Routledge Handbook of Asian Regionalism 9780415580540, 0415580544, 9780203803608, 0203803604

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Routledge Handbook of Asian Regionalism

The Routledge Handbook of Asian Regionalism is a definitive introduction to, and analysis of, the development of regionalism in Asia, including coverage of East Asia, Southeast Asia and South Asia. The contributors engage in a comprehensive exploration of what is arguably the most dynamic and important region in the world. Significantly, this volume addresses the multiple manifestations of regionalism in Asia and is consequently organized thematically under the headings of:     

conceptualizing the region economic issues political issues strategic issues regional organizations

As such, the Handbook presents some of the key elements of the competing interpretations of this important and highly contested topic, giving the reader a chance to evaluate not just where Asian regionalism is going but also how the scholarship on Asian regionalism is analysing these trends and events.

This book will be an indispensable resource for students and scholars of Asian politics, international relations and regionalism. Mark Beeson is Winthrop Professor of Political Science and International Relations at the University of Western Australia. Richard Stubbs is Professor of Political Science at McMaster University, Canada.

Routledge Handbook of Asian Regionalism

Edited by Mark Beeson and Richard Stubbs

First published 2012 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Avenue, New York, NY10016 Routledge is an imprint of the Taylor & Francis Group © 2012 Editorial selection and matter, Mark Beeson and Richard Stubbs; individual chapters, the contributors. The right of Mark Beeson and Richard Stubbs to be identified as editors of this work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Routledge handbook of Asian regionalism / edited by Mark Beeson and Richard Stubbs. p. cm. Includes bibliographical references and index. 1. Regionalism--Asia. 2. Regionalism (International organization)--Asia. 3. Asia--Foreign relations--1945- 4. Asia--Politics and government--1945I. Beeson, Mark. II. Stubbs, Richard. JZ5333.R68 2011 327.5--dc22 2011011732 ISBN 978-0-415-58054-0 (hbk) ISBN 978-0-203-80360-8 (ebk) Typeset in Bembo by Integra Software Services pvt. Ltd, Pondicherry, India

Contents

List of Illustrations List of contributors List of Abbreviations Acknowledgements Introduction Mark Beeson and Richard Stubbs

ix xi xvii xxiii 1

PART I

Conceptualizing the Asian region

9

1 Theories of regionalism Fredrik Söderbaum

11

2 East Asian regionalism Gilbert Rozman

22

3 The shift to the modern world in East Asia: war, memory and regional identity Peter Preston 4 A non-Eurocentric global history of Asia John M. Hobson 5 East Asia when China was at the centre: the tribute system in early modern East Asia David Kang

33

46

58

PART II

Economic issues 6 The significance of the overseas Chinese in East Asia Gordon C. K. Cheung

75 77

v

Contents

7 The developmental state and Asian regionalism Richard Stubbs

90

8 What is driving the internationalization of Asia’s business groups? Michael Carney

100

9 Trade integration in Asia Heribert Dieter

116

10 Regional financial cooperation Saori N. Katada

129

11 China–ASEAN relations: the core of Asian regionalism Nicholas Thomas

138

PART III

Political issues

153

12 Asia, ASEAN and the question of sovereignty: the persistence of non-intervention in the Asia-Pacific Shaun Narine

155

13 The ASEAN People’s Forum (APF) as authentic social forum: regional civil society networking for an alternative regionalism Helen E. S. Nesadurai

166

14 Regulatory regionalism in Asia Shahar Hameiri and Kanishka Jayasuriya

177

15 Corruption in East Asia Howard Dick

186

16 Social policy in East Asia M. Ramesh

200

17 Asian regionalism and human rights: the case of the ASEAN Intergovernmental Commission on Human Rights Anthony J. Langlois

216

18 Asian regionalism and law: the continuing contribution of ‘legal pluralism’ Michael Dowdle

226

19 Democracy, development and authoritarianism Mark Beeson

236

vi

Contents

PART IV

Strategic issues

249

20 The rise of China and East Asian regionalism Min Ye

251

21 Regional leadership in East Asia: Japan and China as contenders Christopher M. Dent

263

22 Perspectives in Asia-Pacific security studies Sorpong Peou

275

23 Comprehensive security in East Asia Ralf Emmers

289

24 Regionalizing environmental security in Asia Lorraine Elliott

300

25 Non-traditional security Alan Collins

313

PART V

Organizations

325

26 ASEAN Anja Jetschke

327

27 The ASEAN Regional Forum: challenges and prospects Takeshi Yuzawa

338

28 APEC: Asia-Pacific Economic Cooperation Nick Bisley

350

29 ASEAN Plus Three: becoming more like a normal regionalism? Takashi Terada

364

30 The East Asia Summit: Pan-Asian multilateralism rather than intra-Asian regionalism David Camroux

375

31 Phases in the development of the Shanghai Cooperation Organization Chien-peng Chung

384

vii

Contents

32 The Asia-Europe Meeting (ASEM) Julie Gilson

394

33 Dynamics of South Asian regionalism Kishore C. Dash

406

Conclusion: The future of Asian regionalism Mark Beeson and Richard Stubbs

420

Bibliography Index

427 479

viii

Illustrations

Tables 8.1 8.2 8.3 9.1 9.2 11.1 11.2 15.1 15.2 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 16.9 16.10 16.11 16.12 16.13 16.14 16.15 16.16 20.1

Outward direct investment in 11 Asian economies (FDI Outward or ODI) Inward direct investment in 11 Asian economies (FDI Inward or IDI) The largest multinational enterprises from 11 Asian economies China’s major trading partners and trade balance (countries and regions) (2009) Preferential trade agreements by status across Asia-Pacific as of July 2010 Indicative scope of ASEAN Plus Three cooperation CMIM contributions and borrowing multiplier Corruption index, bribe rate, population and GDP per capita by main Asian Countries (2009) Perception of corruption by country and institution, 2009 Human development index (HDI), 2010 Population indicators Dependency ratios and aged’s share of population GDP per capita, based on purchasing power parity (PPP) Unemployment rate (%) Distribution of income (or expenditure), mid-2000s Poverty indicators (%), 2000s Central government revenues and expenditures, % of GDP Central government social policy expenditure, % of GDP Enrolment in private institutions, % of total Public expenditure on education Percentage distribution of public current expenditure on education by level Gross enrolment ratio PISA 2009: performance of 15-year-olds in reading, mathematics and science Health care expenditure Health indicators, 2007–2008 Trilateral policy coordination since 2000

104 105 107 118 121 141 145 188 189 201 202 202 203 204 204 205 205 206 208 209 209 210 211 212 213 256

ix

Illustrations

31.1 33.1 33.2 33.3

Shanghai Five vs. Shanghai Cooperation Organization: meetings and organs Change in economic asymmetries in South Asia, 1980–2009 Intra-SAARC trade in relation to world trade SAARC members’ exports to India (in percentage), 1980–2009

387 413 414 415

Figures 5.1 5.2 11.1 16.1 16.2 20.1 33.1

x

Korea’s border with China, 900–1720 Vietnam’s border with China, 1079–present Network of bilateral swaps under the CMI (as of April 2009) Education performance Health system performance, 2008 FDI inflows into China Gross domestic product of SAARC members, 1980–2009

66 68 144 211 213 258 410

Contributors

Mark Beeson is Winthrop Professor of Political Science and International Studies at the University of Western Australia, before which he taught at Birmingham, Griffith, Murdoch, York and the University of Queensland. Recent books include Institutions of the Asia-Pacific: ASEAN, APEC and Beyond (Routledge, 2009), Securing Southeast Asia: The Politics of Security Sector Reform (with Alex Bellamy, Routledge, 2008), Regionalism and Globalization in East Asia: Politics, Security and Economic Development (Palgrave, 2007), and the recently published edited collection Issues in 21st Century World Politics (with Nick Bisley, Palgrave, 2010). Nick Bisley is Professor of International Relations and Convenor of the Politics and International Relations Programme at La Trobe University. He is the author of many works on international relations, including Building Asia’s Security: Toward a 21st Century Regional Security Architecture (Routledge, for IISS, 2009), Rethinking Globalization (Palgrave, 2007) and the recently published edited collection Issues in 21st Century World Politics (with Mark Beeson, Palgrave, 2010). He is a senior research associate of the International Institute of Strategic Studies and a member of the Council for Security and Cooperation in the Asia-Pacific. He regularly contributes to national and international media including The Australian Financial Review, the ABC and al-Jazeera. David Camroux holds a joint position as Senior Researcher at the Centre d’Etudes et de Recherches Internationales and Senior Lecturer at Sciences Po in Paris. He is also a visiting professor at Gadjah Mada University, Korea University and the University of Malaya, and co-editor of the Journal of Current Southeast Asian Affairs. Working at the juncture between international relations and comparative politics, he has a particular interest in regional construction from below and the creation of macro-regional identities as well as the ‘domestic’ dynamics in EU–Asia relations. He is currently working on a study of the Asia–Europe Meeting (ASEM). Michael Carney is the Concordia University Research Chair in Strategy and Entrepreneurship at John Molson School of Business in Montreal, Quebec. He has published extensively on the structure and performance of Asia’s family-owned business groups. He is currently a senior editor of Asia Pacific Journal of Management. His research has been published in leading management journals such as Academy of Management Journal, Journal of Management Studies, Management and Organization Review, Organizations Studies and Strategic Management Journal. His most recent book is Asian Business Groups: Context, Governance and Performance (Oxford: Chandos, 2008). Gordon C. K. Cheung is Deputy Director of the Centre for Contemporary Chinese Studies at Durham University. He is Editor-in-Chief of East Asia: An International Quarterly. He served as Secretary of the Overseas Chinese Studies Foundation in Hong Kong from 1998 to 2000. He has authored three books on Chinese international relations and political economy and published xi

Contributors

many academic articles. His most recent book is Intellectual Property Rights in China: Politics of Piracy, Trade and Protection (Routledge, 2009). Chien-peng Chung is an associate professor in the Department of Political Science, Lingnan University, Hong Kong. He has been a research fellow at the University of Toronto and a faculty member of the Nanyang Technological University in Singapore. His book publications are China’s Multilateral Cooperation in Asia and the Pacific: Institutionalizing Beijing’s ‘Good Neighbour Policy’ (Routledge, 2010) and Domestic Politics, International Bargaining, and Territorial Disputes of China (Routledge, 2004). Dr Chung received his doctorate in political science at the University of Southern California. Alan Collins is a senior lecturer in International Relations in the Department of Political and Cultural Studies at Swansea University, United Kingdom. He was previously a British Academy postdoctoral fellow at the University of Wales Aberystwyth. He is the author of Security Dilemmas of Southeast Asia (Macmillan) and Security and Southeast Asia (Lynne Rienner, 2003) and has published articles on Southeast Asian security and ASEAN in Pacific Review, Asian Survey and the International Relations of the Asia Pacific. He is the editor of Contemporary Security Studies (Oxford University Press, 2007) and he is currently writing a book on ASEAN’s community-building project (Routledge). Kishore C. Dash is an associate professor of Global Studies at Thunderbird School of Global Management, US. His research interests are in the areas of regional integration in the Asia-Pacific, trade policies, foreign direct investment in Asia and deregulation of state-owned enterprises. He has published in several academic journals. His published books include Regionalism in South Asia: Negotiating Cooperation, Institutional Structures (Routledge, 2008) and International Political Economy: State–Market Relations in a Changing Global Order (Lynne Reinner, 2003). Christopher M. Dent is Professor of East Asia’s International Political Economy, Department of East Asian Studies, University of Leeds, UK. His research interests centre around the international political economy of East Asia and the Asia-Pacific. He has published ten books, the latest being China and Africa Development Relations (ed.) (Routledge, 2010), East Asian Regionalism (Routledge, 2008; awarded the 2009 Masayoshi Ohira Memorial Foundation Special Prize) and China, Japan and Regional Leadership in East Asia (ed.) (Edward Elgar, 2008). Howard Dick is Honorary Professorial Fellow in the Faculty of Business and Economics, University of Melbourne, and Conjoint Professor in the Faculty of Business and Law, University of Newcastle (NSW). His research focuses on Indonesia and Southeast Asia with emphasis on urbanization, transport logistics and governance. Recent books are The City in Southeast Asia: Patterns, Processes and Policy (with P. Rimmer, NUS Press, 2009), Cities, Transport and Communications: The Integration of Southeast Asia since 1850 (with P. Rimmer, Palgrave, 2003) and Surabaya, City of Work: A Twentieth Century Socioeconomic History (Ohio University Press, 2002). Heribert Dieter is Senior Fellow in the Research Unit Global Issues at the German Institute for International and Security Affairs, Berlin. Since 2000 he also is Associate Fellow, Centre for the Study of Globalization and Regionalization (CSGR), University of Warwick. Dieter has written on regional integration in the Asia-Pacific, Africa and Central Asia as well as monetary regionalism. The international financial system has been another area of research. His current research focus is on the further development of globalization after the multiple financial crises, the development of regionalism in Asia and other parts of the world and the future of the global trading system. xii

