and become a member of the Asia-only move- ment, and Sino-Japanese relations have begun to show the signs of improvement which make such a movement possible.42 3.4 Japan’s changed position on ‘trade regionalism’ With respect to the second issue, the emergence of proposals for ‘trade regionalism’ in Asia, it is interesting to wonder why Japan, an initiator of many of these proposals, should embark upon such a path. Japanese policy had for years been to support the overseas investment activi- ties of its MNCs and to fashion a regional division of labour in Asia based on the so-called ‘flying geese’ model of economic integration. Such a policy had been reasonably successful and, indeed, was one of the fac- tors which many analysts had pointed to as constituting an emerging integrated regional economy led by the activities of businesses in the region. To push this integration into the realm of formal free trade arrangements was a major initiative with debatable pay-offs. For exam- ple, in pursuing a bilateral trade agreement with Singapore, there was much more to be gained by the small, close to free trade, economy of Singapore by having improved access to the Japanese market than vice versa. In the case of the bilateral discussions with South Korea, there is the tricky question of the agricultural sector. Should this be included with the risks that this might have of a political backlash from agricul- tural interests in both countries or should it be excluded at the risk, as Noland (2000: 7) points out, of inviting WTO investigation of compliance with Article XXIV of the GATT?43 Including China in with South Korea opens up even more problems with countries at vastly different levels 244
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM of economic development and with different political systems. Clearly, there are many stumbling blocks on the road to trade agreements in the region and Japan’s decision to travel down this particular road is in need of explanation. The answer that the explanation is to be found in Japan’s, and Asia’s, disappointment following the fallout of the failed Seattle WTO talks is not convincing. For one thing, the trade initiatives predate the Seattle conference. More fundamentally, while Japan has always been a central supporter of the multilateral trade liberalization process, its commitment to liberalization has always been practical and strategic rather than ideo- logical. That is, trade liberalization has been an important policy goal of Japan but this has been conditioned by its pursuit of the developmen- talist model in which free trade is not presumed to be the most desirable policy in all circumstances and, in a non-insignificant number of cases, is actually a clearly undesirable policy. In initiating regional trade liber- alization, the question that must be asked is whether this also implies a rejection of the developmentalist view. That is, the place of regional free trade initiatives must be analysed within the wider context of Japanese economic policy objectives. A more convincing explanation for the trade initiatives is to be found, I suggest, in (1) the benefits which regional economic arrangements might have in terms of spurring regional economic growth within the context of Japan’s long standing support for a developmentalist structuring of the regional economy, and (2) equally importantly, increasing Japan’s (and Asia’s) political bargaining power at the international level. Consider first how Japan’s support for regional trade agreements may be consistent with its longer-term strategy. Commenting on reactions to the Asian financial crisis, Hughes (2000: 235-40) has noted that: policy makers in Japan do not seem to see the [developmental] state model as a total write-off. The key to recovery is still the basic model of the developmental state in the region and export growth on the demand side. Export growth can be restarted through economic stimulus packages in Japan and continued growth in the USA, but even more importantly through the promotion of the intra-regional exports which accounted for so much growth in the region prior to the currency crises and which could sustain growth long term. It is in this context that Japan’s turn to bilateral trade agreements must be understood. As a recent (then) MITI Report (2000b: ch. 3) indicates, bilateral and regional trade agreements are seen as key mechanisms for increasing intra-regional exports; it notes that this has been the out- come of existing regional agreements such as the EU, NAFTA and the MERCOSUR. The Report further argues that the Asian economies continue to be integrated with Japan supplying the capital goods for 245
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY Asian industrialization (with capital goods comprising between 40 to 60 percent of East Asia’s imports) and the market for Asian exports, espe- cially those from Japanese affiliates in Asian countries whose exports back to Japan now constitute 30 percent of Japan’s total imports. This pattern of regional integration, approximating the familiar ‘flying geese’ pattern, has helped, it is argued, to restore economic growth in both Japan and the rest of East Asia following the financial crisis. The Report (2000b: ch. 3) notes that ‘Japanese exports to East Asia recovered more quickly than exports to other regions [and]…. As the Japanese economy has recovered, imports from Asia have recovered more rapidly than those from other regions’. The implications of this are, in MITI’s (2000b: ch. 3) view, that: the Asian recovery set in motion a virtuous circle, boosting Japanese exports, helping to place Japan on a recovery trajectory, and conse- quently stimulating Asian exports to Japan. Further this stimulation of East Asian export activities has produced considerable synergy, for example pushing regional trade toward recovery due to regional specialization within East Asia. The deepening interdependence between Japan and East Asia through trade has therefore helped to accelerate recovery from the currency and economic crises. The new interest in regional trade initiatives therefore stems from a desire to maintain the momentum of this ‘virtuous circle’ and to con- tinue to forge deeper patterns of regional economic specialization. The shift towards bilateralism can be seen, therefore, as a change of policy mechanism but not necessarily of policy objectives; the policy of forging a regional division of labour with Japanese capital and technology at the centre of the integration process remains consistent with Japanese pol- icy over the past two decades although the means of achieving it have now broadened to include regional trading agreements as an important post-crisis vehicle.44 With respect to the broader issue of promoting regional arrange- ments as a way of increasing bargaining power within the global econ- omy, MITI’s White Paper on International Trade for 1999 (published before the Seattle meetings) gives an important clue to this. It argued for the creation of a Northeast Asian trade bloc and recommended (MITI, 1999: 46) that: Japan should seek to deepen intra-regional exchange and under- standing in Northeast Asia, the only area in the world which has shown little interest in regional cohesion or integration, applying itself with greater vigour to the development of regional cohesion and presenting a model to the world which will contribute posi- tively to the strengthening of the multilateral trading system. 246
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM The key point here is the last part of the sentence referring to the pre- sentation of ‘a model to the world’. Multilateral negotiations have in important ways been directly shaped by regional agreements. That is, the existing regional agreements have formed the basis of negotiation for some parts of multilateral agreements. For example, the information tech- nology agreement adopted by the WTO in Singapore in 1996 was based on a similar agreement adopted under US pressure in APEC a few months earlier. Many of the provisions of the ill-fated MAI had as their starting point chapter 11 of the NAFTA. Thus, regional agreements have increas- ingly been used as the point of departure for multilateral negotiations. Such agenda setting mechanisms clearly benefit the US and Europe both of whom have reams of legal text to call upon as a result of their exist- ing regional arrangements. Japan had none and, as a result, found itself debating on other’s chosen ground. The need to develop its own ‘model’ of regional arrangements to ‘present to the world’ was therefore an impor- tant factor in persuading Japanese policy-makers of the need to go down the potentially tortuous path of bilateral and regional trade agreements. The importance of regional economic arrangements as having polit- ical pay-offs is also evident from MITI’s subsequent analysis. Here Japan’s ‘multi-layered’ approach is justified (MITI, 2000b: ch.2, p.9) on the grounds that: recently, interest has emerged in trade liberalization beyond tradi- tional regional frameworks, namely the strengthening of links between regional groupings. Examples include the Free Trade Area of the Americas (FTAA), designed to link the US and Latin America, the Trans-Atlantic Free Trade Area (TAFTA) between the US and the EU, moves to conclude a free trade agreement between Mexico and MERCOSUR, and consensus on a free trade agreement between Mexico and EU. Factors behind this new trend are as follows: (1) further promotion of free trade liberalization through the cre- ation of frameworks beyond traditional regional groupings; (2) pro- motion of access to extra-regional markets; and (3) the desire to strengthen influence over other regional groupings and negotiating power with these. Japan, as noted, operating without membership of a regional trade agreement, is unable to play and must stand by as the US and Europe ‘strengthen [their] influence over other regional groupings’ (MITI, 2000b: ch.2, p.9). Japan has signalled that it, too, wishes to enter this game. Further evidence can be found in the September 2000 Report of the Joint Japan-Singapore Study Group. This Group (2000a: ch 1, p.2), set up in December 1999 to look at a possible FTA between the two countries, noted that 247
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY there are different motivations for the pursuit of regional economic integration. Some countries see such agreements as strategic alliances, while others leverage on them to obtain more secure and favourable access to important markets. In some cases, they have also helped to promote policy reforms. Again the importance of FTAs as bargaining tools with other countries/regions is evident. Furthermore, the Study Group (2000a: ch 1, p.3) argued that ‘FTAs can be a testbed for new and innovative models of rules governing economic activity. These can subsequently be adapted for global use. FTAs can therefore provide positive comple- mentary pressure for the evolution of WTO agreements’. The Study Group therefore deliberately proposed an approach that went beyond traditional free trade agreements and which could influence the WTO in areas ‘where either there are no rules yet in the WTO or the existing WTO rules can be further improved upon’ (2000a: ch 3, p.8).45 The inten- tion to use a bilateral agreement as a springboard for multilateral nego- tiations is again in evidence with Japan, in consort with other Asian countries, serving notice that they wish to play a larger role in deter- mining the rules which govern the global economy, rules which have to date relied excessively on the US and Europe for their formulation. Thus, the view has emerged, stemming directly from the experience of Asian countries in the wake of the financial crisis, that the existing international institutions and the balance of power within the global economy leave Asia vulnerable to the interests of the West, especially the US Enhanced regional initiatives offer Asia the potential of coun- tering these interests. This was expressed forcefully by ASEAN Secretary-General Rodolfo C. Severinto (1999) who argued that: a new world order has not yet arrived, in which the interests are balanced and disputes adjudicated fairly under benign rules that are impartially applied and effectively enforced upon all. It is all too clear that such a utopia remains far from being upon us. Until it arrives, a long, long time from now, if ever, economic power, whether of states or of corporations, will continue to have prepon- derant advantage. In the face of this, weaker states must band together regionally, strengthening their solidarity and advancing their common interests. In other words, ‘the rules of the game’ reflect the interests of those who wrote them and favour the powerful rather than establish a level playing field; post-crisis Asian regionalism is the response to this. 248
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM 4 CONCLUSIONS If, as has been advanced in this paper, Asia’s post-crisis regionalism is qualitatively different from that which preceded the crisis, and is premised on an Asia-only vision of economic cooperation forged to coun- ter the power of the US and Europe, then there a number of important implications. One concerns whether the regional initiatives now under- way in Asia will reach fruition or whether external opposition from the US or internal rivalries between Japan and China will intensify and thereby threaten to derail the regional project.46 Another issue concerns the emergence of a ‘three bloc world’, a development which has already been noted by Bergsten (2000a). Important as these issues are, our atten- tion here is focused on the implications of Asia’s post-crisis regionalism for our understanding of the dynamics of the contemporary international political economy. The widely preferred term of analysis to describe the contemporary world has been that of ‘globalization’. While this has spawned an entire academic and popular industry, it can be summarized for our purposes as an analysis of the world which views the current phase of international capitalism as being qualitatively different from earlier phases and as being characterized by a shift in power from nation states to transnational eco- nomic actors and forces. It is a story of ‘markets’ gaining at the expence of ‘states’. For pro-globalists this offers the prospect of a more efficient global allocation of resources and of more effective constraints on inter- ventionist and arbitrary state action. For anti-globalists it offers the prospect of the erosion of sovereignty and the levelling down of social and environmental standards as global corporations gain greater power at the expense of ordinary citizens and their elected representatives. While these two groups may disagree about the desirability of the changes, they agree on the basic dynamics at work. Seen through this lens, the Asian financial crisis can be interpreted, as Price (2000) has argued, as ‘a crisis of globalisation’. It is about states losing too much power to international financial markets and about the attempts of nation states to regain lost controls. Certainly, the monetary regionalism of the post-crisis period can be seen exactly in this light, as an attempt by nation states to re-regulate global finance. This is also evident from MITI’s (1999: 32) analysis: Because the Asian currency crisis shares more of the characteris- tics of 1990s-style currency crises, which are generally sparked by massive capital movements, the usual measures will be inadequate in preventing a recurrence. Rather, consideration of new interna- tional financial system reforms (taxes on capital inflows and out- flows, etc.) should be promoted in order to open the way for stable real economy development in developing countries, which lack the resilience and flexibility of developed countries. 249
