Assessing China's Economic Recovery and Changing Roles in the Region

HONOLULU (August 25) -- China's economy is "roaring" back, with predictions of nine to 10 percent growth next year, reflecting a "rising tide" in Asia as the region's economies rebound, agreed a group of influential economists, foreign policy officials and analysts who gathered in Honolulu in early August for the East-West Center's 10th Senior Policy Seminar.

During the two-day seminar on the implications of the global economic crisis for the Asia Pacific region, participants exchanged views on the rebalancing of Asia's economies from exports to the domestic market, the changing balance of power, and implications for trade and regional cooperation. They also speculated on how China will handle its growing dominance in the region and its accompanying shift in global stature, and whether this will diminish U.S. influence in Asia.

The seminar, which follows the "Chatham House Rule" under which comments are not publicly attributed to participants by name, brings together front-line experts to exchange views on core issues facing the region today.

China's Recovery and Role in the Region

China's robust recovery from the global economic crisis and what that means for Asia dominated discussion. One analyst referred to China as "the only locomotive" in the region. Economists noted that China is using the crisis to address imbalances in its economy, with the government moving aggressively to focus less on exports and more on domestic demand, raising concern this could be at the expense of its Asian neighbors.

One participant cautioned that the long-term picture is more mixed, asking, "Can China's domestic market ever replace the U.S. export market?" And suggesting, "The answer is murky and is possibly no."

China is unprepared for its new prominence just as the U.S. was with the collapse of the Soviet Union, suggested a foreign policy expert. The evolution of the U.S.-China relationship will be a key determinant of political stability in East Asia in coming years, another specialist said.

Conferees said Asia wants to see good relations maintained between the U.S. and China, saying that if there are tensions between the two countries, it will put other Asian countries in an uncomfortable situation. Among the challenges identified for the U.S. and China are the imbalance in their trade relationship, and issues of democracy and human rights.

Japan in Decline?

From the days when all the talk was about the "Japanese miracle," today it is almost all about China. "Japan is still one of the largest economies in the world, but it doesn't draw attention and in fact is in decline," observed one expert.

An economist said, "Japan has a big stake in the new architecture rising out of the crisis, but Japan is not playing much of a role in this. Can Japan afford to do this?"

It is expected that the August 30th national elections will spell the end of rule by the Liberal Democratic Party (LDP) for the first time in 50 years and victory for the Democratic Party of Japan. But several participants said governing will be difficult. "It will not be easy navigation in this rough global situation," an analyst said.

Without major changes, Japan's economy will not revive, several participants contended. The LDP will splinter and is already fragmenting, they said, but don't look for the emergence of a two-party system. Instead Japan will face a chaotic political situation for several years.

No U.S. Leadership on Trade

Participants shared a concern about the Obama administration's stance on trade. Trade is not on the front burner, several said, with the administration focused on fighting two wars and health care reform. For the first time, they observed, polling shows the American public opposes trade, and there is an underlying current in the Democratic Party against liberalization.

The consensus was that Asia is concerned about growing protectionism in the U.S., the public mood against trade and "Buy America" provisions in the stimulus package. While the "Buy America" provisions may not have much "teeth," it was agreed that perceptions are important.

Conferees concluded that Asia shouldn't look to the U.S. for leadership on free trade issues. But it was pointed out that lack of leadership in Asia and the U.S. is rooted in public skepticism about trade throughout the region, fed by the perception that free trade is giving away jobs. It was suggested that governments need to create new jobs, with trade as a part of the plan but not the only answer.

Despite the trauma, a specialist said, the global economic crisis opened some new institutional possibilities and welcome symbiotic relationships in Asia that contrast quite markedly with what's going on in North America.

Regional Integration and Cooperation

Asian participants repeatedly called for more integration and cooperation regionally. As Asian countries rebalance their economies, they said, regional cooperation is needed so domestic demand can increase without hurting competitiveness. Asia must act together now toward regional integration, participants suggested, and not wait for U.S. leadership.

It was agreed that if Asia is serious about regional cooperation, there must be more effort put into successfully structuring regional institutions. Several noted the huge potential for cooperation on infrastructure – such as highways, rail and port facilities -- in the region.

Participants saw it as good news that the Obama administration recently signed an ASEAN treaty and will appoint an ASEAN ambassador to be based in Jakarta, calling it another indication the new administration is not just focused on East Asia but on the entire region.

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