Contributors

Michael Dowdle is an assistant professor of Law at the National University of Singapore. He was previously Chair in Globalization and Governance at Sciences Po, and Himalayas Foundation Distinguished Visiting Professor in Comparative Law at Qinghua University. He has also been on the faculties of the Australian National University and New York University. He is the editor of Public Accountability: Designs, Dilemmas and Experiences (Cambridge, 2006) and Building Constitutionalism in China (with Stéphanie Balme, Palgrave Macmillan, 2009). Lorraine Elliott is Professor of International Relations at the Australian National University. She has also taught at the University of Warwick and held visiting appointments at the University of Oxford, London School of Economics and Political Science (LSE), Keele University, the Free University of Amsterdam and Nanyang Technological University in Singapore. Her publications include books on the Antarctic Treaty System, cosmopolitan militaries and the use of force, comparative environmental regionalism, climate change and human security, and two editions of The Global Politics of the Environment (Palgrave Macmillan, 2004). She currently directs an Australian Research Council-funded project on transnational environmental crime. Ralf Emmers is Associate Professor and Acting Head of the Centre for Non-Traditional Security Studies at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore. He is the author of Geopolitics and Maritime Territorial Disputes in East Asia (Routledge, 2010), Cooperative Security and the Balance of Power in ASEAN and the ARF (RoutledgeCurzon, 2003) and Non-Traditional Security in the Asia-Pacific: The Dynamics of Securitization (Marshall Cavendish, 2004); and the co-author of The East Asia Summit and the Regional Security Architecture (University of Maryland School of Law, 2011). Julie Gilson is Senior Lecturer in the Department of Political Science and International Studies at the University of Birmingham in the UK. Her research interests include Japanese foreign policy, East Asian regionalism and civil society in Asia. Recent publications include (with Glenn Hook, Christopher W. Hughes and Hugo Dobson) Japan’s International Relations (Routledge, 2011); ‘Governance and Non-Governmental Organizations in East Asia: Building Region-Wide Coalitions’, in David Armstrong, Valeria Bello, Julie Gilson and Debora Spini (eds), Civil Society and International Governance (Routledge, 2010); and ‘Social Learning among NGOs: Mine Action in Southeast Asia’, Global Society, 23: 3 (2009). Shahar Hameiri is an Australian Research Council postdoctoral fellow at the Asia Research Centre, School of Social Sciences and Humanities, Murdoch University, Australia. He is the author of Regulating Statehood: State Building and the Transformation of the Global Order (Palgrave Macmillan, 2010), as well as several articles on state-building, regionalism and governance in journals such as Political Studies, Millennium, The Pacific Review and Third World Quarterly. John M. Hobson is Professor of Politics and International Relations at the University of Sheffield, UK, having taught previously at the University of Sydney and La Trobe University (Melbourne). He has authored five books, including The Eurocentric Conception of World Politics (CUP, 2012) and The Eastern Origins of Western Civilisation (CUP, 2004). He has also co-edited three books, which include Selected Writings of John A. Hobson, 1932–1938: The Struggle for the International Mind (with Colin Tyler, Routledge, 2011) and Everyday Politics of the World Economy (with Leonard Seabrooke, CUP, 2007). Kanishka Jayasuriya is Professor of International Politics and Director of the Indo-Pacific Governance Research Centre at the University of Adelaide. He was previously Senior Principal Research Fellow at the Asia Research Centre at Murdoch University, where he is now Adjunct Professor. His most recent books are Reconstituting the Global Liberal Order (Routledge, 2005) and xiii

Contributors

Statecraft, Welfare and the Politics of Social Inclusion (Palgrave Macmillan, 2006). He has written extensively on regional governance and regulatory regionalism. Anja Jetschke is Academic Director at the Hamburg International Graduate School at the German Institute for Regional and Area Studies (GIGA). Previously, she was Associate Professor in the Department of Political Science at the University of Freiburg and a postdoctoral fellow at the Research College ‘The Transformative Power of Europe’ at the Free University of Berlin. Recent publications include Human Rights and State Security: Indonesia and the Philippines (University of Pennsylvania Press, 2011), ‘Institutionalizing Asean: Celebrating Europe through Network Governance’ (Cambridge Review of International Affairs, 2009), and ‘Decoupling Rhetoric and Practice: The Cultural Limits of Asean Cooperation’ (with Jürgen Rüland, Pacific Review, 2009). David Kang is Professor of International Relations and Business at the University of Southern California, where he is also the Director of the Korean Studies Institute. Kang’s latest book is East Asia before the West: Five Centuries of Trade and Tribute (Columbia University Press, 2010). Kang has published numerous scholarly articles in journals such as International Organization and International Security. He received an AB with honors from Stanford University and his PhD from Berkeley. Saori N. Katada is Associate Professor at School of International Relations, University of Southern California. She is the author of Banking on Stability: Japan and the Cross-Pacific Dynamics of International Financial Crisis Management (University of Michigan Press, 2001). She also has co-edited books and numerous articles on the subject of trade, financial and monetary cooperation in East Asia as well as Japanese foreign aid. For her research on regionalism, she was recently awarded the Japan Foundation Research grant and National Endowment for the Humanities Fellowship. Anthony J. Langlois is Associate Professor and Head of the Discipline of International Relations at Flinders University, Adelaide, Australia. He was educated at the University of Tasmania and the Australian National University. He is the author of The Politics of Justice and Human Rights: Southeast Asia and Universalist Theory (Cambridge University Press, 2001) and co-editor of Global Democracy and Its Difficulties (Routledge, 2009). He has published articles in Millennium, Review of International Studies, Political Studies, Human Rights Quarterly, Critical Review of International Social and Political Philosophy and a variety of other journals. He sits on the Editorial Advisory Boards of several journals, including Ethics and International Affairs and The Journal of Human Rights. His areas of academic endeavour include human rights, international political theory, political philosophy, ethics and moral philosophy. Shaun Narine is an associate professor of Political Science/International Relations at St. Thomas University in Fredericton, Canada. He is the author of Explaining ASEAN: Regionalism in Southeast Asia, and numerous articles in journals and books on the subject of institutional development in the Asia-Pacific. Currently, he is working on two projects: one is a new book on ASEAN, entitled The New ASEAN and the Asia Pacific in the 21st Century. The second project examines the role of small powers in shaping the boundaries of state legitimacy in international society. Helen E. S. Nesadurai is Associate Professor in the School of Arts and Social Sciences, Monash University. She has held previous appointments at the Institute of Defence and Strategic Studies (now the Rajaratnam School of International Studies) in Singapore and the Institute of Strategic and International Studies in Kuala Lumpur. She is the author of Globalisation, Domestic Politics and Regionalism: The ASEAN Free Trade Area (Routledge, 2003), the editor of Globalisation and Economic Security in East Asia: Governance and Institutions (Routledge, 2006) and the co-editor, with D. Soedradjad Djiwandono, of Southeast Asia in the Global Economy: Securing Competitiveness and Social Protection (ISEAS, 2009). xiv

Contributors

Sorpong Peou is Chair of the Politics Department and Professor, University of Winnipeg. He received his PhD from York University (Toronto). The two fields of his academic expertise are Security and Democracy Studies, with a regional focus on the Asia-Pacific. He was a professor of international security at Sophia University, Tokyo, and a fellow at the Institute of Southeast Asian Studies (Singapore). His books include Peace and Security in the Asia-Pacific (Praeger, 2010), Human Security in East Asia: Challenges for Collaborative Action (ed.) (Routledge, 2008), International Democracy Assistance for Peacebuilding: Cambodia and Beyond (Palgrave Macmillan, 2007), Intervention and Change in Cambodia: Toward Democracy (St. Martin’s Press, Institute of Southeast Asian Studies, and Silkworms, 2001) and Conflict Neutralization in the Cambodia War (Oxford University Press, 1997). His forthcoming book is entitled Human Security Studies Today. Peter Preston is Professor of Political Sociology at the University of Birmingham, UK. His work revolves around the issue of ‘complex change’, which he has pursued as an abstract issue in social theory, an aspect of the relations of Britain and the EU and as a key to grasping the post-Second World War historical development trajectory of the countries of East Asia. Recent works include Arguments and Actions in Social Theory (London: Palgrave, 2009), Singapore in the Global System: Relationship, Structure and Change (London: Routledge, 2007) and National Pasts in Europe and East Asia (London: Routledge, 2010). M. Ramesh is Chair Professor of Governance and Public Policy at the Hong Kong Institute of Education and Visiting Professor at the Lee Kuan Yew School of Public Policy, National University of Singapore. He has previously worked at the University of Hong Kong, University of Sydney, University of New England and Victoria University of Wellington. He specializes in public policy and governance in Asia. He is the author, co-author and editor of Studying Public Policy (3rd edn., 2009), Transforming Asian Governance (2009), Deregulation and Its Discontents (2006), Social Policy in East and Southeast Asia (2004), Welfare Capitalism in Southeast Asia (2000) and The Political Economy of Canada (1999). He has also published extensively in reputed international journals. Gilbert Rozman is Musgrave Professor of Sociology at Princeton University. Recent books include Chinese Strategic Thought toward Asia (Palgrave, 2010); Strategic Thinking about the Korean Nuclear Crisis: Four Parties Caught between North Korea and the United States (Palgrave, rev. edn, 2011) and The United States, History, and Bilateral Relations in Northeast Asia (CUP, 2011). Fredrik Söderbaum is an associate professor at the School of Global Studies (SGS), University of Gothenburg, and an associate senior research fellow at the United Nations UniversityComparative Regional Integration Studies (UNU-CRIS), Bruges, Belgium. He has published widely on the topic of comparative regionalism, African politics and the EU as a global player. Recent books include Regional Organizations in African Security (edited with Rodrigo Tavares, Routledge, 2011), European Union and the Global South (edited with Patrik Stålgren, Lynne Rienner, 2010), Afro-regions: The Dynamics of Cross-Border Micro-regionalism in Africa (edited with Ian Taylor, Nordic Africa Institute, 2008) and The EU as a Global Player: The Politics of Interregionalism (edited with Luk van Langenhove, Routledge, 2006). He is currently working on a book with Björn Hettne entitled Rethinking Regionalism (Palgrave). Richard Stubbs is Professor of Political Science at McMaster University, Canada. He has published widely on the political economy and security of East and Southeast Asia. His most recent publications include articles in Review of International Political Economy (2011) and Contemporary Politics (2011), as well as, Rethinking Asia’s Economic Miracle: The Political Economy of War, Prosperity and Crisis (Palgrave Macmillan, 2005), Political Economy and the Changing Global xv

Contributors

Order (co-edited with Geoffrey R. D. Underhill, Oxford University Press, 2006), and Theorizing Southeast Asian Relations (co-edited with Amitav Acharya, Routledge, 2008). Takashi Terada is Professor of International Relations at Organization for Asian Studies, Waseda University, Tokyo. He received his PhD from Australian National University in 1999. Before taking up his current position in April 2008, he was Assistant Professor at National University of Singapore and Associate Professor at Waseda University. He has written extensively for major international journals on international relations in the Asia-Pacific region, Asian regionalism and Japanese politics and foreign policy. He also co-edited (with Peter Drysdale) Critical Perspectives in World Economy: Asia Pacific Economic Cooperation, 5 vols (Routledge, 2007). He is a recipient of the J. G. Crawford Award. Nicholas Thomas is Associate Professor and Associate Head of the Department of Asian and International Studies at City University of Hong Kong, before which he was at the University of Hong Kong and the University of New South Wales. Recent books include Regionalism and Governance in Asia (Routledge, 2009), Advancing East Asian Regionalism (with Melissa Curley, Routledge, 2007), Southeast Asia and China: Continuity and Change (with Nie Denning, Xiamen University Press, 2006), Re-Orienting Australia–China Relations: 1972 to the Present (Ashgate, 2004) and Unhealthy Governance: Security Challenges and Policy Prospects (special edition of the journal of Health Policy and Planning, November 2010). Min Ye is Director of Asian Studies Programme and Assistant Professor in International Relations, Boston University. She was a postdoctoral fellow at the Fairbank Center for Chinese Studies, Harvard University, in 2009–10. She received her PhD from Princeton University and conducted research in China, India, Japan and South Korea. She specializes in foreign direct investment policies in China and India, regional international relations in East Asia, and globalization and inequality. Her recent publications include The Making of Northeast Asia (with Kent Calder, Stanford University Press, 2010). Takeshi Yuzawa is Associate Professor of International Relations at Hosei University, Tokyo, Japan. He previously was a research fellow at the Japan Institute of International Affairs (JIIA). He received his PhD in International Relations from LSE. He is the author of Japan’s Security Policy and the ASEAN Regional Forum: The search for Multilateral Security in the Asia-Pacific (Routledge, 2007). He has also published articles in peer-reviewed journals such as The Pacific Review, Asian Survey and International Relations as well as numerous book chapters in edited volumes.

xvi

Abbreviations

ABAC ABF ABMI AC ACCORD ACFTA ACSC ACU ADB ADMM–Plus AEBF AEC AEPF AFC AFMM AFMM Plus Three AHRB AFTA AIA AICHR AIJV AIP AIPO AJCEP AMF AMM AMRO APA APEC APF APGML APSED APT ARATS ARF

ASEAN Business Advisory Council Asian Bond Fund Asian Bond Market Initiative ASEAN Community ASEAN and China Cooperative Operations in Response to Dangerous Drugs ASEAN-China Free Trade Area ASEAN Civil Society Conferences Asian currency unit Asian Development Bank ASEAN Defence Minister Meeting Plus Asia–Europe Business Forum ASEAN Economic Community Asia–Europe People’s Forum Asian Financial Crisis ASEAN Foreign Ministers Meeting ASEAN Plus Three Finance Ministers Meeting ASEAN Human Rights Body ASEAN Free Trade Area ASEAN Investment Area ASEAN Intergovernmental Commission on Human Rights ASEAN Industrial Joint Ventures ASEAN Industrial Projects ASEAN Inter-Parliamentary Organization ASEAN–Japan Comprehensive Economic Partnership Asian Monetary Fund ASEAN Ministerial Meeting ASEAN Plus Three Macroeconomic Research Office ASEAN People’s Assembly Asia-Pacific Economic Cooperation ASEAN People’s Forum Asia/Pacific Group on Money Laundering Asian Pacific Strategy on Emerging Infectious Disease ASEAN Plus Three Association for Relations Across the Taiwan Straits ASEAN Regional Forum xvii

Abbreviations

ART ASA ASA ASCC ASEAN ASEAN-ISIS ASEC ASEF ASEM AsiaDHRRA ASO ASPAC ASPC ATS AU BFA BGs BSAs BOOT CAFTA CAJCETC CBMs CCP CEA CECA CEPEA CEPT CMI CMIM COREPER CPI CPIB CPR CSCAP CSCE CSCD CSDP CSOs CSTO DPJ DPP DPRK DSM EAAU EAC EAEC EAFTA EAS xviii