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY Aside from the support for international capital taxes, this analysis is interesting precisely for its conceptualization of the problem as one of insufficient state power, particularly in the case of developing country states. Regional and international regulations are therefore necessary to strengthen the ability of states to confront destabilizing global market forces. However, this is not the only analytical framework on offer. The subtitle of this paper refers not simply to bringing the state back in to the analysis of regional integration in the Asian region. It also refers more broadly to the need to locate the state centrally in any analysis of the dynamics of the current phase of international capitalism, a phase in which some states have lost power to markets but in which, crucially, some states have not. Laxer (n.d.) has preferred the term ‘globalism’ to ‘globalization’, stressing that globalism is an ideology, one that is based on neoliberalism and the Washington consensus as integral parts of US foreign policy. This theme is developed further by Petras and Veltmeyer (2000) who prefer the term ‘imperialism’ to ‘globalization’ as a more accurate description of the contemporary world. In this analysis, it is not the interdependence of economies and the erosion of state power vis-d-vis markets which are the relevant points of reference but the continued domination of global markets by the major powers, most notably the US but also Europe, the use of international financial insti- tutions as tools in the hands of these powers and the market-opening strategies of the imperialist powers that are the focus of attention.47 Asia’s post-crisis regionalism also finds resonance with this analysis in the sense that regionalism is being forged to prevent the US and the international financial institutions from exercising their power and shaping Asian economies in their interests as they did in the aftermath of the currency crises. That is, a central reason why it is necessary to bring the state back in to the discussion is precisely because power relations between states are critical to understanding that an important part of Asia’s post- crisis regional project is to keep the United States out. NOTE S 1 I am grateful to the Social Sciences and Humanities Research Council of Canada for the funding which made this research possible. I am also grateful to Osvaldo Croci, Satoshi Ikeda and Brian MacLean for their comments on the paper. 2 ‘Asia’ refers here to the countries of East and Southeast Asia. For consis- tency, the term ‘Asia’ is therefore used in the same way that it has typically be used in analyses of the ‘Asian financial crisis’. South Asian countries do not, therefore, form part of the analysis presented here. 3 For discussion of the ways in which regionalism has been adapted to meet different objectives see, for example, Lawrence (1994). 250
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM 4 The importance of this emergence has also been remarked upon by Fred Bergsten, Director of the Institute for International Economics in Washington D.C., who, writing from a different perspective, has argued (2000b: 23) that ‘the most striking changes in the world trading system, especially in the short-run, are not likely to flow from the World Trade Organisation or the proposed mega-regional arrangements, such as the Free Trade Area of the Americas or an expanded European Union. Instead, they will proba- bly come from the host of sub-regional trade agreements now being busily negotiated by Japan, South Korea, Singapore and other countries in East Asia. Virtually unnoticed by the rest of the world, East Asian countries are getting together to make their own economic arrangements’. 5 Some of the evidence in favour of the emergence of a regional economy, indeed, was based on the use of gravity models of trade which analysed regional trade bias and ignored state sponsored initiatives all together; regions were viewed as ‘natural’, derived from trade data alone. For an example of this type of analysis, see Frankel (1991). For a critique of this approach see Bowles and MacLean (1996b). 6 For a discussion of the changing of FDI role in Japan’s economic policy see, for example, Bowles and MacLean (1996a). 7 On the differences between APEC and the EAEG as conceptions of the ‘Asian region’, see Higgott and Stubbs (1995). 8 For discussion of these characteristics as typical of regionalism during the late 1980s-mid 1990s see Bowles (2000). 9 For an analysis of this process, and its ideological underpinnings, see Cumings (1993) and Woodside (1993). 10 APEC’s originally had 12 members at its formation in 1989 (Australia, Canada, Japan, New Zealand, South Korea, the US and the six members of ASEAN). Since then China, Taiwan, Hong Kong, Mexico, Papua New Guinea, Chile, Vietnam, Peru and Russia have also joined bringing membership to 21 ‘economies’. 11 This discussion of AFTA’s origins draws on Bowles (1997). 12 Quoted from the Joint Communique of the ASEAN Ministerial Meeting (1991). 13 This is further confirmed by official pronouncements at the time. For example, Singapore’s Prime Minister Goh Chok Tong commented that ‘unless ASEAN can match the other regions in attractiveness both as a base for investments and as a market for their products, investments by multinational companies are likely to flow away from our part of the world to the S[ingle] E[uropean] M[arket] and NAFTA’. Quoted in the Straits Times, Singapore, 28 January, (1992), p. 22. 14 It is estimated that private capital flows to the ASEAN-4 plus South Korea went from a net inflow of US$ 93.8 bn in 1996 to a net outflow of US$ 6 bn in 1997. See MITI (1999: 3). 15 For the most comprehensive set of materials on the financial crisis, see the website put together by N. Roubini <http://www.stern.nyu.edu/ globalmacro/>.The discussion here draws upon MacLean et al. (1999). 16 The financial package put together involved loans made by the IMF, the World Bank, the Asian Development Bank and by other countries. 17 See Radelet and Sachs (1998). 18 See Krugman (1998). For an analysis of how Krugman’s ‘crony capitalism’ hypothesis emerged and became the dominant explanation of the crisis see MacLean (1999). In general, there has been an intellectual appeal to viewing 251
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY the Asian crisis as caused by a single dominant factor. This overlooks the fact that crises may have different causes in different countries and, in partic- ular, that there might be differences between those countries in Southeast Asia and that of South Korea in North Asia. For a country specific analysis of South Korea see, for example, Haggard and Mo (2000). 19 See Ferguson (2000) for a useful compilation of statistics on the financial crisis in Asia and on the relative magnitudes of the crises in Asia and Latin America. 20 See also Gill (1999) who argues that ‘the Asian crisis has been a means for the United States to strengthen its strategic interests worldwide’. 21 As an example of such triumph see, for example, Federal Reserve Chairman Alan Greenspan’s (1998) comments. 22 The analysis is restricted here to state-level responses to the crisis, on the grounds that this is most relevant for analysing the regional arrangements discussed below. In other contexts, other levels of response might be more appropriate to analyse. For discussion of working-class responses see, for example, McNally (1998). 23 For opposition to the AMF see Noland (2000). 24 For discussion of Japan’s role in the crisis, as seen by both Japan and other countries, see Hughes (2000). 25 The position of Taiwan does, however, remain ambiguous. 26 See, ‘E Asia Nations to Agree to Swap Currency Reserves’, Nihon Keizai Shimbun, 29 April (2000). 27 See Bergsten (2000a) and Dieter (2000). 28 See ‘IMF to send Finance Advisors to SE Asian Nations’, Nihon Keizai Shimbun, 2 July (2000). A referee has contributed that, based on his/her interviews with Japanese officials at the Ministry of Finance, Japan now supports a ‘region of financial stabilisation’ and that ‘the appointment of Japanese offi- cials in Thailand and Vietnam are the first moves to establishing the know- ledge network that will be required for this scheme to mature into an IMF equivalent’. I am grateful to the referee for passing on this information. 29 This raises the interesting possibility that any such Northeast Asia bloc could eventually join up with AFTA thereby creating a full East Asia bloc. 30 See ‘China’s Policy on Asian Financial Crisis – Interviewing Dai Xianglong, Governor of the People’s Bank of China’, Ta Kung Pao, Hong Kong, 4 November (1998), as in FBIS-CHI-98-313. 31 The social and political risks attached to a devaluation were acknowledged by Li Ruihuan, a member of the CPC’s Central Committee Political Bureau. See ‘Beijing: Stability is First Priority; Currency Will Not Be Devalued’, Wen Wei Po, Hong Kong, 27 January (1999) as in FBIS-CHI-99-027. 32 See ‘Article on Sino-US Financial Cooperation’, Zhongguo Tongxun She, Hong Kong, 3 June 1998 as in FBIS-CHI-98-154. 33 This expectation was noted in an interview by China’s chief WTO nego- tiator, Long Yongtu. See ‘CRI Interview With Long Yongtu on WTO’, China Radio International, 8 January (1999) as in FBIS-CHI-99-008. 34 See ‘Japan Should Shoulder the Responsibility of a Major Power’, Renmin Ribao, 29 July (1998) as in FBIS-CHI-98-225. 35 See, for example, Wang Dajun (1998). 36 As Hughes (2000: 233) notes, ‘Japan’s sense of humiliation was … com- pounded during the US-China summit … when Presidents Bill Clinton and Jiang Zemin took the extraordinary step of commenting in a bilateral setting on the deficient management of the yen and Japan’s economy’. 252
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM 37 See ‘China Makes Preparations for Introduction of Euro; Wang Mengkui Analyzes Its Pros and Cons, Saying China Will Not Change All Its US Dollars Into Euro’, Ta King Pao, Hong Kong, 11 October (1998), as in FBIS-CHI- 98-294. The presumed increased importance of China in U.S. policy as a result of the Asian crisis is also highlighted in Chinese press articles at the time of President Clinton’s June 1998 state visit to China. For example, an article by Li Zhengxin (1998) argues that ‘President Jiang Zemin’s successful visit to the United States last year caused Sino-US relations, which had been at a crossroads, to make a directional change … Now, eight months later, US President Clinton will also make a visit to China. This not only indicates that the United States hopes to maintain the momentum of improvement and development in Sino-US relations, but also that there is a deeper consid- eration, namely that while ‘structurally’ adjusting its Asia strategy, the United States is elevating China’s status in its Asia-Pacific formula … In recent years, the United States has begun to realize that in order to deal with any major problem within the Asian region, it is first necessary to have China’s understanding and co-operation. The Asian financial crisis has further strengthened this realization of the US government’. 38 See ‘Subject of Talks Brought About by Financial Crisis – Senior Official Zhang Yan on ’98 APEC Kuala Lumpur Conference’, Shijie Zhishi, Beijing, 1 January (1999), p. 33. 39 China’s central bank Governor Dai Xianglong declared in November 1998 that Thailand and South Korea had ‘adopted and properly implemented many of the reform measures recommended by the IMF, which have pro- duced positive results. Besides, the governments’ actions have won the under- standing and support of the public. In particular, I saw many civilians in the ROK donating their gold rings. This is why the conditions in these two countries are turning for the better’. (‘China’s Policy on Asian Financial Crisis – Interviewing Dai Xianglong, Governor of the People’s Bank of China’, Ta Kung Pao, 4 November 1998, as in FBIS-CHI-98-313.) Presumably, these were not the same members of the public interviewed one month later by a survey team in South Korea. This poll (Chong Chae-yong, 1999) found that ‘over half of the people have a negative view of the IMF, for example perceiv- ing it simply as “an international organization representing the interests of advanced countries,” rather than as an “international financial organisation that is helping us”. Moreover, 57 percent gave a dissatisfied response con- cerning the IMF’s ROK-related activities over the last year. Concerning our government’s diplomacy with the IMF, over half consider it inappropriate and humiliating’. 40 China’s diplomatic efforts also included a framework for long-term cooper- ation between China and Thailand, the first time such a framework had been established with an ASEAN country. See Chongkittavorn (1999). 41 Economic Daily, 14 May (2000). 42 As an example of this improvement, contrast the visits of senior Chinese leaders to Japan. In December 1998 President Jiang Zemin’s visit was punc- tuated with the Premier informing his hosts of their need to acknowledge and apologize for their wartime atrocities in China. When Chinese Premier Premier Zhu Rongji visited in October 2000, however, this long-standing thorn in the side of improving Sino-Japanese relations was apparently down- played. In Japan, this was interpreted in the press (Hasegawa, 2000) as indicating that ‘China desires cooperation between the two nations in order to survive the century as a major economic power capable of challenging 253
