South Korea, China, and Japan have recently gotten together to discuss economic issues. On May 7th, economists from the three nations met to talk about strategies to nurture new growth engines, and that meeting was followed by a tripartite summit in Beijing on May 13th. Are these the signs of a new powerful economic bloc in Northeast Asia? Today we have invited Jang Yoon-jong, director of the Center for Growth Engine Industries at the Korea Institute for Industrial Economics and Trade, to answer that question. First, he tells us what prompted the three neighboring nations to convene such frequent meetings.
Korea, China, and Japan had been complementary in their relationships, for they specialize in different areas and vary in technological development levels. But the dynamics have become rather competitive in recent decades with the fast-growing Chinese industries trying to catch up with Korea’s leading businesses, which in turn are trying to overtake their Japanese rivals. Instead of competing, however, if the three nations joined forces, we could all enjoy a much faster and greater growth. There is a synergistic potential for the neighboring nations to take charge of the global industries. There have been many propositions to start large-scale joint projects, much like the European consortium of the United Kingdom, France, Spain and Germany that formed to launch the aircraft manufacturer Airbus. Several participants at the recent economic meeting proposed that Korea and its neighboring nations should work together in the areas of green vehicles, solar power, international standards, and more.
Korea, China, and Japan have all relied on exports to bring rapid growth and a better quality of life for their citizens. Subsequently, their flagship export industries – machinery, automobiles, and shipbuilding – have become overlapped and technological gaps have steadily narrowed. The competition among the three countries has grown fiercer in the global export market, but if they became partners, they have the potential and capacity to become global industrial leaders. Korea has the world-leading IT sector, Japan boasts 93% of all the source technologies for new industries, and China has a huge market and equally vast workforce. Just like the European consortium of France, Germany, the United Kingdom, and Spain created Airbus, Korea, China, and Japan could prepare for a new future by launching large-scale projects capitalizing on each country’s strengths and nurturing new growth engines, such as eco-friendly cars, solar power generation, and new materials. Before this grand idea can be put to action, however, the three countries needed a chance to devise a detailed plan, and that’s what the tripartite summit held on May 13th hoped to achieve.
Previously, tripartite cooperation projects were usually initiated by the business sector. Inter-governmental cooperation has been surprisingly minimal. Perhaps the acrimonious historical relationships among the three nations could have hindered government-level cooperation projects. The latest tripartite summit was the fifth one of its kind, and yielded an investment protection agreement. The accord gave the businesses of the three countries freedom to make investments. The tripartite summit is instrumental in promoting cooperation, because the heads of state in all three countries wield considerable power in the policy-making process. Tripartite summits are very important in fostering cooperation among the three, because the three heads of state have the power to resolve sticky issues and steer the tripartite relations in the right direction
The May 13th tripartite summit yielded an investment guarantee accord, the first economic agreement forged by the three parties. The leaders also agreed to start talks on a tripartite free trade deal before the year is over, kicking off the preliminary phase of the negotiation. As of 2010, Korea, China, and Japan accounted for 19.6% of the world’s gross domestic product, 18.5% of global exports, and 16.3% of imports. When the three nations strike a free trade deal, it will fully liberalize the greatly lucrative Northeast Asian market with 1.5 billion people and 12 trillion dollars in GDP. A tariff-free market in Northeast Asia would make it the third largest economic bloc in the world, following the European Union and the NAFTA-based North American market. The economic integration of Korea, China, and Japan is expected to bring many benefits to the rest of the world as well.
The financial sector plays an important role in managing global risks. Korea has been toughened by a foreign currency crisis in the late 1990s, and the three countries have discussed strengthening regional financial countermeasures, such as currency swap deals. The three countries would stand a better chance against another financial crisis triggered by the European fiscal troubles if they had such cooperative measures in place. I believe them to be the most practical and helpful solutions for Korea. Furthermore, the three countries could help stabilize the euro zone if they bought European bonds together, and ultimately bring normalcy to the global economy.
A look at the trade map among the three countries indicates that most of the regional trade occurs with only one partner. Trade in this region typically occurs as bilateral exchanges between Korea and China, China and Japan, and Korea and Japan. This type of trade structure leaves all three export-dependent countries vulnerable to external shocks like the global recession. But a tripartite free trade accord and expanded economic cooperation like strengthened currency swap deals could help keep the financial markets of these three countries stable. The three countries could also help stabilize European finances by jointly purchasing European bonds. Nonetheless, the road to true tripartite cooperation appears long and rough. It is not easy to put aside the animosities built over a long period of political, economic, and historical conflicts involving the three nations. This is why all the parties have to work extra hard to usher in a new era of cooperation.
Korea, China, and Japan account for one-fifth of the total global productivity and one-sixth of all world trade. The three countries take up quite a significant share in the global economy. So if the three nations got together to discuss new growth engines or industrial development, or even cultural, social, and educational issues, all three nations could enjoy amazing growth and build the foundation for a globally powerful economic bloc. Until now, the three countries have competed rather than cooperated with one another, but from now on we should work together to bring economic development and spearhead the global economy.
The joining of hands among Korea, China, and Japan could bring prosperity to not only the Northeast Asian region, but also to the rest of the world. Hopefully, the recent economic meetings could bring about continued discussions on regional cooperation and joint prosperity.