Antiretroviral therapies ASEAN Swap Arrangement Association of Southeast Asia (Chapter 26 only) ASEAN Social and Cultural Community Association of Southeast Asian Nations ASEAN Institutes of Strategic and International Studies ASEAN Secretariat Asia-Europe Foundation Asia–Europe Meeting Asian Partnership for the Development of Human Resources in Rural Asia Annual Security Outlook Asia Pacific Council ASEAN Security and Political Community Amphetamine-type substances African Union Boao Forum for Asia Business groups Bilateral swap arrangements Build, own, operate, transfer China-ASEAN Free Trade Agreement China-ASEAN Joint Committee on Economic and Trade Cooperation Confidence-building measures Chinese Communist Party China Economic Area Closer Economic Cooperation Agreement Comprehensive Economic Partnership in East Asia Common Effective Preferential Trade Chiang Mai Initiative Chiang Mai Initiative Multilateralization Committee of Permanent Representatives of the EU Corruption Perceptions Index Corrupt Practices Investigation Bureau Committee of permanent representatives Council of Security Cooperation for the Asia Pacific Conference for Security and Cooperation in Europe Committee on Studies for Cooperation in Development in South Asia Common Security and Defence Policy Civil society organizations Collective Security Treaty Organization Democratic Party of Japan Democratic Progressive Party Democratic People’s Republic of Korea Dispute settlement mechanism East Asia Analytical Unit East Asian Community East Asian Economic Caucus East Asian Free Trade Agreement East Asia Summit

Abbreviations

EASG EAVG EC ECFA ECOTECH ECOWAS EEC EEPs EFEX EFTA EHP EID EMEAP EPG ERIA ERPD ESCAP ETUC EU EurAsEc EVSL FA FAO FDI FEALAC FOCUS FORUM-ASIA FSAs FTA FTAAP GAM GATT GCC GMS GTZ HADR HDI HDUCIM HLP HLTF HPAI HS HST IA ICAC ICTs IDI IHR

East Asia Study Group East Asian Vision Group European Community Economic Cooperation Framework Agreement Economic and technical cooperation Economic Community of West African States European Economic Community ARF Experts and Eminent Persons European Financial Expertise European Free Trade Area Early harvest programme Emerging infectious diseases Executives’ Meeting of East Asia-Pacific Central Banks Eminent Persons Group Economic Research Institute for ASEAN and East Asia Economic Review and Policy Dialogue Economic and Social Commission for Asia and the Pacific European Trade Union Confederation European Union Eurasian Economic Community Early Voluntary Sectoral Liberalization Framework agreement Food and Agriculture Organization Foreign direct investment Forum for East Asia-Latin America Cooperation Focus on the Global South Asian Forum for Human Rights and Development Firm’s specific competitive assets Free trade agreement Free Trade Agreement of the Asia-Pacific Gerakan Aceh Merdeka General Agreement on Tariffs and Trade Gulf Cooperation Council Greater Mekong Subregion Deutsche Gesellschaft für Technische Zusammenarbeit Humanitarian and disaster relief Human Development Index ARF Heads of Defence/Universities/Colleges/Institutions Meetings High Level Panel High Level Task Force Highly Pathogenic Avian Influenza Harmonized System Hegemonic stability theory International alert Independent Commission Against Corruption Information and communication technologies Inward direct investment International Health Regulations xix

Abbreviations

IISS ILO IMF IORARC IPA IPAP IPE IPR IR IRRI ISA ISG ISM ITUC JCG JETRO JI KPK LDP LLL LoC MCA MITI MNCs MOU NAFTA NACC NCCC NEAC NEAU NER NGOs NICs NIEs NMI NRA NSC NSCS NTBs NTS OAS OAU OCAC OCAO ODA ODI OECD OIC xx

International Institute for Strategic Studies International Labour Organization International Monetary Fund Indian Ocean Rim Association for Regional Cooperation Integrated Programme of Action Investment Promotion Action Plan International Political Economy Intellectual property rights International relations International Rice Research Institute Internal Security Act Inter-Sessional Group Inter-Sessional Meeting(s) International Trade Union Confederation Japanese coastguard Japan External Trade Organization Jemaah Islamiyah Corruption Eradication Commission Liberal Democratic Party Linking, leveraging and learning Line of control Malaysian Chinese Association Ministry of International Trade and Industry Multinational corporations Memoranda of Understanding North American Free Trade Agreement National Anti-Corruption Commission National Counter Corruption Commission Northeast Asian Community Northeast Asian Union Northeast rejuvenation programme Non-governmental organizations Newly industrializing countries Newly industrializing economies New Miyazawa Initiative New regionalism approach National Security Council National Security Coordination Secretariat Non-tariff barriers Non-traditional security Organization of American States Organization of African Unity Overseas Chinese Affairs Commission Overseas Chinese Affairs Office Overseas development assistance Outward foreign direct investment Organization for Economic Cooperation and Development Organization of Islamic Conferences

Abbreviations

OMC PAFTAD PAP PBEC PD PDS PECC PMC PMCs PPP PPP$ PRC PSCs PTAs QDDR QDR RCTS ReCAAP RIET SAARC SAF SAFTA SAGQ SAPA SAPTA SARC SARS SCAP SCO SDF SEA SEACA SEATO SEF SG SLD SOEs SOM SOMTI TAC TAO TFAP TGE TPP TSD TVEs UMNO

Open Method of Coordination Pacific Trade and Development Conference People’s Action Party Pacific Basin Economic Council Preventive diplomacy Public distribution system Pacific Economic Cooperation Council ASEAN Post Ministerial Conference Private military companies Purchasing power parity International dollar People’s Republic of China Private security companies Preferential trade agreements Quadrennial Diplomacy and Development Review US Quadrennial Defense Review Regional Counter-Terrorism Structure Regional Cooperation Agreement on Combating Piracy and Armed Robbery against Ships in Asia Regional Institute of Environmental Technology South Asian Association for Regional Cooperation Singapore Armed Forces South Asian Free Trade Area South Asian Growth Quadrangle Solidarity for Asian People’s Advocacy SAARC Preferential Trade Agreement South Asian Regional Cooperation Severe Acute Respiratory Syndrome Supreme Command for Allied Powers Shanghai Cooperation Organization Self-Defence Forces Single European Act Southeast Asian Committee for Advocacy Southeast Asian Treaty Organization Strait Exchange Foundation Secretary-general Shangri-La Dialogue State-owned enterprises Senior officials’ meeting Senior officials’ meetings on trade and investment Treaty of Amity and Cooperation in Southeast Asia Taiwan Affairs Office Trade Facilitation Action Plan Total government expenditure Trans-Pacific Strategic Economic Partnership Trilateral Security Dialogue Township and village enterprises United Malay National Organisation xxi

Abbreviations

UNDP UNEP UNESCAP UNODC UNRCA VOC WCO WFP WHO WOA WTO ZOFPAN

xxii

United Nations Development Programme United Nations Environment Programme UN Economic and Social Commission for Asia and the Pacific United Nations Office on Drugs and Crime United Nations Register of Conventional Arms Vietnam Organizing Committee World Customs Organization World Food Programme World Health Organization World order approach World Trade Organization Zone of Peace, Freedom and Neutrality

Acknowledgements

Given the size of this Handbook and the large number of authors it is clear to us that the cooperation of the contributors has been pivotal to the collection’s successful completion. We are deeply indebted to all the contributors for revising their drafts and meeting deadlines and hence allowing the book to stay, generally, on schedule. A special word of thanks goes to Heather L. Johnson, who helped us prepare the manuscript for submission to Routledge and also provided a great deal of assistance at the copy-editing stage. Thanks also to the Social Sciences and Humanties Research Council of Canada for supporting part of the research set out in Introduction, Conclusion and Chapter 7. At Routldege we would like to thank Elizabeth Stone, Bourchier, and Ed Needle for shepherding the manuscript through the various stages of production.

xxiii

Introduction Mark Beeson and Richard Stubbs

This book provides a state-of-the-art introduction to, and analysis of, the development of regionalism in Asia. It offers a comprehensive exploration of what is clearly the most dynamic and arguably the most important region in the world. Significantly, Asian regionalism is still taking shape and many of its key aspects are highly contested. The analyses in this collection take stock of the major political, economic and social trends in Asia, and consider key dimensions on where Asian regionalism stands today. It will also review many of the main issues that are on dispute, and assess where the multiple, and sometimes overlapping, manifestations of Asian regionalism above the level of the state – Asia-Pacific, East Asia, Southeast Asia, South Asia and Central Asia to name the main ones – might be heading. The very term ‘Asian regionalism’ is itself disputed. ‘Asia’ is generally thought to have Western origins and, although residents of Asia have come to accept the term, the borders of the various regions of the continent are challenged by some of the participants. Should the US be in the East Asian region because of its massive security and economic presence in the area? Should Papua New Guinea, Australia and New Zealand be considered part of Asia? How far to the West does Asia extend? What role within Asia should be given to Russia? To some extent much depends on whether regions are seen in traditional terms as ‘natural’ areas clearly defined by major geographic features, or whether they are seen as socially constructed by their members for political, security or economic reasons, and hence their boundaries are open to discussion and negotiation. Regionalism is similarly debated. However, it can generally be thought of as a state-led project that promotes a definable geographic area by means of the development of specific institutions and strategies. Regionalism, therefore, is very much a conscious, coherent and top-down policy of states, as well as sub-state and non-state actors, coordinating arrangements and activities in a particular part of the world. By contrast, regionalization refers to the process by which material patterns of transnational transactions – family linkages and migration patterns, trade and capital flows, cross-border media usage, and so forth – among individuals and groups knit a loosely defined geographical area together. In other words, then, in contrast to regionalism, regionalization is essentially a spontaneous, unself-conscious, complex, bottom-up and often haphazard process (Payne and Gamble 1996: 2; Hettne 2005; Hveem 2006: 296; Beeson 2007a: 5). In many ways we live in a world of regions (Hettne 2005: 277; Katzenstein 2005). Indeed, there is an argument that what many consider globalization is in fact regionalization (Choi and 1

Mark Beeson and Richard Stubbs

Caporaso 2002; Rugman 2008). But importantly, each region is different from the others. For example, as Frederik Söderbaum argues, there is a need to pay special attention ‘to historical context’ and ‘the particular position of states and regions within the global political economy from which distinctive processes and patterns of regionalism arise’ (Söderbaum 2005: 223). Similarly, the unique geography, cultural practices and social mores of each region can be influential in how a region develops (e.g. Fort and Webber 2006; Warleigh-Lack et al. 2011). Moreover, what has been referred to as the extent of ‘regionness’ – or, in other words, the degree of coherence and the depth of institutionalization within a geographic area – is different in each region of the world (Hettne and Söderbaum 2000). Certainly, it needs to be recognized that each region has different characteristics.

The Asian way of regionalism? What is it, then, that can be said to distinguish the Asian region, Asian regionalism and its associated institutions from the forms of regionalism to be found in North America, Europe, Africa or South America? First, in terms of geography and population, Asia contains a more diverse set of countries than anywhere else in the world. For example, within East Asia there are two of the largest countries in the world – China with 1.3 billion people and occupying 9.6 million square kilometres, and Indonesia with 231 million and covering 2 million square kilometres – and at the same time some of the smallest countries in the world, such as Brunei, which has a population of 400,000 inhabiting 380,000 square kilometres, and Singapore with just 5 million people and an area of less than 1,000 square kilometres. Similarly, in South Asia, India has 1.2 billion people and covers 3.2 million square kilometres while Bhutan has a population of only 683,000 and occupies less than 40,000 square kilometres. Second, and compounding this wide range in the size of the countries of Asia, are the differences in social composition, levels of economic development, and types of political systems of the societies in the region. Beyond the multiplicity of ethnic groups speaking many different languages, is the great variety of religions that are represented. The main regional religions include Buddhism, Christianity, Confucianism, Hinduism, Islam, Sikhism and Taoism. Cutting across these other divides in Asia are the differing degrees of economic prosperity. For example gross domestic product (GDP) per capita of Singapore and Japan are close to US$40,000 while those of Afghanistan, Bangladesh, Burma and Nepal are closer to US$500 and both Cambodia and Laos are under US$1,000 (IMF 2010). On top of these marked social and economic variations across Asia are differences in the political economy of Asian countries. The variations in political systems range from democratic and quasi-democratic (soft-authoritarian) forms of government to authoritarian dictatorships and from different forms of capitalist economies to an assortment of communist systems. Third, Asia’s recent history also underscores the diversity of the region. Most importantly, Asia was colonized by a variety of major powers, including Portugal, Spain, the Netherlands, France, Britain, the United States and Japan. Each colonizer left behind specific social, political and economic legacies. Even those countries that were not formally colonized, such as Japan and Thailand, were heavily influenced by a unique mix of Western ideas and practices. The multiplicity of colonial experiences only served to emphasize the differences among the countries and societies of Asia. More recently, the Cold War also divided the Asian region. The communist or pro-communist countries were pitted against those countries that supported the West. Some countries from both sides also saw themselves as members of the Non-Aligned Movement as they sought to get out from under the straightjacket of the Cold War. Even those countries that were on the same side in the Cold War tended to be distant from each other as the Soviet Union and 2