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY the US. The possibility of riding such a wave as a leading partner is an irre- sistible draw for Japan’. 43 Article XXIV of the GATT requires that regional trade agreements cover ‘substantially all sectors’. 44 If this policy is successful then, as Hughes (2000: 251) notes, ‘the actual outcome of the East Asian currency crisis may not be to undermine Japanese leadership and the model of the developmental state in the region, but, against all expectations, actually to consolidate them’. 45 The areas identified in this context were electronic commerce, definition of service providers, non-tariff measures, investment, mutual recognition, anti- dumping and consultation and dispute settlement. 46 A referee suggests that, in addition to the reasons for the Japan-Singapore free trade initiative outlined above, a further dimension may be Japan’s desire to strengthen its position in Southeast Asia relative to China. 47 As Higgott (1998: 345) notes ‘the utilisation of “impartial” multilateral agen- cies has long been seen as an important way to “put at one remove” or “depoliticise” US policy interests in the imposition of economic conditions on developing countries’. REFERENCES Bergsten, C. F. (2000a) ‘The New Asian Challenge’, Institute for International Economics, Working Paper 00-4, March, available at <http://www.iie.com/ CATALOG/WP/2000/00-4.html>. Bergsten, C. F. (2000b) ‘Towards a Tripartite World’, The Economist, 15-21 July. Bhagwati, J. (1998) ‘The Capital Myth: The Difference Between Trade in Widgets and Trade in Dollars’, Foreign Affairs, 77(3): 7-12. Bowles, P. (1997) ‘ASEAN, AFTA, and the “New Regionalism”‘, Pacific Affairs, 70, 2: 219-33. Bowles, P. (2000) ‘Regionalism and Development After(?) the Global Financial Crisis’, New Political Economy, 5(3): 433-55. Bowles, P. and MacLean, B. (1996a) ‘Regional Blocs: Will East Asia Be Next?’, Cambridge Journal of Economics, 20: 393-412. Bowles, P. and MacLean, B. (1996b) ‘Understanding Trade Bloc Formation: The Case of the ASEAN Free Trade Area’, Review of International Political Economy, 3(2): 319-48. Chong, Chae-yong (1999) ‘An Opinion Poll on IMF Activities – 49.4 percent Say the “IMF Is a Mouthpiece of Advanced Countries’ Interests”‘, WIN, Seoul, December, as in FBIS-EAS-98-356. Chongkittavorn, K. (1999) ‘Thai Policy Meets China Challenge’, The Nation, Bangkok, 2 February 1999, as in FBIS-EAS-99-033. Cumings, B. (1993) ‘Rimspeak; or, The Discourse of the “Pacific Rim”‘, in A. Dirlik (ed.) What’s In a Rim? Critical Perspectives on the Pacific Region Idea, Boulder, Colorado: Westview Press, pp. 29-47. Dieter, H., (2000) ‘Asia’s Monetary Regionalism’, Far Eastern Economic Review, 6: 30. Ferguson, R. (2000) ‘Tale of Two Continents: A Comparison of Asia and Latin American Experiences during Recent Financial Turmoil’, remarks before the National Economic Association, Boston, Massachusetts, 7 January, available online at: <http:/ /www.federalreserve.gov/boarddocs/speeches/2000/ 20000107.htm#exhibits>. 254
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM Frankel, J. (1991) ‘Is Japan creating a yen bloc in East Asia and the Pacific?’ paper presented to the NBER conference on ‘Japan and the U.S. in Pacific Asia’, Del Mar, California, 3-5 April. Gill, S. (1999) ‘The Geopolitics of the Asian Crisis’, Monthly Review, 50(10): 1-9. Greenspan, A. (1998) ‘The Ascendancy of Market Capitalism’, remarks before the Annual Convention of American Society of Newspaper Editors, Washington D.C., 2 April. Available online at: <http://www.bog.frb.fed.us/boarddocs/ speeches/19980402.htm>. Haggard, S. and Mo, J. (2000) ‘The Political Economy of the Korean Financial Crisis’, Review of International Political Economy, 7(2): 197-218. Hasegawa, M. (2000) ‘Sino-Japanese Ties on the Mend’, Nikkei Weekly, 16 October. Higgott, R. (1998) ‘The Asian Economic Crisis: A Study in the Politics of Resentment’, New Political Economy, 3(3): 333-56. Higgott, R. and Stubbs, R. (1995) ‘Competing Conceptions of Economic Regional- ism: APEC Versus EAEC in the Asia Pacific’, Review of International Political Economy, 2(3): 516-35. Hughes, C. (2000) ‘Japanese Policy and the East Asian Currency Crisis: Abject Defeat or Quiet Victory?’, Review of International Political Economy, 7(2): 219-53. Krugman, P. (1998) ‘What happened to Asia?’, available online at: <http:// web.mit.edu/krugman/www/DISINTER.html>. Lawrence, R. (1994) ‘Regionalism: An Overview’, Journal of Japanese and Inter- national Economics, 8(4): 356-87. Laxer, G. (no date) ‘The Movement That Dare Not Speak Its Name: The Return of Left Nationalism/Internationalism’, mimeograph. Li Zhengxin (1998) ‘Focus on China – My Views on the United States’ Adjustments to its Asia Strategy’, Shijie Zhishi, 16 May 1998, as in FBIS-CHI- 98-159. MacLean, B. (1999),’The Transformation of International Economic Policy Debate 1997-98′, in B. MacLean (ed.) Out Of Control, Toronto: James Lorimer, pp. 67-94. MacLean, B., Bowles, P. and Croci, 0. (1999) ‘East Asian Crises and Regional Economic Integration’, in A. Rugman and G. Boyd (eds) Deepening Integration in the Pacific Economies, Cheltenham: Edward Elgar, pp. 19-54. McNally, D. (1998) ‘Gobalization on Trial: Crisis and Class Struggle in East Asia’, Monthly Review, 50(4): 1-14. MITI (1999) White Paper on International Trade 1999, English Executive Summary, Tokyo: MITI. MITI (2000a) Japan-Singapore Economic Agreement for a New Age Partnership, Released 29 September, Tokyo: MITI. MITI (2000b) The Economic Foundations of Japanese Trade Policy – Promoting a Multi- Layered Trade Policy, White Paper, Tokyo, Released 22 August. Naughton, B. (ed.) (1997) The China Circle: Economics and Technology in the PRC, Taiwan and Hong Kong, Washington, DC: Brookings Institution Press. Noland, M. (2000) ‘Japan and the International Economic Institutions’, paper prepared for the Centre for Japanese Studies (Macquarie University) Fifth Biennial Conference, ‘Can the Japanese Change? Economic Reform in Japan’, Sydney, Australia, 6-7 July. Petras J. and Veltmeyer, H. (2000) ‘Globalisation or Imperialism?’, Cambridge Journal of International Affairs, XIV(1): 32-48. Price, J. (2000) ‘Economic Turmoil in Asia: A Crisis of Globalization’, in S. McBride and J. Wiseman (eds) Globalization and Its Discontents, London: Macmillan, pp. 187-99. 255
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY Radelet, S. and Sachs, J. (1998) ‘The East Asian Financial Crisis: Diagnosis, Remedies, Prospects’, Brookings Papers on Economic Activity, vol. 1, Washing- ton, DC, pp. 1-90. Rodolfo C. Severinto, H. E. (1999) ‘Regionalism: The Stakes for South-East Asia’, Address delivered in Singapore, 24 May, at ASEANWEB. Stubbs, R. (1995) ‘Asia-Pacific Regionalization and The Global Economy: A Third Form of Capitalism?’, Asian Survey, XXXV(9): 785-97. Wang Dajun (1998) “‘Doing Harm to Neighbours” or “Pulling Together in Times of Trouble”?’, Liaowang, Beijing, No. 26, 29 June 1998 as in FBIS-CHI-98-195. Woodside, A. (1993) ‘The Asia-Pacific Idea as a Mobilization Myth’, in A. Dirlik (ed.) What’s In a Rim? Critical Perspectives on the Pacific Region Idea, Boulder, Colorado: Westview Press, pp. 13-28. 256
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
Asia’s Post-Crisis Regionalism: Bringing the State Back in, Keeping the (United) States OutAuthor(s): Paul BowlesSource: Review of International Political Economy, Vol. 9, No. 2 (May, 2002), pp. 230-256Published by: Taylor & Francis, Ltd.Stable URL: http://www.jstor.org/stable/4177421 .Accessed: 27/05/2013 03:47Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp .JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected] .Taylor & Francis, Ltd. is collaborating with JSTOR to digitize, preserve and extend access to Review ofInternational Political Economy.http://www.jstor.org
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
RJ outledge Review of International Political Economy 9:2 Summer 2002: 230-256 Taylor &FrancisGroup Asia’s post-crisis regionalism: bringing the state back in, keeping the (United) States out Paul Bowles’ University of Northern British Columbia ABSTRACT The Asian financial crisis has significantly changed the way in which region- alism in East Asia is taking place. Prior to the crisis, regionalism in the area was noted for its relative lack of formal institutions; many analyses stressed the role of private businesses in fostering a ‘regional economy’. Post-crisis regionalism is being led by the state and encompasses both monetary and trade dimensions. The reasons for this change are analysed and the regional policies of China and Japan examined. The spur to post-crisis regionalism is argued to have been provided by a desire to limit the influence in the region of the US and the international financial institutions. KEYWORDS Regionalism; Asian financial crisis; China; Japan. 1 INTRODUCTION The 1997 financial crisis has proved to be a turning point for regionalism in Asia.2 As Higgott (1998: 333) astutely observed soon after the crisis, ‘the political manifestations of these events [the financial crises] will linger long after the necessary reforms have been introduced to return at least a semblance of economic normalcy to the region’. One significant politi- cal manifestation has been the emergence of a new form of regionalism in Asia as indicated by the emergence of regional monetary cooperation and by proposed sub-regional trade agreements, developments which signal sharp changes in direction for the region. Chameleon-like in its qualities throughout the past century, regionalism has been transformed once more; it has again demonstrated itself to be a flexible policy tool which can used to meet a variety of objectives, economic and political.3 It is the argument of this paper that regionalism in Asia after the finan- cial crisis departs significantly from its pre-crisis incarnation. Specifically, an understanding of the post-crisis regionalism requires a state-centric Reviezv of International Political Economy ISSN 0969-2290 print/ISSN 1466-4526 online C 2002 Taylor & Francis Ltd http: / /www.tandf.co.uk DOI: 10.1080/09692290110126100
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM approach and an analysis of power relations in the global economy. The assumptions that regionalism in Asia should be analysed primarily in terms in private actors or that it is based on a benign interdependence between countries that span the Pacific, assumptions which underlay much visioning of the ‘Pacific Rim’ in the 1990s, are untenable. The contours of post-financial crisis regionalism are, by state design, aimed at restoring to Asia a greater degree of political power and autonomy vis-a-vis the rest of the world, and the US and the international finan- cial institutions it controls, in particular. The implications of this are profound, not only for our understanding of ‘the region’, but also for our analysis of the current phase of the global economy.4 In the next section, a brief description is given of the characteristics and analysis of regionalism in pre-financial crisis Asia. Section 3 analyses in more detail the emergence of a new post-crisis regionalism and exam- ines the reasons for its emergence. Particular attention is paid to the motives of the two most significant powers in East Asia, China and Japan. The implications of this regionalism for theoretical analysis of the global economy are discussed in the concluding section. 2 ASIAN REGIONALISM PRIOR TO THE FINANCIAL CRISIS Embroiled in the military conflicts of the Cold War period, the coun- tries of Asia did not participate in the wave of regionalism which proved popular with other developing countries in the 1950s and 1960s. When regionalism re-emerged as a preferred economic policy in the 1980s and 1990s, Asia again lagged behind the rest of the world in terms of the formal political institutionalization of regionalism. Indeed, a distin- guishing feature of Asian regionalism for many scholars was precisely the fact that the ‘region’ itself was ill-defined (or capable of multiple definitions) and that the ‘regionalism’ that was taking place was the result of market-led, rather than government-led, integration processes. As Stubbs (1995: 786), for example, has argued: although the state has been instrumental in nurturing business growth, regionalization in the Asia-Pacific region – unlike the other major regions of the world – has been driven by the private sector not by governments. Hence, the boundaries of the region do not coincide neatly with state boundaries. In many ways the region’s governments are still trying to come to grips with the rapid economic changes that swirl around them. The ‘regional economy’ in Asia, and in a number of sub-regions, was therefore identified by economists and policy analysts based primarily on the activities of Japanese multinational corporations (MNCs) and of 231
