Asian govts must join forces on infrastructure They have neglected this precondition of regional integration and prosperity for far too long
By ANTHONY ROWLEY TOKYO CORRESPONDENT http://business-times.asia1.com.sg/sub/views/story/0,4574,162202,00.html? TWO contrasting faces of East Asia are presented nowadays, on the one hand by official efforts to promote regional economic integration and on the other by disputes involving Japan, China and others over territorial and historical issues. These two faces present an image of a region that is at odds with itself. The reality is that an interlocking web of production networks spreading across the region has already created a kind of virtual Asian economic community. It is not only politicians who need to come to terms with this new economic reality, the extent of which is revealed in the latest White Paper on International Economy and Trade published by Japan's Ministry of Economy, Trade and Industry (Meti). As Japan's former vice-finance minister for international affairs Eisuke Sakakibara says, those who see Asian exchange rates as being at the root of global financial imbalances have also failed to grasp what is going on. Unnoticed by many policy makers, it seems, the postwar model of a series of East Asian nations exporting individually to the markets of the West has given way to one where, as the White Paper says, 'an international division of labour is taking place through a closely-knit intra-regional network, with participants meeting domestic final demand and generating exports on top of that'. The elegance of this design is remarkable despite (or perhaps because of) the fact that it is not a product of conscious planning by officialdom. Not only have companies managed to create a cross-border division of labour within East Asia - one that avoids industrial trade conflicts between countries of the region - but also what Meti calls a 'triangular trade' arrangement has risen that accommodates trade between East Asia and the rest of the world. 'Parts and processed goods produced by Japan and the newly industrialised economies (NIEs) - South Korea, Taiwan, Hong Kong and Singapore - are being imported as intermediate inputs by China and the Asean nations, which then assemble them into finished goods for final consuming markets in the United States and Europe'. This model, adds Meti, is becoming 'increasingly sophisticated' as it evolves. In an ideal world, national governments in East Asia would not only have recognised the degree of economic interdependence which has developed almost unseen within the region; they would also be consciously aiding the process. For example, the White Paper notes, 'the European Union created the Cohesion Fund as a fiscal initiative to build up infrastructure that would allow member countries to adjust to the intensified competition caused by economic integration'. Not so in East Asia. Aside from a commendable effort by the Asian Development Bank (ADB) to promote cross-border cooperation on infrastructure in the Mekong sub-region and elsewhere, governments in this region have failed to grasp the need for improving transport, communications and other infrastructure links needed to underpin the silent new industrial revolution that is taking place across national borders. This is symbolic of a wider problem in East Asia that has arisen from the fact that, as the Meti White Paper shows, business is proving to be far more fleet-footed in promoting regional economic integration than have politicians and government officials. There are as yet no institutions to build on the foundations for economic cooperation, whether it be in cross-border infrastructure facilities, trade and customs cooperation or in monetary affairs. The ADB and Apec, along with organs such as the Asean secretariat in Jakarta, do their best in this direction but the situation in East Asia is the reverse of that in Europe, where special institutions were created at the outset to smooth and speed the process of economic integration. The progress achieved thus far in this region has been despite, rather than because of, official initiatives. But Meti suggests that it is time now for Asian governments to devote official aid to areas such as cross-border infrastructure cooperation. East Asian governments are guilty of sins of commission as well as omission so far as the integration process is concerned. Not only have they failed to provide an institutional underpinning but in the case of Japan and China especially, they are allowing nationalism to threaten the economic as well as diplomatic relationship between them. In this regard, Meti allows itself to fall into the same trap in its White Paper. It devotes what seems to be a disproportionate amount of time to warning Japanese businessmen that 'they must not allow themselves to be dazzled by impressive growth figures' in China. In what appears to be a gesture in the direction of the current rather hostile mood in Japan towards China, Meti set out a litany of warnings about potential problems in the Chinese economy, ranging from unemployment and social security issues to energy shortages and urban/rural imbalances plus a host of others. Meti also acknowledges, however, that Japan has its own problems which could damage its position as the technological leader in an economically integrating East Asian region. As Japan's population begins to decline from 2006, 'shortages of labour and capital could develop' in Japan, says Meti. 'Under these circumstances, it is important for Japan to adopt an economic strategy that includes the pursuit of economic partnership agreements as a means of plugging into the vitality of an increasingly interdependent East Asian economy.' For the region as a whole, one problem to be heeded is that investment rates are still falling in the wake of the trauma caused to financial systems by the 1997 Asian financial crisis, Meti says. An even bigger threat, however, as Mr Sakakibara suggested recently, is that China could be forced to revalue its exchange rate - forcing other Asian currencies up in the process - in an effort to blunt the competitiveness of Asian economies that under the new regional order draw strength from cross-border production networks rather than from undervalued currencies. --------------------------------- Meet your soulmate! Yahoo! 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