Introduction

especially the US adopted a hub-and-spoke approach to contact with their Asian allies, which discouraged relations other than through the dominant power (see Stubbs 2005). Fourth, and out of this immense diversity in terms of geography, social composition, history, politics and economics that characterizes Asian countries and societies, comes the commitment to sovereignty, territorial integrity and non-interference in the affairs of other countries and an informal, non-confrontational approach to negotiations. Prompted in particular by the anticolonialism and anti-Cold War sentiments that characterized much of the region after the Second World War, this approach was gradually grafted on to existing views about the conduct of regional and international affairs (Acharya 2009). This process was achieved primarily through regional conferences, such as those that occurred during the late 1940s and early 1950s and that culminated in the Bandung Conference of 1955, as well as through formal treaties such as the 1967 Bangkok Declaration that inaugurated the Association of Southeast Asian Nations (ASEAN) and the 1976 Treaty of Amity and Cooperation in Southeast Asia (TAC) originally passed by the ASEAN members and subsequently, after 2003, acceded to by a host of Asian states including China, India and Japan. Just as importantly, the Bandung Conference deliberations were conducted in an informal and non-confrontational manner. For example, contentious issues were avoided; informality was encouraged; and the importance of wide consultation, compromise and consensus-building was stressed (Acharya 2005; Mackie 2005). This approach later came to characterize ASEAN meetings as well as meetings associated with ASEAN, such as the ASEAN Regional Forum and ASEAN Plus Three. In other words, in addition to the formal code of conduct set out in the TAC, the ASEAN members developed an informal code that governs regional meetings and negotiations more generally. The set of ideas that inform this approach and that have come to be a key part of ASEAN regionalism are often referred to as the ‘ASEAN Way’. Indeed, it has spilled over to deliberations in non-ASEAN Asian arenas, such as the Asia-Pacific Economic Cooperation (APEC) forum and the Shanghai Cooperation Organization (SCO). It is characterized by relatively unstructured discussions, informality and discreetness, pragmatism, expediency and a search for a practical minimum solution that all parties can live with (Acharya 1997: 329; Capie and Evans 2003). One particularly intriguing manifestation of this approach has been the emergence of the Track II process. This approach brings together academics, policy analysts and officials in their private capacity for relatively informal discussions about ways of advancing regional economic and security cooperation on a range of issues. The results of these discussions are then fed into Track I intergovernmental negotiations (Evans 2005). Fifth, and further counterbalancing the fragmenting tendencies of the divisions that characterize Asia, is the strong communitarian strain that pervades key parts of the region (Chua 2009). While rational liberalism and the concomitant idea of individualism have spread to Asia through Western colonialism and most recently globalization, the communitarian instincts of state leaders tend to reinforce a particular level and form of cooperation that seeks to overcome the fissures that divide societies and countries in Asia in a very specific way. Other regional values also help to promote a distinctive, cooperative form of regionalism project, such as the extent to which social trust rather than the rule of law is given weight by governments. Regional leaders are encouraged to consider relatively loose, less legally binding regionalism projects on the basis of pragmatism. In other words, particular values that are to be found throughout the region tend to produce a form of regionalism that is different to the regionalism in other parts of the world (Pettman 2010). Sixth, a key characteristic of the region is the attention to performance or output legitimacy as opposed to process or input legitimacy (Stubbs 2001). By the early 1950s the vicious fighting during the Second World War, the Chinese Civil War, the Korean War, the many insurgency wars that had broken out around the region as well as the fighting associated with the partition of 3

Mark Beeson and Richard Stubbs

India and the post-War decolonization process, had a devastating impact on the social, economic and political life of the region. The scale of physical destruction was immense and many social and political institutions were simply swept away by the fighting. As a result, governments that could bring a measure of social and political stability and security as well as economic prosperity were accorded a good deal of legitimacy by the people they governed. Although input or process legitimacy in terms of the way in which governments attain power has become increasingly important, output legitimacy is still crucial. So to the extent that regional projects can aid in establishing and maintaining regional social harmony, political stability and economic prosperity they are welcomed by the general public. Finally, it is important to note that the regional institution-building process in East Asia has developed in a very specific way. Most notably it has been the ASEAN states that have taken the lead in regional institution-building in this part of Asia. Hence, unlike in Europe where it was the major powers, France and Germany, that took the lead, or in South America, where it was Brazil and Argentina, in East Asia it has been a collection of relatively weak states that have been at the forefront of the regionalism project. There have been a number of reasons for this development. First, established in 1967, ASEAN was the first major regional player to emerge and has been at the centre of regional developments including APEC, ARF, ASEAN Plus Three and the East Asian Summit as East Asian regionalism has evolved over time. Second, ASEAN governments have shown themselves to have excellent entrepreneurial leadership skills most notably in terms of the development of widely accepted forums for regional cooperation and norms governing the conduct of regional affairs. Third, for ASEAN, weakness has been a strength. ASEAN is seen as neutral territory on which China and Japan – and when appropriate India and the US as well – can meet and negotiate. While none of the major powers of the region can ultimately fully trust any of the other major powers, they can all trust ASEAN because its members cannot, either singularly or collectively, dominate any other state in Asia. Moreover, and somewhat ironically, ASEAN’s pivotal regional role has also been accepted by China and Japan in good part because they need the ASEAN members as followers if they ever want to be considered global leaders. This relationship has in turn given ASEAN considerable leeway in terms of the activities of its member governments in region-building endeavours. As a consequence of ASEAN’s relative weakness, combined with its leadership role in the development of Asian regionalism, the emphasis has been on respect for sovereignty and territorial integrity, not on any notions of the sovereignty-pooling that might put the autonomy of ASEAN members in jeopardy. Hence, in developing regional institutions, cooperation is given priority over integration and the role of any regional secretariat is strictly limited in case it might impinge on the sovereignty of member states. There are, of course, exceptions to this rule. Pragmatism, particularly in terms of promoting economic growth, has encouraged increased economic integration in a number of instances. For example, aspects of the ASEAN Free Trade Area, the ASEAN Economic Community and the China-ASEAN Free Trade Agreement, which came into effect for the most developed of the ASEAN economies on 1 January 2010, tend to support economic integration in East Asia. But, overall, East Asian countries remain guarded when it comes to setting aside their sovereignty.

Making sense of Asian regionalism These features of Asia and Asian regionalism are identified as giving the Asian regions a distinctive character. Some of these features are material in that they highlight specific attributes of the region that we can point to as physical, social or economic factors that characterize Asia and Asian regionalism. Others features are what Acharya (2009: 6, 21–23) has labelled ‘regional cognitive 4

Introduction

priors’, or ideas, belief systems and norms that are to be found influencing the way the regions of Asia have evolved. Together these characteristics make regionalization of Asia and Asian regionalism different from the development of regionalization and regionalism to be found in other parts of the world. One issue that arises from this discussion, then, is the extent to which Asia’s various regions can be compared to the world’s other regions. Most particularly, there has been some debate about using the European Union and European regionalism as benchmarks against which to assess the progress of Asian – especially Southeast Asian and East Asian – regionalism. During the 1990s and into the first few years after the turn of the century there was a good deal of reticence about drawing comparisons between European regionalism and Asian regionalism. The massive differences in size, cultures and levels of economic development among the component members of Asia’s various regions were noted; also the very different norms that underpinned European and East Asian regionalisms, and the different types of leadership exercised by the small and relatively powerless states of ASEAN in East Asia and that exercised by the powerful states of France and Germany in Europe. Yet more recently there has been an increased interest in comparing the two forms of regionalism and in exploring way in which each can learn from the other (eg Fort and Webber 2006; Loder et al. 2011; Murray 2010). But equally significant is the potential cross-fertilization of ideas that could come from comparisons of Asian regionalism with the regionalism to be found in other parts of the developing world such at Latin America, the Caribbean and Africa. In documenting the main issues and trends in Asian regionalism, this volume will contribute to the growing capacity of scholars to compare regions across the world. It should be noted at this point that not all analysts, and certainly not all contributors to this volume, will agree with this listing of the distinguishing features of Asian regionalism. Debates continue about the extent to which each of these factors influences the ability of Asia’s governments and non-state actors to build effective regional institutions and promote regional cooperation and even integration. Much, of course, depends on the theoretical approach to regionalism adopted by analysts and the particular aspect of regionalism being analysed. For example, those interested in security are rather more likely to see the problems that confront regional institution-building than those who focus on economic linkages such as trade and investment. Early analysts of regionalism in Asia tended to adopt a ‘soft’ realism/neorealist approach and to express scepticism about the capacity of regional institutions to cope with the exercise of power in an anarchical world. Michael Leifer (1999), for example, argued that any attempt to deal with the rise of a potential hegemon, and the consequent disruption of the balance of power, by nonmilitary means was highly problematic. This assessment has been repeated in realist and neorealist studies of Asian security right up to the present time. Certainly, those examining security issues in East Asia and South Asia from a structural realist or neorealist perspective have expressed strong reservations, about the ability of regional organizations, even as they have grown and developed, to deal with major conflicts. Indeed for many American commentators regional organizations are irrelevant in their assessments of US-China relations and security issues in East and Southeast Asia (eg Art 2008; Godwin 2008). Intriguingly, as regionalism developed in various parts of Asia, few analysts took up the main theoretical approaches that have traditionally been put forward to explore the reasons for the emergence of European regionalism. First, there are what has been termed the ‘supranationalist’ approaches to regional integration, such as federalism, neofunctionalism, multilevel governance and epistemic communities (eg E.B Hass 1968; P.M. Hass 1992; Burgess 2000; Hooghe and Marks 2001; Rosamond 2008; Peou 2010). While some scholars have explored epistemic communities such as the Pacific Trade and Development Conference (PAFTAD) and the Pacific Economic Cooperation Council (PECC) that were factors in the development of APEC 5

Mark Beeson and Richard Stubbs

(Ravenhill 2001: 63–65) and the region’s more recent Track II meetings (Morrison 2006), the situation in Asia has generally not been seen as similar enough to that in Europe for these theoretical approaches to be widely adopted by those examining Asian regionalism. Second, there are the intergovernmentalist approaches favoured mostly by international relations (IR) scholars, who see regional integration as a process of interstate bargaining (Hoffmann 1995; Moravcsik 1998). The main problem in trying to transfer theories of intergovernmentalism to East Asia is the emphasis on the way in which the distribution of power within a region shapes negotiated outcomes. So far, at least, power has not been particularly influential in shaping the development of Asian regionalism. Certainly, there are few if any references to Moravcsik’s (1998) work in analyses of Asian regionalism. Although analyses of European regionalism were not influential in evaluations of the development of Asian regionalism, during the 1990s two developments did change the way in which Asian regionalism and regional organizations were assessed by a number of scholars. First, the end of the Cold War, signalled in Asia by the withdrawal of Vietnam forces from Cambodia, created a new environment for the conduct of international and regional affairs. States were forced to contemplate their future outside the rigid bipolar world of the Cold War and to think about how best to deal with their neighbours. In Asia this led, for example, to the founding of the ASEAN Regional Forum in 1994, which provided a venue for a host of diverse participants to discuss Asian security issues. Importantly, because the US was for so long a dominant strategic and economic partner for so many governments in Asia, the changing role of the US has remained central to an understanding of the region (eg Beeson 2006; Pempel 2008). And as economic issues rose to prominence in other parts of the world, so too in Asia trade and investment issues became significant and, as a consequence, objects of study. Second, there emerged an array of new theoretical frameworks in the study of international relations, which offered analysts different ways of explaining and understanding Asian regional relations to that offered by realism and neorealism. Neo-liberalism had already established itself as a major challenger to neorealism, in the US in particular, and was subsequently incorporated into analyses of East Asian affairs (eg Ganesan 1995). But in many ways it was constructivism that became the major challenger to the realist tradition of analysis. Constructivists argued that ideational factors including norms, culture and identity were increasingly at the centre of Asian regionalism and regional institution-building (Higgott and Stubbs 1995; Acharya 2001; Johnson 2003). The debate between realism and neorealism on the one hand and constructivism on the other raised some intriguing issues such as the different views of power, the agency of local Asian actors in regional affairs, and the socializing functions of regional institutions (Peou 2002; Eaton and Stubbs 2006; Ba 2009). Institutionalist approaches have also taken centre stage in recent years (Pempel 2005; Acharya and Johnson 2007). As the range of theories used by analysts of Asian international relations and regionalism opened up, rationalist frameworks (Kawasaki 2006) and insights from the English School (Narine 2006) have also been employed. In addition, analysts of the region have offered critical perspectives on both security issues (eg Caballero-Anthony 2005; Nesadurai 2006; Burke and McDonald 2007) and governance issues more generally (eg Tan 2006) as well as the extent to which the ‘new regionalism’ approach can be applied to Asia (e.g. Berger and Beeson 2005). Moreover, as the economic linkages that unite the region have become more and more evident, analysts of Asia and Asian regionalism have increasingly used theories of international political economy to assess regionalism and regional institution-building in Asia. As globalization has influenced more and more of Asia, a number of economic issues have been explored in some depth. Notably, increasing amounts of foreign direct investment have come from within Asia with the resulting cross-cutting investment patterns and the emergence of production networks 6

Introduction

helping to tie the economies of Asian countries closer to each other (Hatch and Yamamura 1996; Beeson 2007a). Similarly, the proliferation of Asian-based trade agreements as well as trade agreements with countries outside Asia have also been the subject of analyses (eg Dent 2008a; Ravenhill 2008). Overall, the profusion of approaches to explaining and understanding Asian regionalism and Asian regional institution-building underscores the dynamism of the scholarship on Asia and Asian regionalism. This book is designed to present some of the key elements of the competing interpretations of this important topic so that the reader has a chance to evaluate not just where Asian regionalism is going but also how the scholarship on Asian regionalism is analysing these trends and events. The book is divided into five sections. The first section introduces some important conceptions of Asia and the Asian region. The way in which Asia is conceptualized clearly has a major impact on the different forms of regionalism that have been advanced and the way regionalism in Asia has evolved. The second section is devoted to economic issues and explores the key forces that have both shaped the countries of Asia and the forms of regionalism that have been pursued as a consequence. The third section on political issues reviews the most significant questions of governance and political order that currently preoccupy the people and governments of Asia. Strategic issues are assessed in the fourth section with a full range of approaches employed in addressing the key security questions of the era. Finally, the history and current role of the most prominent organizations that lie at the centre of Asian region-building are reviewed in detail. The conclusion highlights the strikingly contrasting optimistic and sceptical views about the future of what has rapidly become the world’s most important region.

7

Part I

Conceptualizing the Asian region

1 Theories of regionalism Fredrik So¨derbaum

Introduction This handbook underlines the multidimensionality and pluralism of contemporary regionalism1. As a discipline, regionalism has become a research field in itself, rather than being limited to a more narrow state- or policy-driven process conceptualized in terms of ‘regional integration’ in the traditional sense. This has given rise to a number of new puzzles and challenges for both academics and policymakers, with a subsequent proliferation of a very large number of theories and concepts. A single chapter such as this cannot do justice to the diverse theoretical landscape. The goal of this chapter is, therefore, limited to giving an overview of some of the key theoretical debates and controversies that are particularly relevant for the study of Asian regionalism. More specifically, it will relate Asian regionalism to the historical development of the field in general, and to the overemphasis on European integration theory and practice in the field, as well as considering the crucial relationship between formal and informal regionalism. The study builds upon the understanding that it is not relevant to develop a theory about Asian regionalism per se. Rather, it is of specific interest to situate it within a more general theoretical and comparative discussion. It will be assumed, however, that Asia is crucial to the further development of the field. The chapter is divided into four main section. The first provides an overview of the early and more recent debates and theories; the second addresses the problem of Eurocentrism in theorybuilding and its implication for the study of Asian regionalism; the third gives an overview of theoretical perspectives on formal and informal regionalism; and the fourth outlines more specifically the discussion about formality and informality in Asia and the implication for comparative regionalism.