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY overseas Chinese businesses. These activities were highlighted as oper- ating on the basis of a series of ‘networks’ based on the production prerequisites of post-Fordism and the personal connections which facil- itated and characterized much of the overseas Chinese diaspora. It was these business networks, rather than the existence of supra-national polit- ical institutions, which led to the identification and integration of a ‘regional economy’.5 This was also true at the sub-regional level. For example, ‘Greater China’ was identified as one such sub-region, com- prising of an international division of labour which integrated produc- tion in the southeastern coastal regions of China and companies in Taiwan and Hong Kong. Here, too, the impetus for economic integra- tion was identified as largely business driven rather than state driven. As Naughton (1997: v) writes, ‘firms, especially small and medium-size family firms, play central roles in the story, with government policies playing secondary, reactive roles’. These analyses tended to overstate the role of ‘the market’ in fostering integration in the region. They present us with something of a paradox in that most of them accept that national economies can be described as ‘developmental states’ where governments play key roles in ‘guiding the market’ but where, it seems, inter-national and intra-regional integra- tion are played out beyond the reach of the state. Such a paradox is, in fact, a false one and is solved by a better appreciation of the role that the state played in fostering intra-regional trade and capital flows. For example, Japan’s policy with regard to foreign direct investment (FDI) changed critically during the post-war decades to one favourable to, and supportive of, FDI during the 1980s. The emergence of a hierarchical division of labour in the region fostered by Japanese MNCs was not a chance occurrence but one premised in no small part on Japanese policy.6 Similarly, the ability of Japanese (and other) MNCs to expand in this way was due in no small measure to the investment liberalization under- taken by host governments. The emergence of the ‘China Circle’ was not entirely an accident either in which states were only ‘reactive’; in particular, China’s initial choice of venue for its four Special Economic Zones (SEZs) in 1984 was based on exploiting cultural, ethnic and geographic links between the SEZs and the overseas Chinese commu- nities in Taiwan and Hong Kong. The subsequent rapid growth of the four cities initially chosen as SEZs and the extent of the spread of invest- ment into other parts of Guangdong and Fujian Provinces could perhaps not have been predicted by Chinese policy makers, but the emergence of a ‘Greater China’ economic zone certainly owes something to their policies. However, while the above analyses may underestimate the role of the state in promoting regional economic integration, they do make the valid point that Asian regionalism was based on a lower level of formal 232
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM inter-governmental regional institutions and policies than were observed in other regions, most notably, in Europe and North America. In this comparative sense, the above analyses are right to stress the relatively greater role of the ‘market’ and relatively less importance of the ‘state’ in regional integration in Asia than elsewhere, even if there has been a tendency to push the argument too far in that direction. At the level of formal regional economic arrangements, it is true, Asia lagged behind. While Europe was moving full speed ahead with the ‘Single Market’ project and the US was abandoning its traditional sole reliance on multilateralism as a route to free trade and signed free trade agreements first with Canada and then with Canada and Mexico, Asia remained reluctant to join in. The initial response to the emergence of North American and European ‘blocs’ included calls, made particularly loudly by Malaysia’s Prime Minister Mahathir, for an East Asian Econ- omic Group. This idea was, however, stillborn and Asian countries settled for the different version of regionalism embodied in APEC.7 This body is much looser in regulatory design that the other ‘blocs’, operates by consensus and voluntary action (or inaction) rather than by legal stric- ture. APEC’s formation in 1989 owed as much to the perceived political need to ensure that trade across the Pacific remained open and to prevent the emergence of three closed blocs as to any substantive trade liberal- ization initiatives. As the fear of the emergence of three protectionist blocs receded, APEC formed, in 1993, an Eminent Person’s Group under the Chairship of Fred Bergsten to devise a ‘Vision’ for APEC which would justify its continued existence. APEC committed itself to ‘open regionalism’ and to the goal of establishing a free trade area in region by 2010 for developed country members and 2020 for developing country members, a goal which was subsequently adopted at the APEC meeting held in Bogor, Indonesia in 1994. This ‘vision’ represented a victory for the pro-globalist thinkers and established for the institution a framework which stressed the interdependence of economies, the mutual advan- tages which existed for all in trade liberalization, and which minimized the differences between developed and developing country members.8 In establishing this framework, APEC was simply following, and con- tributing to, the ways in which the ideological construction of the ‘Pacific Rim’ was being pursued in the wider intellectual and policy commu- nity.9 The boundaries of the ‘region’, at this level, were ever- expanding.10 The idea of ‘open regionalism’ – of using regionalism to further inte- gration into the global economy – was also central to Asia’s most deliberate attempt at formal economic regionalism, the ASEAN Free Trade Area (AFTA).11 The formation of AFTA, proposed in 1991 and coming into effect on 1 January 1993, marked ASEAN’s most ambitious attempt at regional economic cooperation since its formation in 1967 and, indeed, put ASEAN on a path which it had rejected several times in the 233
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY past. The formation of AFTA came after many of the ASEAN countries had struggled with the need to boost export earnings during the 1980s in response to the debt crises of the early years of that decade. The res- ponse of the ASEAN-4 (Indonesia, Thailand, the Philippines, Malaysia), following the advice of the international financial institutions, was to engage in trade liberalization, albeit at their own pace rather than collec- tively, and to shift towards policies more conducive to export promotion. In addition, individual countries adopted policies more favourable to FDI in an effort to attract the foreign capital needed to spur continued industrialization. These policies were fortuitous in that Japanese firms were expanding rapidly overseas in response to the massive appreciation of the yen which followed the Plaza Accord in 1985. Japan’s FDI grew at an annual average rate of 62 percent over the 1985-9 period. At the same time, the East Asian NICs were also investing heavily overseas with the ASEAN-4 and China being favoured destinations. As a result, FDI as a percentage of GDP quadrupled in the ASEAN-4 between 1985 and 1990. Having shifted to a strategy of FDI-sponsored export-led growth, ASEAN states were keenly aware of the need to ensure that ASEAN as an investment site remained competitive. At the end of the 1980s there appeared to be a significant threat to this in the form of competition from China, the former Soviet bloc following the dramatic events of 1989-91, the poten- tial investment-diverting effects of greater European integration in 1992, and the NAFTA, particularly the threat of investment diversion to Mexico. The increasing concern about possible investment diversion is clear from the joint communiques of the ASEAN ministerial meetings with the ASEAN foreign ministers responding to the ‘increasing competing demand for capital and investment resources from Eastern Europe, from the indebted countries of Asia, Latin America and Africa, as well as to meet the needs of reconstruction in the Gulf and in the Soviet Union”12 by supporting the call for an ASEAN free trade area in 1991. A regional economic agreement was seen therefore as the best way of maintaining ASEAN’s investment appeal and of fostering its continued integration into global trade and capital flows. Thus, the formation of AFTA was in large part a response to the changing external environment, and in particular the fear of investment diversion.-3 The spur to create AFTA also owed something to ASEAN’s desire to remain relevant in the face of the rise of APEC and, in this sense, also had political motives. Regional projects typically contain a political dimension, a dimension which, as will be argued in the next section, has come fully to the fore. To summa- rize, regionalism in Asia in the early to mid-1990s was premised on the emergence of an economic region increasingly integrated by the activi- ties of multinational corporations, particularly Japanese MNCs, and by 234
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM the network capitalism epitomized by the Chinese diaspora. This pro- cess was undoubtedly a more private-sector-driven process than that in evidence in other regions, although even in Asia state policies played important roles in shaping the kind of regional economic integration that took place. At the level of formal regional economic institutions, the ‘region’ was more spatially ambiguous with APEC acting as a loose consortia of countries notionally acting to preserve open trade across the Pacific. The most concrete form of regional economic arrangement was provided by the AFTA, an arrangement premised on the need of ASEAN countries to remain competitive in attracting investment in the changed post-Cold War international political economy. The use of trade and investment liberalization agreements to promote integration into the international economy was supplemented with the domestic liberaliza- tion of financial markets with the result that financial capital also poured into ASEAN and other Asian countries in the 1990s. However, this was to lay the seeds for the financial crisis of 1997, as the money which poured into the region equally quickly poured out, and led to a crisis which profoundly altered the economic landscape in Asia and which has changed the basis for regional economic cooperation.14 3 ASIA’S POST-FINANCIAL CRISIS REGIONALISM 3.1 The Crisis and the IMF The events of the Asian financial crisis are well known and will be summarized only briefly here.15 The main focus in this section will be on the response to the crisis and the implications of this for our under- standing of regionalism in Asia. The Asian crisis was triggered by the decision of the Thai central bank to float the baht on 2 July 1997. The Thai government decided that it could no longer defend the currency, announced a managed float, and called upon the IMF for technical assis- tance. The ‘contagion’ spread to other countries in the region including the Philippines, Malaysia, Indonesia, South Korea, Hong Kong, and Vietnam. By the time the dust had settled, the IMF had instituted the largest bailout in its history with the US$ 54 bn loan to South Korea. Indonesia received US$ 40 bn, Thailand US$17.2 bn and the Philippines US$1 bn.16 While the facts of the crisis are well known, the causes of the crisis remain disputed. For some, financial panic provides the most plausible explanation with the irrational behaviour of foreign investors to blame for the sudden dramatic reversal in capital flows to the region.17 For others, the weakness of domestic financial institutions, their lack of regu- lation, and the general malaise of ‘crony capitalism’ was to blame.18 It is clear that one of the critical actors in the drama – the IMF – saw the 235
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY cause of the crisis as emanating from essentially domestic factors which required the tried and trusted methods associated with the stabilization and structural adjustment programmes which the IMF and World Bank had been applying to other developing countries since the early 1980s. As MacLean et al. (1999) noted, the IMF intervened in Asia both at the macroeconomic and structural levels. The policies recommended at the macroeconomic level were, by and large, the typical ones that char- acterized IMF interventions in the past. To stop currency depreciation and restore confidence, the IMF prescribed its traditional austerity med- icine. This involved, first of all, a tight monetary policy, i.e. an increase in interest rates and the adoption of strict limits on the growth of the money supply. In order to cover the carrying costs of the financial bailout, the IMF also asked for the curtailment of government budgets (achieved mainly through the reduction of social programmes, the scrapping of large public infrastructure projects and the elimination of subsidies). These fiscal measures have been criticized since none of the countries in question was particularly profligate in the spending. In fact, since 1993, only Korea had run a budget deficit – equal to 0.1 per cent of GDP – and this only in 1996. Thailand and Indonesia had run average budget surpluses of 2.3 and 1.2 per cent of GDP respectively. Critics argued that the tightening of state budgets would inevitably worsen the recession brought about by the crisis and it did. The recog- nition that these policies were not bringing about the desired effects (exchange rates continued to slide, the outflow of capital worsened and output fell more than projected), and the perception that they might trigger social unrest, led the IMF to modify some aspects of its pro- gramme. However, the damage caused by the financial crisis and, in the view of many in Asia, exacerbated by the policies of IMF had been done as economic crisis followed the financial crisis and brought with it unprecedented output declines after a decade or more of rapid growth.19 A noticeable recovery in output and the trade account has taken place since the depth of the crisis. However, the cost has been high in terms of the development objectives of the countries concerned and have been achieved almost entirely through deflation. For example, in the ASEAN- 4 and South Korea the change in the current account went from a cumulative deficit of US$ 54 bn in 1996 to a cumulative surplus of US$ 69.2 bn in 1998, a total adjustment of US$ 123.2 bn. However, as Table 1 indicates, a full US$ 116.6 billion of this adjustment was due to a fall in imports and only US$ 6.6 bn was due to increased exports. As Table 1 shows, the restriction of domestic demand caused by the financial crisis and the IMF imposed austerity measures was sufficiently large to cause a dramatic decrease in imports and thereby lead to a turn around in the trade balance. Thailand, for example, went from having a current account deficit equal to 8 per cent of GDP in 1996 to a surplus 236
