Chen Youjun

Research Fellow, Shanghai Institutes for Int'l Studies

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by Chen Youjun

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Chen Youjun is a research fellow at the Institute of World Economy, Shanghai Institutes for International Studies.
Jun 12, 2012

A highlight of the recent China-Japan-ROK summit was an agreement by the three neighbors to kick off free trade zone talks as soon as possible. The initiative is a natural outcome of the economic cooperation and trade liberalization the countries have been sharing for many years.

Their total trade volume increased from $130 billion to $690 billion in the period 1999 to 2011. China has become the largest trade partner of both Japan and the Republic of Korea (ROK) while Japan and ROK are respectively China’s fourth and sixth largest trade partners. Also, Japan and ROK are important sources of foreign investment to China. Up to the end of 2011, the accumulated direct investment in China by Japan and ROK was $80 billion and $50 billion respectively. Accordingly, the increasing exchange of trade and investment between the three reflects the deepening foundations of East Asian economic integration.

A China-Japan-ROK free trade zone would be an important development in the current global financial cycle. As financial instability has weakened the leadership and control of Western industrialized countries over the world economy, other countries and regions are opting for realistic regional cooperation to escape the effects of the crisis as soon as possible. Thus, as Asia’s economy, especially East Asia’s, has driven world economic recovery, it is no surprise that the logical outcome is further economic integration, as exemplified by China-Japan-ROK economic cooperation.

The successful launch of a China-Japan-ROK free trade zone will promise an important new force on which to build a new international political and economic order. The strength of the force is found in the statistics. The GDP of China, Japan and ROK in 2010 were $5.74 trillion, $5.46 trillion and $1.01 trillion respectively, together accounting for $12 trillion, or 94.6%, of the GDP of East Asia ($12.91 trillion) and 19.4% ($63.06 trillion) of world GDP. In essence, China, Japan and ROK are the absolute economic core of East Asia, and they account for one fifth of world GDP. Any economic agreement reached by the three countries will certainly exert far-reaching influence on the world economy.

More importantly, however, it is particularly urgent for China, Japan and ROK to reach an economic cooperation agreement that suits East Asian and Asia Pacific conditions, especially when it comes to the Trans-Pacific Partnership (TPP). This partnership includes not only the United States, Japan and other industrialized countries, but also developing countries like Vietnam and Chile. While the exponentially, complementary economic structure among TPP members is good for their cooperation, it nevertheless adds strategic risk to the economic development of poorer countries. These countries must make a choice between short-term economic benefit and medium- and long-term strategic development, if not also giving up some strategic industries of important national interest. The wide diversity between TPP members in terms of economic prowess and industry structure makes it difficult for the partnership to maximize the benefits of cooperation. Also, the TPP framework has complicated rules about zero tariffs, labor standards, environmental controls, and so on.

Some of these rules are irrelevant to real operating conditions in most of the developing countries, thus bringing into question the feasibility and applicability of the TPP. In contrast however, China, Japan and ROK are all important economic powers with no major gaps between their trade and economies, so it is easy for them to achieve economic cooperation in certain areas. In comparison with TPP, a China-Japan-ROK free trade zone would be more reasonable, realistic and concrete, thanks to the choice of a trade agreement as the basis for cooperation. At the same time, a free trade agreement is an ideal “customization” for promoting East Asian economic integration.

 

Chen Youjun is a research fellow at the Institute of World Economy, Shanghai Institutes for International Studies.