Early and recent debates on regionalism The early debate covers research undertaken between the 1950s and1970s: the relevant theories were federalism, functionalism and neofunctionalism (Rosamond 2000; Hettne and Söderbaum 2008). Federalism, which inspired the pioneers of European integration, was more a political programme than a theory – it was sceptical of the nation state, although what was to be created was rather a new kind of state. Functionalism was also an approach to peace-building rather than a 11

Fredrik So¨derbaum

theory. In contrast to federalism, it was primarily associated with one particular scholar, David Mitrany (1966), and the burning question was on which political level various human needs (often defined in a technical way) could best be met – claiming the best way was to go beyond the nation state but not necessarily to go ‘regional’. Neofunctionalism became the most influential approach during the early debate. It combined the method of functionalism with the ultimate objective of federalism. Ernst Haas (1958) was the central theorist, who put forward the ‘community method’ of Jean Monnet. Although the outcome of this method could be a federation, it was not built by constitutional design – i.e. form would follow function. The basic mechanism was ‘spillover’, the key concept defined as ‘the way in which the creation and deepening of integration in one economic sector would create pressures for further economic integration within and beyond that sector, and greater authoritative capacity at the European level’ (Rosamond 2000: 60; cf. Haas 1958). Bela Balassa (1961a) applied a similar logic to economic integration. A free trade area would lead to a customs union and further to the establishment of a common market, economic union and political union. Other leading authors who wrote about early regionalism include Karl Deutsch (1957), Joseph Nye (1971), and Philippe Schmitter (1970). At the time of these debates, European integration theories were developed for and from the European experience and then more or less reapplied or exported around the world. Although the neofunctionalists were somewhat conscious of their own Eurocentrism, in their comparative analyses they searched particularly for those ‘background conditions’ and ‘spill-over’ effects that could be found in Europe (Haas 1961; Hettne 2003). All too often (but not always) the European Community (EC) was seen and advocated as the model, and other looser and informal modes of regionalism were, wherever they appeared, characterized as ‘weaker’ or ‘failed’ (i.e. with no ‘regional integration’ according to the dominating definition). In the 1960s the fit between the neofunctional description (and prescription) and the empirical world, dominated by de Gaulle’s nationalism, disappeared. Stanley Hoffman (1966) challenged the (neo)functionalist prescription that integration would spread from low politics (economics) to the sphere of high politics (security). The image of the EC began to diverge. According to the intergovernmentalist turn in the study of European integration, regional integration happened only as long as it coincided with the national interest – as a ‘rescue of the nation-state’ (Milward 1992). The ontological shift thus meant an epistemological shift towards a more state-centric, realist analysis. Puchala (1971) famously used the fable of the elephant and the blind men to underline the fact that different observers highlighted different aspects of the same broader phenomenon. He stressed the need for reconceptualization based on empirical observation, and preferred to see the EC as a concordant system. The 1970s was a period of ‘Eurosclerosis’ within the EC, but the 1985 White Paper on the internal market and the Single European Act (SEA) resulted in a new dynamic process of European integration. This was also the start of what has often been referred to as ‘new regionalism’ on a global scale. To some observers, regionalism was ‘new’ mainly in the sense that it represented a revival of protectionism or neo-mercantilism. However, most observers highlighted the fact that the closure of regions was not on the agenda. Indeed, the recent debate is to a large extent generated by the transformation of the Westphalian nation state, the erosion of national borders and the pressing question of how to navigate politically in the context of globalization (Söderbaum and Shaw 2003; Cooper et al. 2008). Regionalism needs to be understood both from an exogenous perspective (outside-in) and an endogenous perspective (inside-out) (Hettne 2002; also see Neumann 2003). The former perspective refers to the fact that regionalization and globalization are intertwined articulations of global transformation, whereas the latter implies that regionalization is shaped from within the 12

Theories of regionalism

region by a large number of different factors. Even if neorealist scholarship emphasizes systemic variables, the exogenous perspective has developed primarily in the course of the recent debate and the intensification of globalization, which also explains why scholars such as Hettne referred to it as ‘new regionalism’ (i.e. in order to distinguish earlier from more recent processes). The endogenous perspective finds much more continuity with functionalist and neofunctionalist theorizing about regional integration, the role of agency and the long-term transformation of territorial identities. As a result, endogenous theories usually do not rely on (or acknowledge) distinctions about old and new regionalism. Yet it is quite obvious that in contrast to the time when Haas, Deutsch and the early regional integration scholars were writing, today’s scholars identify many regionalisms. This in turn provides a very different base for theorizing regionalism. It is apparent that neither the object of study (ontology) nor the way of studying it (epistemology) has remained static. Indeed, current regionalization may be seen as a new political landscape in the making, characterized by an expanding cast of actors (state and non-state) operating in the regional arena and across several interrelated dimensions: security, development, trade, environment, identity and so on. The multidimensionality and pluralism of the regional phenomenon, both in Europe and the rest of the world, has resulted in the proliferation of a large number of revitalized or (partly) ‘new’ theories and approaches to regionalism. There has been an explosion during the last decade of theoretical explorations in the field. Some edited volumes including Söderbaum and Shaw’s (2003) collection, Theories of New Regionalism, draw attention to variants of institutionalism, security complex theory, and a variety of constructivist, critical and ‘new regionalism’ approaches, such as the world order approach (WOA), new regionalism approach (NRA) and region-building approach. Mansfield and Milner’s (1997) The Political Economy of Regionalism highlights a variety of neorealist and neo-liberal institutional theories, new trade theories and new institutionalism. Laursen’s two separate volumes on comparative regional integration (2003, 2010) emphasize a variety of governmentalist, power, constructivist, neofunctionalist and historical institutionalist perspectives, whereas Wiener and Diez (2009) is a coherent and stimulating exposé of the richness of European integration theory, highlighting federalism, neofunctionalism, liberal intergovernmentalism, multilevel governance, policy networks, new institutionalisms, social constructivism, integration through law, discursive approaches and gender perspectives. With regard to theoretical innovation, it is also important to stress the leading role played by scholars such as Amitav Acharya (2001) and Peter Katzenstein (2005). Their work has been groundbreaking not only for understanding regionalism in Asia but also for comparative regionalism. It is clear that since the late 1990s (after the slow start of the recent debate that was dominated by single or parallel case studies), comparative analysis has now become one of the most important trends in the contemporary study of regionalism (also cf Mattli 1999; Breslin and Higgott 2000; Rosamond 2000; Farrell et al. 2005; Acharya and Johnston 2007; Warleigh-Lack and van Langenhove 2010; van Langenhove 2011; Warleigh-Lack et al. 2011). There has been intense debate (and much confusion) about what is ‘old’ and ‘new’ in the study of regionalism (see Söderbaum 2003, 2004). One prominent scholar of the recent debate, Björn Hettne, who is very much associated with the label in the first place, forcefully states that after more than two decades of the so-called ‘new regionalism’, the distinction has lost much of its original meaning and that it is time to bury it (or at least move beyond it) (Hettne 2003, 2005). However, having made this point, Hettne states that it may still be relevant to identify continuities and discontinuities. One change in thinking is related to the conceptualization and understanding of ‘region.’ During the early debate about regional integration a large amount of research capacity was invested in trying to define regions scientifically (Cantori and Spiegel 1970) and a plethora of 13

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opinions were advanced regarding what mutual interdependencies mattered the most, such as economic, political and social variables, or historical, cultural and ethnic bonds. The results of this research were not compelling, and parsimonious attempts to define regions have basically come to an end. Most scholars engaged in the contemporary debate agree that there are no natural or ‘scientific’ regions, and that these definitions vary according to the particular problem or question under investigation. Many scholars solve the problem by concentrating on regional organizations and regional economic frameworks (Fawcett and Hurrell 1995; Acharya and Johnston 2007), or security complexes/communities (Adler and Barnett 1998; Buzan and Waever 2003). Yet there is a difference between mainstream (rationalist and ‘problem-solving’) and critical and constructivist scholarship regarding the conceptualization and treatment of regions. Mainstream (early) theorists usually take regions as pre-given, and often define them as particular interstate or policy-driven frameworks. Integral to this reasoning is that regions are believed to be identifiable through material structures and formal regional organizations. The argument that regions are not best understood in terms of regional intergovernmental organizations has been stressed in recent constructivist and post-structuralist scholarship. From this perspective, all regions are deemed to be socially constructed and hence politically contested. Emphasis is placed upon how political actors perceive and interpret the idea of a region, notions of ‘regionness’ and regionbuilding (Hettne and Söderbaum 2000; van Langenhove 2011). According to these lines of thought, there are no ‘natural’ regions; all regions are (at least potentially) heterogeneous with unclear territorial margins. Since the 1990s, research has also started to place greater emphasis on ‘soft’, de facto or informal regionalization, acknowledging the fact that a range of transnational (non-state) actors have begun to operate at the regional level, within as well as beyond state-led institutional frameworks. For instance, business interests and multinationals are not only operative in the global sphere, but they also tend to create regionalized patterns of economic activity. Oft-cited examples include the regional production systems in East and Southeast Asia and the informal market exchanges in Africa. Similarly, civil society is often neglected in the study of regionalism, despite the fact that its impact is increasing, as it becomes evident in the transnational activist networks and processes of interaction in civil society emerging at the regional level around the world, including Asia (Armstrong et al. 2010).

The problem of Eurocentrism The study of regionalism has been dominated by European integration theory and practice. Eurocentrism still prevails in large parts of the theoretical and comparative discussion on comparative regionalism – even if it has increasingly been challenged hand in hand with the acknowledgement that regional integration and regionalism may appear in many guises. One problem from a comparative perspective is that regionalism in Europe is often, according to the Europecentred view, considered multidimensional and highly institutionalized – both a descriptive and prescriptive contention – whereas regionalism/regional integration in the rest of the world is seen as only weakly institutionalized and reduced to either an economic or security-related phenomenon. Even if there are some good reasons why these notions developed in the first place, such generalizations tend to be problematic (Söderbaum 2009; Söderbaum and Sbragia 2010; Warleigh-Lack and van Langenhove 2010; Warleigh-Lack et al. 2011). The uneasy relationship between EU studies and comparative regionalism is confirmed by two renowned scholars of European integration, Alex Warleigh-Lack and Ben Rosamond (2010), who argue that in much of recent European Union (EU) studies scholars have considered the EU as a nascent, if unconventional, polity in its own right (‘the famous N = 1 problem’), exploring 14

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issues such as Europeanization and the EU’s own political system. This perspective has generated useful insights, but as Warleigh-Lack and Rosamond assert, it has also carried a certain intellectual parochialism and thereby kept us from deepening our understanding of the EU as a political system. Further, it has ironically also reinforced the notion that the EU is sui generis, thereby downplaying the respects in which the EU resembles either federal nation states or other regionalist projects around the world, even if recent work on the EU also includes explicit comparisons with federal systems in advanced industrial states, with the United States playing a prominent role in such comparisons (Fabbrini 2007). Few can dispute that the EU as a region is diverse and, as a result, there has been an explosion of interesting theorizing on European integration. Hence, there is no consensus in a single EU mode of governance but a series of different interpretations of the EU (see Wiener and Diez 2009). This diversity ought, at least potentially, to have a positive influence on the broader regionalism literature. It is evident that European integration theory and practice affects the study of regionalism in all corners of the world, including Asia. Somewhat simplified, it is possible to identify two broad attitudes towards European integration theory and practice in the field of regionalism. One strand of thinking tends to elevate European integration, while the other is considerably less convinced of the advantages of Eurocentric theories and generalizations. These two perspectives are similar, regardless of whether we talk about Asian, African or Latin American regionalism. Neither of these attitudes is fruitful for the development of theories of regionalism. The first perspective – think for instance of realist or intergovernmental and liberal or institutionalist approaches – is dominated by a concern to explain deviations from the ‘standard’ European case. From this perspective, other modes of regionalism/regional integration are normally characterized as loose and informal (Asia) or as failed (Africa), reflecting ‘a teleological prejudice informed by the assumption that “progress” in regional organisation is defined in terms of EU-style institutionalisation’ (Breslin et al. 2002: 11). Many comparisons and generalizations, which depart from the European context and the European welfare state, are skewed through a lack of sensitivity to comparing regions that occupy unequal positions in the current world order and consisting of radically different state forms. A related problem with such Eurocentric bias lies in the ways the underlying assumptions and understandings about the nature of regionalism in Europe condition perceptions about how regionalism in other parts of the world does (and should) look. Too many prescriptions result from a particular reading of European integration, which places heavy emphasis on the economic and political trajectory of the EC/EU. Indeed, as Hurrell asserts, ‘the study of comparative regionalism has been hindered by so-called theories of regionalism which turn out to be little more than the translation of a particular set of European experiences into a more abstract theoretical language’ (Hurrell 2005: 39). Whereas the mainstream literature on regionalism has favoured generalizations from the case of the EU in its theory-building efforts, the tendency has been the reverse in large parts of the so-called ‘new regionalism’ literature within international relations, especially the radical and postmodern variants. Many of these scholars have tried to avoid and challenge Eurocentrism, and numerous innovative and rather successful attempts to develop a regional approach specifically aimed at the developing world have evolved from this work (Axline 1994; Bøås et al. 2005). On the one hand, there are good reasons for taking stock of this cumulative research on nonEuropean regions and for being cautious regarding EU-style institutionalization dominating in mainstream perspectives. On the other hand, however, large parts of this scholarship tend to mirror the Eurocentric view by taking the EU more or less as an ‘anti-model’ and by celebrating the differences in theory and practice between regionalism in Europe and in the developing world. Warleigh-Lack and Rosamond (2010) argue that the critical regionalism scholars in 15

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international relations (IR) have not engaged with EU studies theories and sometimes even have made a caricature of the EU and/or of orthodox integration theory (presumably because of the exaggeration of differences between earlier and more recent forms of regionalism). This has, in turn, resulted in a failure to learn from both successes and shortcomings of European integration theory, giving rise to unnecessary fragmentation within the research field (also see Warleigh-Lack and van Langenhove 2010; Warleigh-Lack et al. 2011). Some of the most intriguing studies in the field of regionalism are case studies or studies situated in debates within a particular region. Case study has often been the preferred methodological approach in Asian regionalism. Detailed case studies are certainly necessary; they identify historical and contextual specificities and allow for a detailed and intensive analysis of a single case (according to mono-, multi- or interdisciplinary studies). Many of these studies connect to general theoretical debates. Still, we cannot aim for a theory of Asian regionalism in itself. The next step in the study of regionalism is to develop its comparative element, which will be crucial for enhancing crossfertilization between various theoretical standpoints and regional specializations (Söderbaum 2009; de Lombaerde et al. 2010).