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM Table 1 External adjustment (US$ bn) Current Account Merchandise Imports 1996 1998 Adjustment 1996 1998 Adjustment 1996-8 1996-8 Thailand -14.7 14.2 28.9 63.9 36.5 -27.4 Malaysia -4.6 9.1 13.7 78.4 58.3 -20.1 Indonesia -7.7 4.0 11.7 44.2 31.9 -12.3 Philippines -4.0 1.3 5.3 31.9 29.5 -2.4 Korea -23.0 40.6 63.6 144.9 90.5 -54.4 Total adjustment 123.2 -116.6 Source: Ferguson (2000). of 12 per cent of GDP just two years later – a staggering change brought about almost entirely by collapsing imports. To the short-term decreases in living standards implied by the drop in imports must be added, therefore, the longer- term development costs of import reductions. The policies undertaken by the IMF at the structural level were espe- cially criticized in Asia. Policies under his heading can be divided into two categories: (1) those designed to reform financial systems and (2) those aiming to open up the economies of the crisis countries. Under the first category, the IMF pushed for the closure of insolvent – and, in some cases, simply illiquid – banks, the enforcement of capital adequacy standards and the adoption of Western accounting practices and disclo- sure rules. Bank closures in the midst of financial panic, however, invited even greater panic, while the hasty enforcement of capital adequacy stan- dards, in conjunction with the general credit squeeze, contributed to recession by making it impossible for many companies to obtain even working capital. Under the second category, the IMF encouraged the dismantling of national monopolies, the sale of state assets to the private sector, the elimination of tariffs and non-tariff barriers to trade, and the opening of the financial and insurance sectors to foreign investors. These policies of ‘intrusive’ or ‘deep’ conditionality went well beyond what could be justified by economic theory alone. For example, countries were pres- sured into accepting greater foreign ownership even though this ran counter to much of the literature on ‘firesale FDI’. As Bhagwati (1998: 9) noted: ‘Economists have usually advised the exact opposite in such depressed circumstances: restricting foreign access to a country’s assets when its credit, but not that of others, has dried up’. In South Korea, the IMF also pushed for changes in the labour laws to make redundancies easier although it is difficult to argue that this was necessary to solve the financial crisis and was seen as having more to do with engineering a 237
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY transition to Anglo-American style capitalism than with solving South Korea’s crisis. The perception that the IMF was acting to protect the interests of Western lending institutions and to open Asian markets for Western firms at the expense of Asian workers and the sovereignty of Asian countries was widely held in the region. As Bello (as quoted in Higgott 1998: 345) noted at the time ‘never has the IMF’s connection to its principal stock- holder been displayed so prominently’.20 This view was not restricted to leftist critics either. Bhagwati (1998), a prominent neoliberal economist, also argued that what he termed the ‘Wall Street-Treasury complex’ had got it all wrong in pushing for speedy capital account liberalization in Asia. The Wall Street-Treasury complex was not easily convinced of the error of its ways, however, and its leading exponents added insult to Asian injury by declaring, in triumphant mood, that the Asian crisis proved the superiority of American free market capitalism over Asia’s ‘managed capitalism’.2′ In the face of these policies and perceptions, it is not surprising to find that this has led, in Higgott’s (1998) words, to the ‘politics of resent- ment’. One manifestation of this resentment is that Asian countries have embarked on a new path of regional economic cooperation incorporating both monetary and trade dimensions. These forms of cooperation are explained fully below. Before embarking on the analysis, it is important to first recognize that the degree of enthusiasm for the new regional mechanisms and the intensity of the ‘politics of resentment’ do vary by government in the region.22 As with all regional integration initiatives, individual member countries may have varying motives for participating. In the following discussion, the focus is on the broad contours of the newly emerging regional arrangements followed by an in-depth analysis of the two leading countries in the region, China and Japan. 3.2 The regional response The idea of establishing an US$ 100 billion Asian Monetary Fund (AMF), more attuned to the needs of Asian economies and less bent on imposing Anglo-American style capitalism on the region, was initially proposed by Japan at the height of the crisis. This received support from some of the countries in Southeast Asia who were shocked by the initial refusal of the US to support Thailand in its crisis and by the spectre of IMF conditionality. The proposal was rejected, however, by the US as poten- tially undermining the role of the IMF and as being potentially too lax on conditionality, by the IMF itself, and by China which continued to oppose Japan’s leadership aspirations in Asia.2′ Despite the immediate rejection of this plan, the failure of other regional institutions such as ASEAN and APEC to play any significant role in 238
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM responding to the crisis, and the widespread resentment at the imposi- tion of conditions by a Washington-based, US controlled, international institution, the IMF, more concerted regional initiatives have neverthe- less more recently appeared. It should be noted that a regional response was neither guaranteed nor perhaps even probable. On the assumption that regional initiatives require a sufficiently powerful and/or respected regional leader, candidates for this position in post-crisis Asia were not conspicuously evident. Japan rather belatedly began to pump money into the region but was partly blamed for the crisis in the first place. As Higgott (1998: 336) notes ‘Japanese capital created overcapacity in the region without fulfilling the role of a market of last resort to absorb it’. Furthermore, the willingness of the Japanese government to allow the yen to depreciate in the wake of the crisis led to accusations that Japan was more interested in maintaining its own competitiveness than in solv- ing Asia’s problems. Japan’s capitulation in the face of US pressure over the initial proposal for an AMF did not enhance its leadership claims and neither did its continuing domestic economic malaise.24 China’s 1994 devaluation of the renmenbi was seen as a contributing factor to the cur- rent account deficits run up by the ASEAN-4 and South Korea, deficits which played a key role in triggering currency flight in 1997. Although China pointed to its maintenance of the value of the renmenbi during the crisis, it continued to have less than cordial relations with its ASEAN neighbours on other issues such as the Spratlys and, of course, there were continuing cross-strait tensions with Taiwan. It is quite possible there- fore, perhaps even probable, that regionalism would simply become a spent force under the dual weight of the financial crisis and the tarnished images of possible regional leaders. Interestingly, this has not happened and, after the initial rejection of the AMF, closer monetary and trade ties are now being actively fos- tered in the region; a new regionalism, geographically well-defined and located in East Asia, involving all of the major countries of this region, is now being forged.25 As Bergsten (2000a) has noted, the East Asian Economic Group has held summit meetings for three consecutive years under the ASEAN+3 rubric (i.e. the ten ASEAN countries plus China, Japan and South Korea) and a ‘Vision Group’ has been formed to advise on the future role and evolution of this group. Following rejection of the initial Japanese proposal for an AMF, Japan implemented the Miyazawa Plan which made available $30 bn to countries in the region. Subse- quently, in May 2000, a regional network of foreign currency swaps aimed at enabling Asian countries to address any future currency crises them- selves without resort to the IMF was agreed. This development, a coop- eration between central banks in the region, constitutes a de facto AMF, providing a mechanism to meet the aims of an AMF but avoiding the more politically difficult task of establishing a formal institution which 239
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY might encounter US opposition. This measure, adopted by the finance ministers of the ASEAN+3 countries, expands the network of bilateral regional currency deals previously agreed between Japan and Thailand and between Japan and South Korea which had provision for loans of up to $7.5 bn.26 While details of the expanded plan are still vague it is clear that Asia has the resources to finance such an initiative with the collective reserves of the ASEAN+3 countries being over $800 bn (over twice those of the Eurozone countries and close to ten times those of the US).27 Officials from Japan’s Ministry of Finance will also be stationed in Thailand and Vietnam to provide advice on international debt management, the use of yen loans and other economic issues.28 At the same time as these developments in ‘monetary regionalism’, there have also been initiatives to create free trade pacts in the region spearheaded by Japan. These include studies being conducted examining the possibility for a North East Asian regional trade agreement between Japan, China and South Korea.29 There have also been important bilat- eral trade negotiations between Japan and Singapore and between Japan and South Korea. This represents a considerable departure for Japanese trade policy, and in South Korea’s for that matter, as these two coun- tries are the only members of the OECD which are not members of a regional trade agreement (if APEC is excluded from such a designation) and represents a sharp reversal of Japan’s previous exclusive reliance on multilateral trade agreements. In analysing the emergence of Asia’s new monetary regionalism, the disenchantment with the IMF and the US has been widely recognized and accepted. However, two important issues remain in need of further analysis and which require a closer examination of the motives of the two major powers in the region, namely Japan and China, without whom a broad regional project would be difficult to sustain. The first issue is simply a lacunae in the existing literature, namely, why did China oppose the proposal for an AMF in the immediate post-crisis period but sup- port the currency swap arrangement some three years later? And what, if anything, do the reasons for this change of position tell us about Asian regionalism now? The second issue concerns the emergence of propos- als for regional trading arrangements, proposals which analysts such as Bergsten (2000a) and Noland (2000) have attributed mainly to Asian frus- tration at the ineffectiveness of trade liberalization through APEC and the uncertainties facing the new Millennium Round of the WTO after the debacle in Seattle. Thus, much as the US was argued to have departed from its sole reliance on the multilateral trade track in frustration at the slow pace of the Uruguay Round in the late 1980s, history is now argued to be repeating itself with Japan showing a similar interest in regional liberalization initiatives in response to the frustrations over the slowness of the Millennium Round in Seattle a decade later. In advancing such an 240
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM analysis, it is implicitly being argued that the monetary and the trade dimensions of the latest round of Asian regionalism are essentially caused by different factors and are responding to quite different external forces. This assumption needs careful examination. 3.3 China’s changed position on ‘monetary regionalism’ Let us first consider China’s position. Put simply, why should China, which initially opposed the creation of an AMF for fear of Japanese dom- ination, and which has sufficient foreign exchange reserves (in excess of US$ 200 bn) and capital controls to ward off any speculative currency attacks, now back an Asian only currency swap arrangement? To under- stand this requires an analysis of the shifting sands of wider Sino- U.S. and Sino-Japanese relations. Although China was not directly affected by the Asian financial crisis, indirectly the crisis posed signifi- cant challenges for China and its response to the crisis offered some opportunities. The immediate challenge was how to respond to the crisis affecting neighbouring countries. China’s response was to provide finan- cial resources to the region through the IMF and to pledge not to devalue the renmenbi. In both of these ways, China sought to establish itself as a bulwark for stability in the region and as a ‘responsible’ member of the international community, a responsibility which it hoped would be rec- ognized and acknowledged by a strengthening of Sino-US relations. To this end, China committed US$ 4.5 bn to the operational budget of the IMF to support financial packages to Thailand and Indonesia.30 Thus, China opposed the initial proposal for a Japan-led AMF, threw in its lot with the IMF, and made its first financial contributions to IMF packages since 1949. The second part of the strategy for demonstrating its inter- national responsibility was the pledge not to devalue the renmenbi. This undoubtedly had some domestic advantages; China’s weak state-run banking system was sitting on deposits in excess of 500 trillion yuan and any devaluation which might spark a run on the banks could have poten- tially serious consequences for economic and social stability.31 Further- more, Hong Kong had just been returned to China and the leadership in Beijing was keen to provide economic stability in the new ‘Special Administrative Region’. However, there is no doubt that the ‘no deval- uation’ policy also had risks in that the painful process of state owned enterprise reform had begun and, in the leadership’s view, needed to be accompanied by an economic growth rate of at least 8 per cent p.a. in order to prevent a potential social backlash. The policy of maintaining the value of the renmenbi made such a growth target difficult to meet in the light of falling regional trade volumes and depreciating currencies in competitor economies in ASEAN and South Korea. Nevertheless, the Chinese leadership decided to maintain the exchange rate and to inject 241