Theoretical perspectives on formal and informal regionalism2 Many scholars in the study of regionalism have concentrated on determining what types of regions are the most functional, instrumental and efficient to ‘rule’ or govern. In much of the mainstream literature in political science and economics, regions have been defined in advance of research, and have often been seen as particular interstate or policy-driven frameworks. Even if classical theories of regional integration and cooperation, such as functionalism and neofunctionalism, appreciated liberal-pluralist assumptions, as well as cordial relations between states and non-state actors for the promotion of commerce, these early perspectives were subordinated to the analysis of what ‘states’ did in the pursuit of their so-called ‘interests’, as well as the consequences of state-society relations for supranational and intergovernmental regional organizations. Neofunctionalism emphasizes the deliberate design of institutions, which are seen as the most effective means for solving common problems. These are, in turn, instrumental for the creation of functional as well as political spillover, and ultimately lead to a redefinition of group identity around the regional unit (Hurrell 1995: 59). Institutionalism, in its various guises, has perhaps become the contemporary form of functionalism and neofunctionalism. One of the dominating approaches of new institutionalism – neoliberal institutionalism – is based on a number of core arguments (Keohane 1984; Mansfield and Milner 1997). In common with their neorealist comrades, neo-liberal institutionalists share the idea of an anarchical system in which states are largely rational and unitary actors, but ‘institutions matter’ because of the benefits that they provide (especially in the procurement of public goods or the avoidance of negative externalities from interdependence). This implies that state behaviour is constrained and affected by variations in the degree of institutionalization across different issue areas of international and regional politics. Probably the best comparative study on institutional design is Acharya and Johnston’s book (2007). They ask why different forms of institutionalization develop in different regions, and whether variation in institutional design leads to variation in the nature of cooperation; hence institutional design is analyzed both as a dependent and an independent variable (Acharya and Johnston 2007: 2, 15). Acharya and Johnston’s study extends beyond the rationalist (and neofunctionalist) approach to institutional design in order to engage constructivist and other approaches. It covers formal/informal rules, identity as well as norms (the latter are understood as the formal as well as informal ideology of the institution). In this way, Acharya and Johnston’s 16

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approach is able to account for the so-called ‘ASEAN Way’, which is based on informality, flexibility, consensus and non-confrontation (Acharya and Johnston 2007: 245). The ASEAN Way will be discussed further in the next section. Neorealism analyses the formation of regions from the outside-in. The structural features of the anarchical system make the states – which are looked upon as unitary and rational egoists – predisposed towards competition and conflict. Regions and regionalism may occur under certain circumstances, for instance, when the distribution of power is opening up for cooperation, either through geopolitical reasons, or through the politics of alliance formation (especially in order to counter the power of another state or group of states, within or outside the region) (Gilpin 1987). A central neorealist proposition is that a hegemon or ‘stabiliser’ can stimulate the emergence of regional cooperation and regional institutions in a variety of ways (see Hurrell 1995: 51–53). In response to critique, coming mainly from liberal institutionalism, that the evolution of cooperation is not adequately explained, neorealists and their intergovernmentalist comrades have argued for the continued relevance of state/national interests, power and sovereignty. Although the EU is seen as an interesting polity, they argue that it is shaped by more or less the same intergovernmental politics and bargaining that has determined it from the start. ‘There is nothing particularly special about it, other than that it has taken a highly institutionalised form in Western Europe since the 1950s’ (Cini 2003: 95). According to this view, the EU has developed and become institutionalized in order to protect national interests. It is also argued that the bargains and supranational laws of the EU reflect the interests of the most powerful states, whereas weak states ‘bandwagon’ or are kept in through side-payments (Christiansen et al. 2001: 200). Many similar arguments have been raised regarding the logic of regional cooperation in other regions, including Asia. Barry Buzan (1983) challenged neorealism, and argued that power theorists underplayed the importance of the regional level in international relations (IR). Buzan’s well-known invention of a ‘regional security complex’ – originally defined as ‘a set of states whose major security perceptions and concerns are so interlinked that their national security problems cannot reasonably be analysed or resolved apart from one another’ (Buzan 1991: 190) – had a profound and positive impact on the research field in the 1980s and 1990s. Even if Buzan’s early perspective had statecentric origins, it can hardly be accused of being formalistic. Buzan’s security complexes were seen as ‘miniature anarchies’, and he shared the conventional neorealist conviction that strong states form strong and ‘mature’ regions (cooperative ‘anarchies’), whereas weak states, in their quest for power and security, tend to create (regional) conflicts and ‘immature’ regions, or are considered so weak that they do not form a region at all. Not surprisingly, Western Europe (and the EU in particular) is an example of the former, whereas weak states in Africa are an example of the latter, creating weak regions. In collaboration with Ole Weaver, Buzan has subsequently revised the regional security complex theory in order to take account of his switch to a particular constructivist approach, and to move away from state-centric assumptions. The new definition of a regional security complex is ‘a set of units whose major processes of securitization, desecuritization, or both, are so interlinked that their security problems cannot be reasonably analyzed apart from one another’ (Buzan and Waever 2003: 44). Buzan argues that the constructivist approach is necessary in order to keep the concept of security coherent, while adding ‘new security sectors’ – economic, environmental keep and societal – in addition to traditional military and political sectors. The new formulation allows for a deeper analysis of non-state actors and informality, and that regions are even less ‘given’. The view that regions must not be taken for granted, nor be analysed as regional organizations, is particularly emphasized in other types of constructivist and post-structuralist scholarship. As Jessop points out, ‘rather than seek an elusive objective … criterion for defining a region, one 17

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should treat regions as emergent, socially constituted phenomena’ (Jessop 2003: 183). From such a constructivist and reflectivist perspective, the puzzle is to understand and explain the process through which regions are coming into existence and being consolidated – their ‘becoming’, so to speak – rather than a particular set of activities and flows within a pre-given region or (formal) regional framework (Hettne and Söderbaum 2000; Söderbaum 2004). In this kind of analysis, regional inter-state organizations are seen as a second-order phenomenon, compared to the processes that underlie regionalization in a particular geographical space. As a consequence, for constructivists and reflectivists, regions are not taken for granted; they are not seen as ‘natural’, organic, essential or material objects, but rather as dynamic settings for social interaction, with a particular focus on the process through which they are ‘becoming’, and the way they are constructed/reconstructed by reflective actors. Because there are no ‘natural’ regions or given ‘interests’, the regions are, at least potentially, heterogeneous, with unclear spatial delimitations. Hence, this kind of scholarship is more concerned with the relationship between formal and informal regionalization than regional institution-building and institutional design per se. In this context, it must be noted that, in recent years, social constructivism has also gained a more prominent place in the study of European integration (Christiansen et al. 2001). This line of thinking has entered the discussion on European integration mainly as a spillover from the discipline of IR, and to some extent from students of Asian regionalism. The social constructivist approach in the European debate emphasizes the constitutive function of structure and agency, and pays particular attention to the role of ideas, values, norms and identities in the social construction of Europe, which in turn draws attention away from the formality and particularities of the EU (Christiansen et al. 2001). As Checkel points out, the differences between Europe and the rest of the world are overstated (even if some differences remain): ‘If not yet completely gone, then the days of sui generis arguments about Europe are numbered, which is very good news indeed’ (Checkel 2007: 243). This theoretical review shows that the discourse on formal-informal regionalism is both expanding and vibrant. However, new definitions of formality-informality compete with old definitions, resulting in a large number of overlapping and sometimes competing attempts to capture similar (but not always identical) phenomena, such as: top-down versus bottom-up regionalism; de jure versus de facto regionalization; state-led regionalism versus market- and societyinduced regionalization; hard versus soft regionalism; and official versus unofficial/informal regionalism. Even if individual researchers often apply coherent definitions, the literature as a whole is somewhat incoherent, leading to a lack of cumulative knowledge. One of the problems is the tendency to treat the formal and the informal in an almost metaphorical manner, without really defining the two phenomena. There is also a certain tendency to employ binary and dichotomic definitions, which may hide the close relationship between the formal and the informal. In this context, it must be stated that scholars of Asian regionalism are usually more advanced than scholars of other regions in the conceptualization of the formal and the informal. The former often refers to official policies and codified interactions, which are often backed by written texts, legal treaties or constitutions. Informal processes are non-codified series of events based upon mutual understandings, accommodations and tacit agreements (Weissman 2009). There is also an expanding debate about formal and informal in both European and African integration. One of the major weaknesses is that there is little debate and cross-fertilization between the different regional debates. The binary treatment of the formal and the informal is rather closely related to the categorization of state and non-state actors into different spheres. Frequently, regionalism is defined as a state-led project, and regionalization as a (non-state) societal process (see Gamble and Payne 1996, 2003; Hurrell 2005). This has led several scholars to describe the regional phenomenon in terms of 18

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regionalism versus regionalization (conceived in terms of state versus non-state actors). However, this conceptualization is inconsistent since it tends to exclude non-state actors of political agency. As Bøås, Marchand and Shaw point out, ‘regionalism is clearly a political project, but it is obviously not necessarily state-led, as states are not the only political actor around … within each regional project (official or not), several competing regionalizing actors with different regional visions and ideas coexist’ (Bøås et al. 2003: 201). It is therefore more consistent to define regionalism as the policy and project or the cognitive idea of forming regions, and ‘regionalization’ as the process of cooperation, integration, cohesion and identity creating a regional space (issuespecific or general). Both regionalism and regionalization may involve state as well as nonstate actors. Theories of regionalism need to better accommodate the fact that processes of regionalization can be both formal and informal, but operating in different mixes and causal relationships.

Formality and informality in Asia and comparative regionalism There exists no overall consensus for a definition of the Asian region. The meaning of regionalism has changed in relation to the question of what subregions should be included and excluded, and what dimensions of regionalism should be investigated (such as security, economics, politics and identity). This diversity reveals the difficulty in taking the region as ‘given’ as well as the limitations of focusing on one particular regional scale or regional organization. Still, a considerable body of literature on Asian regionalism focuses on the Association of Southeast Asian Nations (ASEAN). A major reason for this emphasis, at least historically, appears to be that ASEAN has been one of the few sustainable regional organizations in the larger Asian zone. To some extent this appears to reflect the preference in the field to focus on state-led regional organizations instead of broader processes of regionalization and region formation. During the Cold War, the core of ASEAN cooperation was in its joint effort to consolidate the member states and to enhance stability. These goals were driven by a narrow political elite in what were, at that time, relatively fledgling and fragile state formations. Communism was the primary internal and external threat. The raison d’être of ASEAN – bulwarking against communist expansion – is of course long absent from the political landscape; the focus has shifted towards achieving increased economic development and ensuring security in a new context. During recent decades, an important part of the debate about regionalism in (East) Asia has focused on collective identity formation and informal, or ‘soft’, regionalism (Acharya 2001; Katzenstein 2005). The primary concern of this scholarship is the relationship between formality and informality (largely within regional organizations), rather than informal processes per se (such as, for instance, the Chinese diaspora). In particular, scholars seek to account for the non-legalistic style of decision-making in this region, and the fact that there is no transfer of national sovereignty to a supranational authority. Scholars are intrigued by the fact that there exists a dense network of informal gatherings, working groups and advisory groups, particularly within ASEAN, but also in the ASEAN Regional Forum, the Asia-Pacific Economic Cooperation forum (APEC), and more recently the Asia-Europe Meeting (ASEM) and ASEAN Plus Three (China, Japan and the Republic of Korea). This informal style of decision-making incorporates its own innate code of conduct that is often referred to as the ‘ASEAN Way’ or ‘soft institutionalism’, which, in contrast to European-style (and North American) formal bureaucratic structures and legalistic decision-making procedures, is built around discreetness, informality, pragmatism, consensusbuilding and non-confrontational bargaining styles (Acharya 1997: 329). According to Acharya and Johnston: 19

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One of the main lines of difference is between the ‘formal’ informality of Asian institutions and the ‘formal’ formality of those in other regions. That is, the ASEAN states, for instance, have deliberately and carefully designed their institutions to be informal. And in other regions the formality of the institutions has been a cover for the informality or the weakly legalised way in which they have functioned (Acharya and Johnston 2007: 246) Further, the ASEAN Way reflects, to some extent, the illiberal underpinnings of the ‘Asian values’ construct, which stresses a communitarian ethic (‘society over the self’) in explaining the region’s economic dynamism (Acharya 2002: 27–28). This means that there is a considerable emphasis on cultural factors in explaining the ASEAN Way and its differences from Europe. The question arises whether the strong informal nature of (East/Southeast) Asian regionalism is having an impact on the broader comparative discussion on regionalism (including the study of European integration). As indicated earlier, the comparative discussion in the research field is rather underdeveloped. There are many studies that explicitly or implicitly compare Asian regionalism with European integration, and many of these characterize East Asian regionalism as looser and more informal, sometimes even as ‘underdeveloped’ (Choi and Caporaso 2002: 485). It is problematic, however, to consider EU-style institutionalization as an ideal model for regionalism. Such analyses (and prescriptions) favour a particular way of formality at the expense of alternative outcomes and dynamics. A particularly effective remedy for such misplaced comparison with European integration is the edited collection by Fort and Webber (2006). Amitav Acharya (2006: 312–313) argues that rather than elevating the European model over the Asian experience as a preferred model of regionalism, it is more productive to recognize that regional cooperation is a difficult and contested process that will throw up different, equally legitimate, outcomes. Indeed, as Acharya and Johnston point out, ‘more formally institutionalised regional groups do not necessarily produce more effective cooperation…. More informal groups such as ASEAN have had a discernible impact in changing the preferences and norms of their members’ (Acharya and Johnston 2007: 268–269). A similar pattern has been identified in China, where informal processes have been of crucial importance for moving relations towards a stable peace by transforming perceptions, interests and identities (Weissmann 2009, 2010). Acharya and Johnston’s important conclusion is that ‘greater formality [e.g., a shift from consensus to majority voting] may actually affect cooperation negatively’ (Acharya and Johnston 2007: 270). Although informal regionalism is not totally absent in EU studies and in studies of regionalism in other parts of the globe, the intense link between formal and informal regionalism/regionalization is one important contribution of the Asian case to comparative and European regionalism. The Asian case clearly demonstrates that one can, for instance, speak of relevant and truly regional dynamics and patterns that are not per se mirrored by formal regional efforts. The case of Asia furthermore highlights that it is important not only to look at the informality underpinning/ accompanying formal regional projects, but also to take a broader perspective on formal-informal aspects of regionalism/regionalization. In other words, there is room for a more mutually reinforcing cross-fertilization in the study of European and Asian, as well as other forms of regionalisms. There is, for instance, no reason to believe that ‘soft institutionalism’ is a unique Asian phenomenon. Further, comparisons should not be limited to contemporary Asia and Europe, but should benefit from experience across various time periods and in other regions as well. Although there is a rich literature on informal and formal regionalism in Africa, there is no genuine cross-fertilization between the two specialisms (Söderbaum 2004). There is a need to explore to what extent scholars are using parochial concepts for similar phenomena. 20

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Conclusion Over the last decade, regionalism has become an academic growth industry in a number of socialscience disciplines and sub-disciplines: European studies, comparative politics, international economics, geography, international relations, security studies, and international political economy. The approach of these different academic specializations varies considerably, which means that regionalism means different things to different people. At the same time, there are an increasing number of theories of regionalism. Yet, there is fragmentation and a lack of communication between scholars from various theoretical standpoints as well as from different regional specializations (even within the specific field of Asian regionalism). The tensions and differences illustrate the fact that the regional phenomenon is multidimensional, which seems to imply that there is need for a certain degree of analytical and theoretical eclecticism but also greater conceptual clarity (de Lombaerde et al. 2010). There is a long tradition in the research field of comparative regionalism to focus on formal regional organizations and institutions. This follows from the dominance of rationalist and problem-solving theoretical perspectives, which privilege state-centric perspectives and more or less predefined regions/regional organizations. The increased emphasis on constructivist and reflectivist theorizing since the late 1990s has led to more pluralistic and heterogeneous theories and conceptualizations of regions. As a result, there has been a stronger focus on soft, informal regionalism, as well as an intensified debate regarding the various ways in which state, market and civil-society actors relate and come together in different ‘formal’ and ‘informal’ patterns of regionalism and regionalization. Scholars of Asian regionalism have made an important contribution to the comparative debate on regionalism more generally. The vibrant discussion around formal and informal regionalism in Asia is certainly positive. However, what is needed in the future is an even more intense comparative discussion with other regions. Thus, the use of comparison is underdeveloped in the field of regionalism, primarily because many scholars specialize in a particular region. As a result, conceptual toolboxes and theories are developed from/for their ‘own’ region. This can result in a parochialism, which may prevent scholars from recognizing that they are often talking about similar or even the same phenomena but using at least partly parochial conceptualizations. Thus, one of the conclusions of this chapter is that there is considerable scope for increased cross-fertilization between different regional debates (also see Söderbaum 2009). There is, for instance, no reason to believe that ‘soft institutionalism’ is a uniquely Asian phenomenon. Further, comparisons should not be limited to contemporary Asia and Europe. As pointed out earlier, the Asian experience suggests that greater formality may lead to more inefficient regional cooperation. Consequently, and to allow for more systematic research, the extent to which this holds true throughout as well as beyond Asia ought to be further investigated.

Notes 1 Several arguments in this chapter have been developed through collaboration (and co-written texts) with Björn Hettne during the last decade. All limitations remain my own. 2 This section builds on arguments developed in previous texts, especially Söderbaum (2011).

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2 East Asian regionalism Gilbert Rozman

Since the Cold War various countries have expressed an interest in forging a regional community in East Asia. Their proposals have differed in the scope of the region, its functions and its leadership. Lately, the trilateral summit of China, Japan and South Korea has emerged as one principal entity pursuing this goal, but striking differences among these states demonstrate that a broader perspective is necessary to discern how the search for regionalism has been proceeding and where it might lead. By adding the United States, the Association of Southeast Asian Nations (ASEAN), India and Russia, as well as Australia and New Zealand, to the picture and taking the impact of North Korea into account, we can probe more deeply into the rapidly changing quest for a multilateral framework. Leadership dynamics have kept changing in a region known for successive ‘economic miracles’ and deep-seated great power rivalries. The United States holds the predominant military role, while continuing to insist on a decisive economic say even as it is steadily ceding its economic predominance. It strives to prevent the rise of a regional hegemon as well as exclusive regionalism capable of challenging open markets, universal values and US alliances (Ikenberry and Moon 2008). Japan was the first challenger seeking economic leadership with aspirations to capitalize on regional fascination with ‘Asian values’ (Rozman 1998; Wan 2001; Pempel 2005; Katzenstein and Shiraishi 2006). Yet, it was constrained by memories of its previous colonialism associated with the term ‘East Asia Co-Prosperity Sphere’ and sullied by the false ring of persistent rationalizations that its sole purpose was to liberate Asia from Western imperialism. Moreover, Japan’s aspirations are restricted by its postwar pacifist constitution and its resulting dependence on an alliance with the United States. After the collapse of its bubble economy, political instability and lack of sufficient will to undertake painful economic reforms have enfeebled remaining regional leadership ambitions. The former prime minister Hatoyama Yukio raised the banner of an East Asian community in 2009–2010, but his failure only exposed strategic malaise. China has emerged as the most serious challenger for economic leadership, while contrasting with Japan with its rapid build-up of other types of power. Since it has aroused suspicion due to its record of communist sponsorship of revolution and negation of universal values, as well as to memories of its sinocentric obsession with a hierarchical regional order linked to a tributary system, China’s challenge leads to counterbalancing strategies. Indeed, its fast-growing military, and extrapolated rise to the pinnacle of world power, cause countries to hedge against it even as 22

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they grow more dependent on its economy. If in the 1990s Japan’s quest for regionalism was at the forefront, by 2000 China became the driving force (Rozman 2004; Shambaugh 2005; Sutter 2005). Yet competition between the two – and the shadow of US power in East Asia – have left an opening for both ASEAN (comprised of the ten Southeast Asian states) and South Korea, a buffer between two powers, to exercise a limited degree of leadership (Pollack 2004; Armstrong et al. 2006; Frost 2008). The two intermediate forces – one serving as the only collective organization of states within East Asia with a mandate for advancing towards regionalism, and the other being a sufficiently developed economy with a narrowly focused foreign policy posing slight challenge to the great powers – filled the leadership vacuum as Japan’s hopes were receding and China was still biding its time in accord with the advice of Deng Xiaoping. They were compromise choices, conveniently steering the quest for regionalism forwards, even if their own aspirations at times outraced their prospects. ASEAN strove to retain leadership despite the focus shifting to the new trilateral summit of Northeast Asian states, while South Korea sought to forge a favourable environment for transforming North Korea and launching the process of reunification – until it realized in the Six-Party Talks that it could be marginalized. By 2010, even as ASEAN remained the host of various organizations, such as the ASEAN Regional Forum (ARF) and ASEAN Plus Three (including China, Japan and South Korea), and South Korea served as the host of the first Asian meeting of the G-20, neither proved capable of steering great power relations as was required for regional leadership. The goal of regionalism became encapsulated in the concept of an East Asian community. Although removing economic barriers was the principal thrust of most agreements to promote regionalism, a ‘community’ connotes shared values and joint responses to security threats. Despite sharp differences on how to reach agreement, mutual recognition of the desirability of regionalism became a persistent component of ASEAN Plus Three, which was launched in 1997, and the trilateral summit taking shape a decade later. As rapidly expanding intra-regional production networks and commerce propelled economic integration, cultural and security matters were often treated as secondary concerns. (Rozman 2007) Yet, failing to address them as they grew more serious only created the illusion of regionalism. In 2010 growing discord cast doubt on this entire pursuit, as seen in the response to the North Korean threat (Rozman 2011b). The momentum of regional economic integration accelerated as a result of the Asian financial crisis of 1997–8 and the world financial crisis of 2008–9. Prior to the first crisis, US pressure led to the opening of financial markets as well as the reduction of protectionist measures to ensure that exports far exceeded imports. In response to such pressure, rising labour costs and popular awareness of the growing environmental burden, Japan encouraged its firms to transfer many manufacturing functions to other Asian states. Japan’s well-known ‘flying geese’ model kept working well into the 1990s, building a foundation for economic integration – the final destination for exports being the United States and other developed economies. Yet, as the ‘four little tigers’ (South Korea, Taiwan, Hong Kong and Singapore) established their own production networks, especially in fast-growing China, dependence on Japan kept declining. In response to the Asian financial crisis, a joint financial mechanism – the Chiang Mai Initiative – was established to reduce reliance on the widely distrusted International Monetary Fund (IMF) and prevent a repetition of the crisis due to the rapid withdrawal of foreign funds. Increasingly, the quest for additional advantage from cooperation shifted to the establishment of Free Trade Agreements (FTAs). China gained an edge in this process, capitalizing on the much faster growth of its economy through the 2000s. During the world financial crisis, China stimulated its economy and helped pull the rest of the region out of recession, in the process giving new momentum to regional economic integration. This led to a three-way FTA with Japan and South Korea 23

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becoming part of the agenda for the trilateral summit, even as nervousness spread about China’s growing dominance and unfair mercantilism. Cultural matters proved difficult for boosters of an East Asian community. On the one hand, controversy persisted over historical memories and the way these kept being invoked. Japanese revisionism troubled, above all, the South Koreans and Chinese, but signs of resurgent sinocentrism coupled with China’s defence of the communist legacy during the Cold War were shifting the spotlight towards China’s real motives (Hasegawa and Togo 2008; Rozman 2011a). On the other hand, universal values were also proving divisive, not just as vague ideals but also as they applied to emerging challenges. There was little clarity about what the emerging East Asian identity should be or how it could gain credibility in the face of powerful nationalist currents. Even as intraregional tourism grew rapidly amidst growing access to each other’s culture, remnants of distrust were not fading away. Internet chatter, notably from Chinese netizens, accentuated this discord. As the focus kept returning to the mishandling of historical issues by politicians in Japan, China’s deepening cultural challenge belied its claims to be building ‘soft power’ in order to smooth its peaceful rise. Growing cultural distrust with the United States casts a dark shadow on China’s ability to project its soft power to its neighbours in order to challenge the soft power of the US. Security cooperation on a regional level proved to be most elusive. Despite the importance of the Six-Party Talks in 2003–8 as a forum for jointly confronting the challenge of North Korean nuclear weapons development, the breakdown of the talks from 2008 and the divisions on how to resume them exposed a sharp split. There was no consensus on how to manage threats that could destabilize the region. The rapid expansion of China’s military power, as China identified the South China Sea in 2010 as a core interest, left many of its neighbours nervous. Its increased condemnation of US alliances in the region left unclear how China expected to maintain stability. The inability to win China’s support and Russia’s as well for turning the Six-Party Talks into five-party agreement on how to respond to North Korean belligerence became evident. The formation of a working group on regional security architecture, under the rubric of the 2007 Joint Agreement, did not prevent the struggle over security from intensifying. This put a premium on US involvement, raising the likelihood that an inclusive form of regionalism would take precedence over any exclusive type. From 2010, preparations accelerated for an enlarged East Asia Summit (EAS) as the core organization for broadly conceived regionalism subsuming smaller regional groups.

ASEAN plus three and the trilateral summit Prior to 2010 the case for some sort of regionalism that excluded the United States found widespread support, if not necessarily for the same reasons. With the end of the Cold War and the collapse of the Soviet Union, security appeared to be a secondary concern. When North Korea challenged the non-proliferation regime and posed a regional threat it was assumed that all of the other countries in the region would join in containing this threat, even if some, such as China, were more passive. Ideology was dismissed as no longer relevant, while regionalism drew praise as a means to accelerate economic growth – an obsession in the region. The challenge, as seen through the mid-1990s, was how to interest China in a type of multilateralism, where it was prone to consider itself outnumbered. Tensions with China intensified in Japan, notably as a result of China’s defiant testing of nuclear weapons and show of force in the Taiwan Strait crisis of 1996. Yet Japan was eager to give new vigour to relations, as it found APEC insufficient at a time of intensified US-led globalization. In the second half of the 1990s Southeast Asian states recognized that they needed to bolster ASEAN in order to address looming problems. With China’s rise and uncertain great-power 24