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY additional demand into the domestic economy through a massive infra- structure spending programme. The stability which China’s ‘no devaluation’ policy brought to the crisis economies in the region, together with its support for the IMF, was expected, in the calculations of the Chinese leadership, to lead to a rehabilitation of China as a ‘responsible’ member of the international community and to an enhanced regional and international role. This recognition, however, appears to have been slow in coming. For example, at the APEC Summit in Vancouver 1997, China’s role in was, in China’s eyes, undervalued. Chinese academics argued that: in its strategy to solve the Southeast Asian financial crisis, the United States has not fully recognized the importance of China. On 24 November last year, at a press conference in Vancouver, Clinton suggested a three-point plan to solve the crisis, but he overlooked the role of China, which had not been affected by the crisis.32 China’s feeling that its ‘constructive strategic partnership relationship’ with the US ought to be reaping more rewards in terms of international recognition was given chance for further expression and correction in June 1998. It was in this month that the Japanese yen slid to a seven- year low against the US dollar prompting fears of a new round of financial turmoil in Asia. It was also the month that President Clinton made an official visit to China, when the Chinese side at least, expected some breakthrough on China’s WTO accession process.33 The continued depreciation of the yen provided China with another opportunity to contrast its policy of responsible exchange rate management with that of Japan which was accused of failing to ‘shoulder its responsibility as a major power’.34 In the end, Japan and the US were forced to intervene to support the yen although not before concerns were expressed about why the two countries had taken so long to undertake such an inter- vention. Japan’s non-intervention could be understood simply in terms of it wishing, in China’s eyes, to offload its economic problems onto other countries. The reasons for US reluctance drew upon analysis from elsewhere in the region in arguing that the U.S. would gain by being able to buy up Asian enterprises with over-valued dollars.35 China did nevertheless have the pleasure of drawing President Clinton on his official visit into criticism of Japan’s exchange rate policy.36 China continued to promote its own role in solving the crisis and in using the opportunity to enhance its claims for greater international recognition. As Wang Menkui, Director of the State Council’s Development Research Centre, indicated: Through the crisis, China’s image as a major power has become even more prominent … In the multipolar development of ‘one 242
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM superpower and many great powers’, China, as one of the great powers, is still not powerful enough. This crisis has conspicuously shown that China has taken a step forward on the path to becoming a major power in the world structure.37 Chinese sensitivities were assuaged at the December 1998 APEC Meeting where, in contrast to the neglect of China’s role by President Clinton in Vancouver a year earlier, the Chinese press reported that ‘the “Kuala Lumpur declaration” fully affirmed the “mainstay” role played by China in stabilizing the Asian economy during this financial crisis. The docu- ment used the English word “anchor” to describe the role played by China in stabilizing the Asian financial crisis’.38 Thus, for the year and half after the outbreak of the financial crisis China had followed a consistent policy of supporting the IMF (and its policies)39 and of maintaining a ‘no devaluation’ policy for the renmenbi, a policy which it contrasted sharply with that of Japan. China did partic- ipate in the ASEAN+3 meetings but the main focus of its diplomacy was on promoting itself both inside and outside of the region as a major power that could be trusted and which acted responsibly.40 The expected gains from this policy were not only economic – an economic recovery in the region – but also political in terms of an enhanced role and status for China in regional and international affairs. These gains were slow in coming as China met with what it perceived as US indifference and a lack of understanding of the strains that the ‘no devaluation’ policy was placing on its economy while Japan and the US moved only slowly to resolve their exchange rate imbalances. Despite the expectations that the US would offer some WTO conces- sions this did not occur and it was left to Chinese Premier Zhu Rongji to visit the US in early 1999 to offer more concessions to kickstart the negotiations. However, the policy of seeking to strengthen the Sino-US relationship was soon to come to an end not because of economic issues but because of the US-led NATO war in Kosovo. This war, premised on the need to defend human rights in a sovereign state, deeply worried the Chinese leadership. The bombing of the Chinese Embassy in Belgrade, and the ‘wrong map’ explanation, led to anti-US riots in China much as there had been similar riots in South Korea, Thailand and Indonesia against IMF/U.S. economic policy earlier. The Cox Report and the ‘demo- nization’ of China in the US meant that China’s ‘responsible image’ disappeared; by mid-1999 Sino-US relations had turned irrevocably for the worse. China’s post-crisis policy had not reaped the political gains that it had hoped for; put simply, China had backed the wrong horse. Faced with this changed international situation, China joined others in the region as seeing the US as the main threat to its interests and China moved to view regional solutions as more valuable in this changed 243
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY context. In reporting on the currency swap agreement, reached in May 2000, China’s awakened interest in regional economic solutions was clearly shown. Thus, the Economic Daily reported the agreement in the following terms: In the past, the importance of economic co-operation was not fully realized. Compared with other parts of the world, especially North America and Europe, economic co-operation within Asia lagged in the past 10 years. Asia-Pacific Economic Cooperation, a regional organization, is only a forum; it lacks binding force. However, the financial crisis that devastated the region three years ago has made Asian countries realize the pressing need for working together. Many Asian countries may still hold bitter memories of receiving loans from the International Monetary Fund . . . The combined for- eign exchange reserves of Japan, China, Singapore and South Korea, and Hong Kong and Taiwan regions is US$ 800 billion, money that will definitely promote the economy in Asia if managed well.41 China had joined ranks and become a member of the Asia-only move- ment, and Sino-Japanese relations have begun to show the signs of improvement which make such a movement possible.42 3.4 Japan’s changed position on ‘trade regionalism’ With respect to the second issue, the emergence of proposals for ‘trade regionalism’ in Asia, it is interesting to wonder why Japan, an initiator of many of these proposals, should embark upon such a path. Japanese policy had for years been to support the overseas investment activi- ties of its MNCs and to fashion a regional division of labour in Asia based on the so-called ‘flying geese’ model of economic integration. Such a policy had been reasonably successful and, indeed, was one of the fac- tors which many analysts had pointed to as constituting an emerging integrated regional economy led by the activities of businesses in the region. To push this integration into the realm of formal free trade arrangements was a major initiative with debatable pay-offs. For exam- ple, in pursuing a bilateral trade agreement with Singapore, there was much more to be gained by the small, close to free trade, economy of Singapore by having improved access to the Japanese market than vice versa. In the case of the bilateral discussions with South Korea, there is the tricky question of the agricultural sector. Should this be included with the risks that this might have of a political backlash from agricul- tural interests in both countries or should it be excluded at the risk, as Noland (2000: 7) points out, of inviting WTO investigation of compliance with Article XXIV of the GATT?43 Including China in with South Korea opens up even more problems with countries at vastly different levels 244
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM of economic development and with different political systems. Clearly, there are many stumbling blocks on the road to trade agreements in the region and Japan’s decision to travel down this particular road is in need of explanation. The answer that the explanation is to be found in Japan’s, and Asia’s, disappointment following the fallout of the failed Seattle WTO talks is not convincing. For one thing, the trade initiatives predate the Seattle conference. More fundamentally, while Japan has always been a central supporter of the multilateral trade liberalization process, its commitment to liberalization has always been practical and strategic rather than ideo- logical. That is, trade liberalization has been an important policy goal of Japan but this has been conditioned by its pursuit of the developmen- talist model in which free trade is not presumed to be the most desirable policy in all circumstances and, in a non-insignificant number of cases, is actually a clearly undesirable policy. In initiating regional trade liber- alization, the question that must be asked is whether this also implies a rejection of the developmentalist view. That is, the place of regional free trade initiatives must be analysed within the wider context of Japanese economic policy objectives. A more convincing explanation for the trade initiatives is to be found, I suggest, in (1) the benefits which regional economic arrangements might have in terms of spurring regional economic growth within the context of Japan’s long standing support for a developmentalist structuring of the regional economy, and (2) equally importantly, increasing Japan’s (and Asia’s) political bargaining power at the international level. Consider first how Japan’s support for regional trade agreements may be consistent with its longer-term strategy. Commenting on reactions to the Asian financial crisis, Hughes (2000: 235-40) has noted that: policy makers in Japan do not seem to see the [developmental] state model as a total write-off. The key to recovery is still the basic model of the developmental state in the region and export growth on the demand side. Export growth can be restarted through economic stimulus packages in Japan and continued growth in the USA, but even more importantly through the promotion of the intra-regional exports which accounted for so much growth in the region prior to the currency crises and which could sustain growth long term. It is in this context that Japan’s turn to bilateral trade agreements must be understood. As a recent (then) MITI Report (2000b: ch. 3) indicates, bilateral and regional trade agreements are seen as key mechanisms for increasing intra-regional exports; it notes that this has been the out- come of existing regional agreements such as the EU, NAFTA and the MERCOSUR. The Report further argues that the Asian economies continue to be integrated with Japan supplying the capital goods for 245
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY Asian industrialization (with capital goods comprising between 40 to 60 percent of East Asia’s imports) and the market for Asian exports, espe- cially those from Japanese affiliates in Asian countries whose exports back to Japan now constitute 30 percent of Japan’s total imports. This pattern of regional integration, approximating the familiar ‘flying geese’ pattern, has helped, it is argued, to restore economic growth in both Japan and the rest of East Asia following the financial crisis. The Report (2000b: ch. 3) notes that ‘Japanese exports to East Asia recovered more quickly than exports to other regions [and]…. As the Japanese economy has recovered, imports from Asia have recovered more rapidly than those from other regions’. The implications of this are, in MITI’s (2000b: ch. 3) view, that: the Asian recovery set in motion a virtuous circle, boosting Japanese exports, helping to place Japan on a recovery trajectory, and conse- quently stimulating Asian exports to Japan. Further this stimulation of East Asian export activities has produced considerable synergy, for example pushing regional trade toward recovery due to regional specialization within East Asia. The deepening interdependence between Japan and East Asia through trade has therefore helped to accelerate recovery from the currency and economic crises. The new interest in regional trade initiatives therefore stems from a desire to maintain the momentum of this ‘virtuous circle’ and to con- tinue to forge deeper patterns of regional economic specialization. The shift towards bilateralism can be seen, therefore, as a change of policy mechanism but not necessarily of policy objectives; the policy of forging a regional division of labour with Japanese capital and technology at the centre of the integration process remains consistent with Japanese pol- icy over the past two decades although the means of achieving it have now broadened to include regional trading agreements as an important post-crisis vehicle.44 With respect to the broader issue of promoting regional arrange- ments as a way of increasing bargaining power within the global econ- omy, MITI’s White Paper on International Trade for 1999 (published before the Seattle meetings) gives an important clue to this. It argued for the creation of a Northeast Asian trade bloc and recommended (MITI, 1999: 46) that: Japan should seek to deepen intra-regional exchange and under- standing in Northeast Asia, the only area in the world which has shown little interest in regional cohesion or integration, applying itself with greater vigour to the development of regional cohesion and presenting a model to the world which will contribute posi- tively to the strengthening of the multilateral trading system. 246
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM The key point here is the last part of the sentence referring to the pre- sentation of ‘a model to the world’. Multilateral negotiations have in important ways been directly shaped by regional agreements. That is, the existing regional agreements have formed the basis of negotiation for some parts of multilateral agreements. For example, the information tech- nology agreement adopted by the WTO in Singapore in 1996 was based on a similar agreement adopted under US pressure in APEC a few months earlier. Many of the provisions of the ill-fated MAI had as their starting point chapter 11 of the NAFTA. Thus, regional agreements have increas- ingly been used as the point of departure for multilateral negotiations. Such agenda setting mechanisms clearly benefit the US and Europe both of whom have reams of legal text to call upon as a result of their exist- ing regional arrangements. Japan had none and, as a result, found itself debating on other’s chosen ground. The need to develop its own ‘model’ of regional arrangements to ‘present to the world’ was therefore an impor- tant factor in persuading Japanese policy-makers of the need to go down the potentially tortuous path of bilateral and regional trade agreements. The importance of regional economic arrangements as having polit- ical pay-offs is also evident from MITI’s subsequent analysis. Here Japan’s ‘multi-layered’ approach is justified (MITI, 2000b: ch.2, p.9) on the grounds that: recently, interest has emerged in trade liberalization beyond tradi- tional regional frameworks, namely the strengthening of links between regional groupings. Examples include the Free Trade Area of the Americas (FTAA), designed to link the US and Latin America, the Trans-Atlantic Free Trade Area (TAFTA) between the US and the EU, moves to conclude a free trade agreement between Mexico and MERCOSUR, and consensus on a free trade agreement between Mexico and EU. Factors behind this new trend are as follows: (1) further promotion of free trade liberalization through the cre- ation of frameworks beyond traditional regional groupings; (2) pro- motion of access to extra-regional markets; and (3) the desire to strengthen influence over other regional groupings and negotiating power with these. Japan, as noted, operating without membership of a regional trade agreement, is unable to play and must stand by as the US and Europe ‘strengthen [their] influence over other regional groupings’ (MITI, 2000b: ch.2, p.9). Japan has signalled that it, too, wishes to enter this game. Further evidence can be found in the September 2000 Report of the Joint Japan-Singapore Study Group. This Group (2000a: ch 1, p.2), set up in December 1999 to look at a possible FTA between the two countries, noted that 247
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY there are different motivations for the pursuit of regional economic integration. Some countries see such agreements as strategic alliances, while others leverage on them to obtain more secure and favourable access to important markets. In some cases, they have also helped to promote policy reforms. Again the importance of FTAs as bargaining tools with other countries/regions is evident. Furthermore, the Study Group (2000a: ch 1, p.3) argued that ‘FTAs can be a testbed for new and innovative models of rules governing economic activity. These can subsequently be adapted for global use. FTAs can therefore provide positive comple- mentary pressure for the evolution of WTO agreements’. The Study Group therefore deliberately proposed an approach that went beyond traditional free trade agreements and which could influence the WTO in areas ‘where either there are no rules yet in the WTO or the existing WTO rules can be further improved upon’ (2000a: ch 3, p.8).45 The inten- tion to use a bilateral agreement as a springboard for multilateral nego- tiations is again in evidence with Japan, in consort with other Asian countries, serving notice that they wish to play a larger role in deter- mining the rules which govern the global economy, rules which have to date relied excessively on the US and Europe for their formulation. Thus, the view has emerged, stemming directly from the experience of Asian countries in the wake of the financial crisis, that the existing international institutions and the balance of power within the global economy leave Asia vulnerable to the interests of the West, especially the US Enhanced regional initiatives offer Asia the potential of coun- tering these interests. This was expressed forcefully by ASEAN Secretary-General Rodolfo C. Severinto (1999) who argued that: a new world order has not yet arrived, in which the interests are balanced and disputes adjudicated fairly under benign rules that are impartially applied and effectively enforced upon all. It is all too clear that such a utopia remains far from being upon us. Until it arrives, a long, long time from now, if ever, economic power, whether of states or of corporations, will continue to have prepon- derant advantage. In the face of this, weaker states must band together regionally, strengthening their solidarity and advancing their common interests. In other words, ‘the rules of the game’ reflect the interests of those who wrote them and favour the powerful rather than establish a level playing field; post-crisis Asian regionalism is the response to this. 248
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM 4 CONCLUSIONS If, as has been advanced in this paper, Asia’s post-crisis regionalism is qualitatively different from that which preceded the crisis, and is premised on an Asia-only vision of economic cooperation forged to coun- ter the power of the US and Europe, then there a number of important implications. One concerns whether the regional initiatives now under- way in Asia will reach fruition or whether external opposition from the US or internal rivalries between Japan and China will intensify and thereby threaten to derail the regional project.46 Another issue concerns the emergence of a ‘three bloc world’, a development which has already been noted by Bergsten (2000a). Important as these issues are, our atten- tion here is focused on the implications of Asia’s post-crisis regionalism for our understanding of the dynamics of the contemporary international political economy. The widely preferred term of analysis to describe the contemporary world has been that of ‘globalization’. While this has spawned an entire academic and popular industry, it can be summarized for our purposes as an analysis of the world which views the current phase of international capitalism as being qualitatively different from earlier phases and as being characterized by a shift in power from nation states to transnational eco- nomic actors and forces. It is a story of ‘markets’ gaining at the expence of ‘states’. For pro-globalists this offers the prospect of a more efficient global allocation of resources and of more effective constraints on inter- ventionist and arbitrary state action. For anti-globalists it offers the prospect of the erosion of sovereignty and the levelling down of social and environmental standards as global corporations gain greater power at the expense of ordinary citizens and their elected representatives. While these two groups may disagree about the desirability of the changes, they agree on the basic dynamics at work. Seen through this lens, the Asian financial crisis can be interpreted, as Price (2000) has argued, as ‘a crisis of globalisation’. It is about states losing too much power to international financial markets and about the attempts of nation states to regain lost controls. Certainly, the monetary regionalism of the post-crisis period can be seen exactly in this light, as an attempt by nation states to re-regulate global finance. This is also evident from MITI’s (1999: 32) analysis: Because the Asian currency crisis shares more of the characteris- tics of 1990s-style currency crises, which are generally sparked by massive capital movements, the usual measures will be inadequate in preventing a recurrence. Rather, consideration of new interna- tional financial system reforms (taxes on capital inflows and out- flows, etc.) should be promoted in order to open the way for stable real economy development in developing countries, which lack the resilience and flexibility of developed countries. 249
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY Aside from the support for international capital taxes, this analysis is interesting precisely for its conceptualization of the problem as one of insufficient state power, particularly in the case of developing country states. Regional and international regulations are therefore necessary to strengthen the ability of states to confront destabilizing global market forces. However, this is not the only analytical framework on offer. The subtitle of this paper refers not simply to bringing the state back in to the analysis of regional integration in the Asian region. It also refers more broadly to the need to locate the state centrally in any analysis of the dynamics of the current phase of international capitalism, a phase in which some states have lost power to markets but in which, crucially, some states have not. Laxer (n.d.) has preferred the term ‘globalism’ to ‘globalization’, stressing that globalism is an ideology, one that is based on neoliberalism and the Washington consensus as integral parts of US foreign policy. This theme is developed further by Petras and Veltmeyer (2000) who prefer the term ‘imperialism’ to ‘globalization’ as a more accurate description of the contemporary world. In this analysis, it is not the interdependence of economies and the erosion of state power vis-d-vis markets which are the relevant points of reference but the continued domination of global markets by the major powers, most notably the US but also Europe, the use of international financial insti- tutions as tools in the hands of these powers and the market-opening strategies of the imperialist powers that are the focus of attention.47 Asia’s post-crisis regionalism also finds resonance with this analysis in the sense that regionalism is being forged to prevent the US and the international financial institutions from exercising their power and shaping Asian economies in their interests as they did in the aftermath of the currency crises. That is, a central reason why it is necessary to bring the state back in to the discussion is precisely because power relations between states are critical to understanding that an important part of Asia’s post- crisis regional project is to keep the United States out. NOTE S 1 I am grateful to the Social Sciences and Humanities Research Council of Canada for the funding which made this research possible. I am also grateful to Osvaldo Croci, Satoshi Ikeda and Brian MacLean for their comments on the paper. 2 ‘Asia’ refers here to the countries of East and Southeast Asia. For consis- tency, the term ‘Asia’ is therefore used in the same way that it has typically be used in analyses of the ‘Asian financial crisis’. South Asian countries do not, therefore, form part of the analysis presented here. 3 For discussion of the ways in which regionalism has been adapted to meet different objectives see, for example, Lawrence (1994). 250
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM 4 The importance of this emergence has also been remarked upon by Fred Bergsten, Director of the Institute for International Economics in Washington D.C., who, writing from a different perspective, has argued (2000b: 23) that ‘the most striking changes in the world trading system, especially in the short-run, are not likely to flow from the World Trade Organisation or the proposed mega-regional arrangements, such as the Free Trade Area of the Americas or an expanded European Union. Instead, they will proba- bly come from the host of sub-regional trade agreements now being busily negotiated by Japan, South Korea, Singapore and other countries in East Asia. Virtually unnoticed by the rest of the world, East Asian countries are getting together to make their own economic arrangements’. 5 Some of the evidence in favour of the emergence of a regional economy, indeed, was based on the use of gravity models of trade which analysed regional trade bias and ignored state sponsored initiatives all together; regions were viewed as ‘natural’, derived from trade data alone. For an example of this type of analysis, see Frankel (1991). For a critique of this approach see Bowles and MacLean (1996b). 6 For a discussion of the changing of FDI role in Japan’s economic policy see, for example, Bowles and MacLean (1996a). 7 On the differences between APEC and the EAEG as conceptions of the ‘Asian region’, see Higgott and Stubbs (1995). 8 For discussion of these characteristics as typical of regionalism during the late 1980s-mid 1990s see Bowles (2000). 9 For an analysis of this process, and its ideological underpinnings, see Cumings (1993) and Woodside (1993). 10 APEC’s originally had 12 members at its formation in 1989 (Australia, Canada, Japan, New Zealand, South Korea, the US and the six members of ASEAN). Since then China, Taiwan, Hong Kong, Mexico, Papua New Guinea, Chile, Vietnam, Peru and Russia have also joined bringing membership to 21 ‘economies’. 11 This discussion of AFTA’s origins draws on Bowles (1997). 12 Quoted from the Joint Communique of the ASEAN Ministerial Meeting (1991). 13 This is further confirmed by official pronouncements at the time. For example, Singapore’s Prime Minister Goh Chok Tong commented that ‘unless ASEAN can match the other regions in attractiveness both as a base for investments and as a market for their products, investments by multinational companies are likely to flow away from our part of the world to the S[ingle] E[uropean] M[arket] and NAFTA’. Quoted in the Straits Times, Singapore, 28 January, (1992), p. 22. 14 It is estimated that private capital flows to the ASEAN-4 plus South Korea went from a net inflow of US$ 93.8 bn in 1996 to a net outflow of US$ 6 bn in 1997. See MITI (1999: 3). 15 For the most comprehensive set of materials on the financial crisis, see the website put together by N. Roubini <http://www.stern.nyu.edu/ globalmacro/>.The discussion here draws upon MacLean et al. (1999). 16 The financial package put together involved loans made by the IMF, the World Bank, the Asian Development Bank and by other countries. 17 See Radelet and Sachs (1998). 18 See Krugman (1998). For an analysis of how Krugman’s ‘crony capitalism’ hypothesis emerged and became the dominant explanation of the crisis see MacLean (1999). In general, there has been an intellectual appeal to viewing 251
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY the Asian crisis as caused by a single dominant factor. This overlooks the fact that crises may have different causes in different countries and, in partic- ular, that there might be differences between those countries in Southeast Asia and that of South Korea in North Asia. For a country specific analysis of South Korea see, for example, Haggard and Mo (2000). 19 See Ferguson (2000) for a useful compilation of statistics on the financial crisis in Asia and on the relative magnitudes of the crises in Asia and Latin America. 20 See also Gill (1999) who argues that ‘the Asian crisis has been a means for the United States to strengthen its strategic interests worldwide’. 21 As an example of such triumph see, for example, Federal Reserve Chairman Alan Greenspan’s (1998) comments. 22 The analysis is restricted here to state-level responses to the crisis, on the grounds that this is most relevant for analysing the regional arrangements discussed below. In other contexts, other levels of response might be more appropriate to analyse. For discussion of working-class responses see, for example, McNally (1998). 23 For opposition to the AMF see Noland (2000). 24 For discussion of Japan’s role in the crisis, as seen by both Japan and other countries, see Hughes (2000). 25 The position of Taiwan does, however, remain ambiguous. 26 See, ‘E Asia Nations to Agree to Swap Currency Reserves’, Nihon Keizai Shimbun, 29 April (2000). 27 See Bergsten (2000a) and Dieter (2000). 28 See ‘IMF to send Finance Advisors to SE Asian Nations’, Nihon Keizai Shimbun, 2 July (2000). A referee has contributed that, based on his/her interviews with Japanese officials at the Ministry of Finance, Japan now supports a ‘region of financial stabilisation’ and that ‘the appointment of Japanese offi- cials in Thailand and Vietnam are the first moves to establishing the know- ledge network that will be required for this scheme to mature into an IMF equivalent’. I am grateful to the referee for passing on this information. 29 This raises the interesting possibility that any such Northeast Asia bloc could eventually join up with AFTA thereby creating a full East Asia bloc. 30 See ‘China’s Policy on Asian Financial Crisis – Interviewing Dai Xianglong, Governor of the People’s Bank of China’, Ta Kung Pao, Hong Kong, 4 November (1998), as in FBIS-CHI-98-313. 31 The social and political risks attached to a devaluation were acknowledged by Li Ruihuan, a member of the CPC’s Central Committee Political Bureau. See ‘Beijing: Stability is First Priority; Currency Will Not Be Devalued’, Wen Wei Po, Hong Kong, 27 January (1999) as in FBIS-CHI-99-027. 32 See ‘Article on Sino-US Financial Cooperation’, Zhongguo Tongxun She, Hong Kong, 3 June 1998 as in FBIS-CHI-98-154. 33 This expectation was noted in an interview by China’s chief WTO nego- tiator, Long Yongtu. See ‘CRI Interview With Long Yongtu on WTO’, China Radio International, 8 January (1999) as in FBIS-CHI-99-008. 34 See ‘Japan Should Shoulder the Responsibility of a Major Power’, Renmin Ribao, 29 July (1998) as in FBIS-CHI-98-225. 35 See, for example, Wang Dajun (1998). 36 As Hughes (2000: 233) notes, ‘Japan’s sense of humiliation was … com- pounded during the US-China summit … when Presidents Bill Clinton and Jiang Zemin took the extraordinary step of commenting in a bilateral setting on the deficient management of the yen and Japan’s economy’. 252
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM 37 See ‘China Makes Preparations for Introduction of Euro; Wang Mengkui Analyzes Its Pros and Cons, Saying China Will Not Change All Its US Dollars Into Euro’, Ta King Pao, Hong Kong, 11 October (1998), as in FBIS-CHI- 98-294. The presumed increased importance of China in U.S. policy as a result of the Asian crisis is also highlighted in Chinese press articles at the time of President Clinton’s June 1998 state visit to China. For example, an article by Li Zhengxin (1998) argues that ‘President Jiang Zemin’s successful visit to the United States last year caused Sino-US relations, which had been at a crossroads, to make a directional change … Now, eight months later, US President Clinton will also make a visit to China. This not only indicates that the United States hopes to maintain the momentum of improvement and development in Sino-US relations, but also that there is a deeper consid- eration, namely that while ‘structurally’ adjusting its Asia strategy, the United States is elevating China’s status in its Asia-Pacific formula … In recent years, the United States has begun to realize that in order to deal with any major problem within the Asian region, it is first necessary to have China’s understanding and co-operation. The Asian financial crisis has further strengthened this realization of the US government’. 38 See ‘Subject of Talks Brought About by Financial Crisis – Senior Official Zhang Yan on ’98 APEC Kuala Lumpur Conference’, Shijie Zhishi, Beijing, 1 January (1999), p. 33. 39 China’s central bank Governor Dai Xianglong declared in November 1998 that Thailand and South Korea had ‘adopted and properly implemented many of the reform measures recommended by the IMF, which have pro- duced positive results. Besides, the governments’ actions have won the under- standing and support of the public. In particular, I saw many civilians in the ROK donating their gold rings. This is why the conditions in these two countries are turning for the better’. (‘China’s Policy on Asian Financial Crisis – Interviewing Dai Xianglong, Governor of the People’s Bank of China’, Ta Kung Pao, 4 November 1998, as in FBIS-CHI-98-313.) Presumably, these were not the same members of the public interviewed one month later by a survey team in South Korea. This poll (Chong Chae-yong, 1999) found that ‘over half of the people have a negative view of the IMF, for example perceiv- ing it simply as “an international organization representing the interests of advanced countries,” rather than as an “international financial organisation that is helping us”. Moreover, 57 percent gave a dissatisfied response con- cerning the IMF’s ROK-related activities over the last year. Concerning our government’s diplomacy with the IMF, over half consider it inappropriate and humiliating’. 40 China’s diplomatic efforts also included a framework for long-term cooper- ation between China and Thailand, the first time such a framework had been established with an ASEAN country. See Chongkittavorn (1999). 41 Economic Daily, 14 May (2000). 42 As an example of this improvement, contrast the visits of senior Chinese leaders to Japan. In December 1998 President Jiang Zemin’s visit was punc- tuated with the Premier informing his hosts of their need to acknowledge and apologize for their wartime atrocities in China. When Chinese Premier Premier Zhu Rongji visited in October 2000, however, this long-standing thorn in the side of improving Sino-Japanese relations was apparently down- played. In Japan, this was interpreted in the press (Hasegawa, 2000) as indicating that ‘China desires cooperation between the two nations in order to survive the century as a major economic power capable of challenging 253
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY the US. The possibility of riding such a wave as a leading partner is an irre- sistible draw for Japan’. 43 Article XXIV of the GATT requires that regional trade agreements cover ‘substantially all sectors’. 44 If this policy is successful then, as Hughes (2000: 251) notes, ‘the actual outcome of the East Asian currency crisis may not be to undermine Japanese leadership and the model of the developmental state in the region, but, against all expectations, actually to consolidate them’. 45 The areas identified in this context were electronic commerce, definition of service providers, non-tariff measures, investment, mutual recognition, anti- dumping and consultation and dispute settlement. 46 A referee suggests that, in addition to the reasons for the Japan-Singapore free trade initiative outlined above, a further dimension may be Japan’s desire to strengthen its position in Southeast Asia relative to China. 47 As Higgott (1998: 345) notes ‘the utilisation of “impartial” multilateral agen- cies has long been seen as an important way to “put at one remove” or “depoliticise” US policy interests in the imposition of economic conditions on developing countries’. REFERENCES Bergsten, C. F. (2000a) ‘The New Asian Challenge’, Institute for International Economics, Working Paper 00-4, March, available at <http://www.iie.com/ CATALOG/WP/2000/00-4.html>. Bergsten, C. F. (2000b) ‘Towards a Tripartite World’, The Economist, 15-21 July. Bhagwati, J. (1998) ‘The Capital Myth: The Difference Between Trade in Widgets and Trade in Dollars’, Foreign Affairs, 77(3): 7-12. Bowles, P. (1997) ‘ASEAN, AFTA, and the “New Regionalism”‘, Pacific Affairs, 70, 2: 219-33. Bowles, P. (2000) ‘Regionalism and Development After(?) the Global Financial Crisis’, New Political Economy, 5(3): 433-55. Bowles, P. and MacLean, B. (1996a) ‘Regional Blocs: Will East Asia Be Next?’, Cambridge Journal of Economics, 20: 393-412. Bowles, P. and MacLean, B. (1996b) ‘Understanding Trade Bloc Formation: The Case of the ASEAN Free Trade Area’, Review of International Political Economy, 3(2): 319-48. Chong, Chae-yong (1999) ‘An Opinion Poll on IMF Activities – 49.4 percent Say the “IMF Is a Mouthpiece of Advanced Countries’ Interests”‘, WIN, Seoul, December, as in FBIS-EAS-98-356. Chongkittavorn, K. (1999) ‘Thai Policy Meets China Challenge’, The Nation, Bangkok, 2 February 1999, as in FBIS-EAS-99-033. Cumings, B. (1993) ‘Rimspeak; or, The Discourse of the “Pacific Rim”‘, in A. Dirlik (ed.) What’s In a Rim? Critical Perspectives on the Pacific Region Idea, Boulder, Colorado: Westview Press, pp. 29-47. Dieter, H., (2000) ‘Asia’s Monetary Regionalism’, Far Eastern Economic Review, 6: 30. Ferguson, R. (2000) ‘Tale of Two Continents: A Comparison of Asia and Latin American Experiences during Recent Financial Turmoil’, remarks before the National Economic Association, Boston, Massachusetts, 7 January, available online at: <http:/ /www.federalreserve.gov/boarddocs/speeches/2000/ 20000107.htm#exhibits>. 254
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
BOWLES: ASIA’S POST-CRISIS REGIONALISM Frankel, J. (1991) ‘Is Japan creating a yen bloc in East Asia and the Pacific?’ paper presented to the NBER conference on ‘Japan and the U.S. in Pacific Asia’, Del Mar, California, 3-5 April. Gill, S. (1999) ‘The Geopolitics of the Asian Crisis’, Monthly Review, 50(10): 1-9. Greenspan, A. (1998) ‘The Ascendancy of Market Capitalism’, remarks before the Annual Convention of American Society of Newspaper Editors, Washington D.C., 2 April. Available online at: <http://www.bog.frb.fed.us/boarddocs/ speeches/19980402.htm>. Haggard, S. and Mo, J. (2000) ‘The Political Economy of the Korean Financial Crisis’, Review of International Political Economy, 7(2): 197-218. Hasegawa, M. (2000) ‘Sino-Japanese Ties on the Mend’, Nikkei Weekly, 16 October. Higgott, R. (1998) ‘The Asian Economic Crisis: A Study in the Politics of Resentment’, New Political Economy, 3(3): 333-56. Higgott, R. and Stubbs, R. (1995) ‘Competing Conceptions of Economic Regional- ism: APEC Versus EAEC in the Asia Pacific’, Review of International Political Economy, 2(3): 516-35. Hughes, C. (2000) ‘Japanese Policy and the East Asian Currency Crisis: Abject Defeat or Quiet Victory?’, Review of International Political Economy, 7(2): 219-53. Krugman, P. (1998) ‘What happened to Asia?’, available online at: <http:// web.mit.edu/krugman/www/DISINTER.html>. Lawrence, R. (1994) ‘Regionalism: An Overview’, Journal of Japanese and Inter- national Economics, 8(4): 356-87. Laxer, G. (no date) ‘The Movement That Dare Not Speak Its Name: The Return of Left Nationalism/Internationalism’, mimeograph. Li Zhengxin (1998) ‘Focus on China – My Views on the United States’ Adjustments to its Asia Strategy’, Shijie Zhishi, 16 May 1998, as in FBIS-CHI- 98-159. MacLean, B. (1999),’The Transformation of International Economic Policy Debate 1997-98′, in B. MacLean (ed.) Out Of Control, Toronto: James Lorimer, pp. 67-94. MacLean, B., Bowles, P. and Croci, 0. (1999) ‘East Asian Crises and Regional Economic Integration’, in A. Rugman and G. Boyd (eds) Deepening Integration in the Pacific Economies, Cheltenham: Edward Elgar, pp. 19-54. McNally, D. (1998) ‘Gobalization on Trial: Crisis and Class Struggle in East Asia’, Monthly Review, 50(4): 1-14. MITI (1999) White Paper on International Trade 1999, English Executive Summary, Tokyo: MITI. MITI (2000a) Japan-Singapore Economic Agreement for a New Age Partnership, Released 29 September, Tokyo: MITI. MITI (2000b) The Economic Foundations of Japanese Trade Policy – Promoting a Multi- Layered Trade Policy, White Paper, Tokyo, Released 22 August. Naughton, B. (ed.) (1997) The China Circle: Economics and Technology in the PRC, Taiwan and Hong Kong, Washington, DC: Brookings Institution Press. Noland, M. (2000) ‘Japan and the International Economic Institutions’, paper prepared for the Centre for Japanese Studies (Macquarie University) Fifth Biennial Conference, ‘Can the Japanese Change? Economic Reform in Japan’, Sydney, Australia, 6-7 July. Petras J. and Veltmeyer, H. (2000) ‘Globalisation or Imperialism?’, Cambridge Journal of International Affairs, XIV(1): 32-48. Price, J. (2000) ‘Economic Turmoil in Asia: A Crisis of Globalization’, in S. McBride and J. Wiseman (eds) Globalization and Its Discontents, London: Macmillan, pp. 187-99. 255
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
REVIEW OF INTERNATIONAL POLITICAL ECONOMY Radelet, S. and Sachs, J. (1998) ‘The East Asian Financial Crisis: Diagnosis, Remedies, Prospects’, Brookings Papers on Economic Activity, vol. 1, Washing- ton, DC, pp. 1-90. Rodolfo C. Severinto, H. E. (1999) ‘Regionalism: The Stakes for South-East Asia’, Address delivered in Singapore, 24 May, at ASEANWEB. Stubbs, R. (1995) ‘Asia-Pacific Regionalization and The Global Economy: A Third Form of Capitalism?’, Asian Survey, XXXV(9): 785-97. Wang Dajun (1998) “‘Doing Harm to Neighbours” or “Pulling Together in Times of Trouble”?’, Liaowang, Beijing, No. 26, 29 June 1998 as in FBIS-CHI-98-195. Woodside, A. (1993) ‘The Asia-Pacific Idea as a Mobilization Myth’, in A. Dirlik (ed.) What’s In a Rim? Critical Perspectives on the Pacific Region Idea, Boulder, Colorado: Westview Press, pp. 13-28. 256
This content downloaded from 150.203.154.100 on Mon, 27 May 2013 03:47:04 AM
All use subject to JSTOR Terms and Conditions
ORDER THIS ESSAY HERE NOW AND GET A DISCOUNT !!!

 

Testimonials

What is “new regionalism”