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relations in the region, a weak and marginal ASEAN did not seem adequate – and the states of the region doubted that they could exert much leverage separately. Expanding ASEAN to ten members with the addition of Laos, Cambodia and Myanmar and forming an enlarged organization with China, Japan and South Korea, these states gained increased centrality and clout (Emmerson 2009). With the Asian financial crisis, resentment towards the United States and international institutions grew, while reliance increased on the Plus Three states. In the heady days of the early 2000s, a vision group and then a study group raised hope for forging a real community, as some observers made comparisons with the European Union and others gave voice to optimism generated by Asian academic networks (Mori and Hirano 2007). Yet ASEAN lacked the levers to steer great powers. In some respects, the heyday of ASEAN Plus Three came early before Sino-Japanese ties soured again in 2003–6. Equilibrium was perceived between Japan, the past economic leader that had been struggling with stagnation for a decade, and China, the aspiring leader growing rapidly but with per capita income still quite low. The main thrust of China’s initiatives was economic, reaching out to ASEAN as a group as well as to individual countries. Co-hosting the World Cup in 2002, Japan and South Korea enjoyed a thaw in relations when history was not stressed, while the bloom in Sino-South Korean relations was at a peak, linked to a spike in anti-Americanism in South Korea. Despite differences in thinking about regionalism, hopes were raised not only within ASEAN but also among the Plus Three, which held its own annual summit. The limits of ASEAN Plus Three soon became apparent. While the Plus Three states pledged to defer to ASEAN for leadership, the ten states in that association had difficulty in setting a joint course. Its only middle power, Indonesia, is a reluctant leader, while its most internationalized member, Singapore, has to be careful to avoid giving offence. The security interests of the ten do not coincide, especially in responding to China’s rise and the appeal to the United States to play a balancing role. With China taking the place of Japan as the leading advocate of East Asian regionalism, states differed in how to respond. Finally, a compromise was reached in 2005: an expanded EAS would be formed, providing more balance to China, and ASEAN Plus Three would be given the mandate to forge an East Asian community. This unwieldy combination served the region for a time, as Sino-Japanese relations were stabilized and US attention centred on the Six-Party Talks and the wars it was fighting in Iraq and Afghanistan. The world financial crisis led to new emphasis on Asian regionalism, to which Hatoyama gave impetus with his stress on an East Asian community and rebalancing relations with the United States; yet his failed tenure exposed the futility of idealism in the face of harsh realities. The Sino-US divide hardened, Japan drew closer to its ally, and attention was shifting from economic integration to security stabilization. The downturn in Sino-Japanese relations evident at mid-decade (Shin and Sneider 2007; Calder and Fukuyama 2008) resumed as China aroused distrust on all sides. ASEAN scrambled to adjust, turning in 2010 to another expansionary plan. Japan’s thinking on regionalism had become defensive in response to China’s assertive cultivation of Southeast Asian states, utilizing ASEAN. China had changed course with the Asian financial crisis and kept one step ahead of Japan in initiatives towards ASEAN, which won considerable favour as its economic promise dramatically rose. In 2005 Japan countered China with a broader approach to the scope of a new summit and a values-based interpretation of community to test the limits of China’s multilateralism. Yet, with a booming economy and a critical role when the world financial crisis set back other states, China kept the pressure on Japan to not fall behind with ASEAN. Its prospects were improving before it decided that greater clout allowed it to bypass regionalism through increased bilateralism, especially concerning security. Major Southeast Asian states became alarmed by this, turning to the United States for support. The momentum shifted in 2010. The hyperbolic rhetoric of China regarding 25

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Japan’s arrest of a fishing-boat captain in the East China Sea led to a downward spiral in SinoJapanese relations, as did China’s failure to condemn North Korea for its repeated belligerence towards South Korea. China had embraced ASEAN Plus Three and sought to strengthen it as an economic organization, while simultaneously devoting its energy to ASEAN + China (Wan 2010). This approach continued in the world financial crisis as its newly completed FTA with ASEAN facilitated increased dependence of local economies. Japan had served its purpose over the previous decade in enabling further regionalism (Rozman 2010b), but its ideas for an East Asian community inclusive of values, and its coordination with the United States, left the prospects for shared pursuit of non-economic goals unlikely. Yet, for economic reasons trilateralism was gaining ground during the crisis, even if doubts were spreading about its wider meaning. In the midst of growing anxieties over security after North Korea’s attack on the Cheonan naval vessel, and also China’s maritime assertiveness, China was challenged to prove its commitment to stability. Instead, the late May 2010 trilateral summit demonstrated China’s indifference to boosting regionalism even as its relations with the United States were deteriorating. Pressing the theme of early agreement on a three-way FTA, China’s premier Wen Jiabao left the South Korean president Lee Myung-bak unsatisfied in his quest for a joint response to the report that a submarine from North Korea had sunk the South Korean naval vessel. Wen’s call for self-restraint and focus on economics – at a time when security was the foremost concern – united Japanese conservatives and progressives, undermining China’s credibility. With President Barack Obama firmly backing Lee and a UN Security Council vote looming, in which China’s response was critical, few could doubt that trilateralism was limited to economic cooperation with no prospect of forging the all-around conditions for regionalism. China’s push for exclusive regionalism, including security, reached a high pitch in the confrontation with the United States in the summer of 2010 after China declared the South China Sea to be a core interest, thus alarming countries in the region, especially Vietnam, with its assertiveness. One newspaper insisted: [r]egional stability will be difficult to maintain if the countries concerned allow themselves to be controlled by the strategic guidance of the US… China offered a solution of ‘shelving disagreement and joint development’ to help foster trust and move the issue forward. China’s objective is clear: to build strategic trust with neighboring countries under China’s tolerance and patience…Southeast Asian countries need to understand any attempt to maximize gains by playing a balancing game between China and the US is risky…China will never waive its right to protect its core interests with military means (Anonymous 2010a) Playing an expansionist and balancing strategy at the same time as it kept claiming to be supportive of regionalism left China vulnerable to backlashes. Its handling of the Six-Party Talks faced a sharp backlash in the spring of 2010 when it refused to condemn the North Korean sinking of the Cheonan, leading Seoul, Washington and Tokyo to focus on sanctions and alliance deterrence. Assertive moves in the South China Sea provoked a tough response in July 2010 at the ARF meeting when Washington led six of the seven old members of ASEAN (only Thailand was silent) in a call for a multilateral code of conduct. In Central Asia divisions with Russia over energy matters, and in South Asia over the Pakistan-India rivalry and Afghanistan, left Shanghai Cooperation Organization (SCO) prospects more doubtful. The three main accomplishments of Chinese multilateralism were all in jeopardy due in large part to its distrust of regionalism amidst bilateral manoeuvring (Rozman 2010a). 26

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With Vietnam assuming an active role, countries were joining in resisting perceived Chinese pressure that smacked of hegemonism. Vietnam resuscitated ties with Moscow, emphasizing arms purchases. It invigorated ties with India and Japan. It rallied Southeast Asian states to band more closely together on matters of maritime security, realizing some success. Above all, it enlisted the United States in this endeavour, since it agreed with US principles about freedom of navigation and sovereignty. Instead of ASEAN becoming a force for regionalism supportive of China’s rise, as had been the case since the late 1990s, it was, albeit with dissent from Cambodia, Laos and Myanmar, becoming a force to restrain China. This was best done through an expanded scope, and the enlarged EAS, due to meet from 2011, promised to bring together all of the relevant actors.

APEC, the Asia-Pacific community, and the enlarged EAS The centre of the world economy has been moving to Asia even faster than anticipated. As a result of the world financial crisis, this process accelerated. Rather than 1989–91 at the end of the Cold War marking the critical turning point, as many in the West had decided, some eyeing the emergence of the G-20 with eight states from the enlarged 18-nation EAS consider this to be the actual turning point (Anonymous 2010b: 14a). As the Cold War ended, APEC (Asia-Pacific Economic Caucus) was formed, bringing together states from four continents on both sides of the Pacific. Thus began the search for a new organization capable of reaching across the Pacific and pre-empting a drive for exclusive Asian regionalism. Two decades later, the quest was growing more urgent. In opposition to talk of an East Asian community, the then Australian prime minister Kevin Rudd floated the idea of an Asia-Pacific community in 2009. This accompanied the decision by Barack Obama to sign the Treaty of Amity and Cooperation in Southeast Asia (TAC) with ASEAN, followed by agreement that a US president would travel each autumn to Asia, allowing for the enlargement of the EAS (formed in 2005 with India, Australia and New Zealand as members and now expected to admit Russia as well as the United States). Fulfilling the aspirations of advocates of inclusive regionalism, among which were an expanding number of Southeast Asian countries, the new EAS with 18 members would eclipse APEC with the likelihood of a more varied agenda, and might plant the seeds of an Asia-Pacific community, inclusive of China, even as steps to limit China’s assertiveness proceeded in the context of a parallel search, if necessary, for a community without China. Backers of exclusive Asian regionalism had anticipated milestones to boost ties significantly, especially economic integration. These included agreement on an Asian Monetary Fund and an Asian Euro, building on discussions under way for a joint FTA of China, Japan and South Korea. Such plans were buttressed by pointed criticisms of the United States for causing the world financial crisis, amid satisfaction that East Asian economies had drawn closer to overcome it. Yet idealism was losing favour in 2010, as sober voices warned against economic ties racing ahead of mutual trust while stressing the importance of a broader approach to multilateralism. Prior to the formation of the enlarged EAS, the former Japanese prime minister Nakasone Yasuhiro argued that APEC must survive, noting in the midst of intense discussions on trilateralism that nobody should forget the importance of politics, security and culture involving not only the 16 states in the existing EAS but also the United States and Russia in some sort of layered arrangement. In contrast to a participant from China on the same panel on regionalism, who proposed to establish trust by quieting voices critical of China and any possible threat it could pose, Nakasone was clear about the importance of linking economics to other dimensions and to deepen trust by addressing actual problems that were arising as part of a broad community capable of addressing them fully (Anonymous 2010b: 14b). 27

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This panel of specialists from China, Japan and South Korea was exchanging views on how to forge a three-way FTA. There was agreement on the desirability of more economic integration as part of globalization. Yet, the tone differed within the group. Chinese experts enthusiastically embraced the goal of this FTA, stressing its positive contribution in preventing rising protectionism or anti-dumping actions. Clearly, the existing order was working well for their country, as they claimed to be championing globalization by deflecting criticisms of China’s ways, such as inflexible currency exchange rates. South Korean experts welcomed the emerging global order reflected in the creation of the G-20, which their country was to host in November, but they added the caveat that values must be considered while steps to overcome distortions of the imperialist and cold war era in education should be taken to build a foundation for the new community. Most explicit in insisting on the necessity of ‘trust’ as the foundation of a community was Nakasone, who urged recognition that the US security network is what has permitted regional economic development (Anonymous 2010c: 9). In 1989 Australia and Japan had been instrumental in forming APEC. In 2005, as China was pressing for a stronger ASEAN Plus Three, Japan succeeded in its quest to form an EAS with India, Australia and New Zealand, capable of diluting China’s increased dominance. Japan’s foreign minister Aso Taro proposed an ‘arc of freedom and prosperity’ along China’s periphery in 2006, which was followed in 2009 by Rudd’s idea to enmesh China in an Asia-Pacific community. Yet, the quest for inclusive regionalism had many setbacks. In the mid-1990s, after Bill Clinton turned APEC into a summit with ambitious targets for opening markets, disagreement over how to remove barriers, notably between Washington and Tokyo over agriculture, caused APEC to atrophy. From the time of the Asian financial crisis, to 2002 when Japan’s prime minister Koizumi Junichiro gave a speech in Singapore in favour of regionalism, it appeared that exclusive regionalism would prevail, especially given the increasing Chinese enthusiasm for it. Deteriorating Sino-Japanese relations, however, stopped the momentum, and China’s stunningly rapid increase in power left others wary. In response to Rudd’s proposal, there was also hesitation. Fearing loss of its centrality, ASEAN, led by Singapore, reacted coolly. Its leaders did not embrace the idea of Asia-Pacific regionalism, but instead explored whether expanding the EAS to include the United States and Russia and forming a kind of ASEAN + 8 might reinforce their relevance (Dobell 2010a). We can discern in this discussion attempts to involve the United States more deeply in the institutions taking shape to address the challenges of East Asia. Hatoyama took office in late 2009, enthusiastic about forging an East Asian community, where the US presence was unlikely and security issues would be downgraded as economics stayed at the forefront. Contrary to previous Liberal Democratic Party (LDP) leaders, Hatoyama came from the Democratic Party of Japan (DPJ) and was intent on charting a new course for foreign policy. Yet his moves to revisit the agreement on where to relocate a US military base in Okinawa caused turmoil in the alliance, and his lack of wariness towards China quickly was rejected by Japanese public opinion. Indeed, Beijing’s growing assertiveness caused the Japanese public to become concerned about its naval power and its reluctance to check destabilizing North Korean nuclear ambitions. Hatoyama had no choice but to backtrack in his foreign policy before being replaced by Kan Naoto, who pledged to strengthen the alliance with the United States. The late May 2010 trilateral summit – held at a time of great concern about China’s military intentions – demonstrated the limits of this forum for building trust and addressing the most serious regional problems. Japan was not alone in seeking to involve the United States more fully in the region. In late July 2010 Hilary Clinton found another way to advance this notion of an inclusive community. Speaking at the ARF meeting in Hanoi, she explained that: [o]ver the last eighteen months we have signed the Treaty of Amity and Cooperation, announced our intention to open a mission and name an ambassador to ASEAN in Jakarta, 28

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and held the first U.S.-ASEAN summit. And we have pursued new sub-regional efforts like our new Mekong Delta partnership. To build on that progress I conveyed to my colleagues our interest in engaging with the East Asia Summit as it plays an increasing role in the challenges of our time. And I announced that President Obama had asked me to represent the United States in an appropriate capacity at this year’s EAS in Hanoi to continue a process of consultations with a view toward full American participation at the presidential level in 2011. Through these consultations we will be working with EAS members to encourage its development into a foundational security and political institution for Asia in this century. The President also looks forward to hosting the second U.S.-ASEAN leaders meeting in the United States this coming autumn (quoted in Dobell 2010b) Obama’s trip in November to India, Indonesia, South Korea and Japan was interpreted in China as a direct challenge to its plans for East Asian regionalism. In particular, his stop at the APEC summit in Yokohama was centred on boosting the idea of a Trans-Pacific Strategic Economic Partnership (TPP) that was gaining broad support, notably in Southeast Asia, where China had concentrated its regional plans. This alternative regionalism was attacked as a way to limit China’s rise and restore US leadership (Anonymous 2010d). In contrast, Japan had realized that China’s power was increasingly exceeding its own – and it needed the United States for balance. It still was struggling with agricultural protectionism that left uncertain its entry into the TPP, but the East Asian community was losing ground to the EAS and APEC inclusive of the TPP (Yabunaka 2010). Aware of the unstable nature of ASEAN Plus Three after the trilateral summit had transferred the focus of the Plus Three states elsewhere, and of the unsatisfactory scope of the EAS without the presence of the United States, which had finally signed the TAC with ASEAN, Southeast Asian states were amenable to reorganization in 2010. They agreed on a proposal to expand the EAS into a group consisting of ASEAN Plus Eight. This would presumably strengthen regional authority, replacing, to a degree, the larger 27-member ARF gathering and the even larger APEC with a group centred on ASEAN and the great powers active in the region. With security issues rising to the fore and no prospect of forming a self-contained East Asian community, the US presence had become indispensable. Instead of the June Shangri-la forum attended by the US defence secretary, the July ARF meeting drawing the US secretary of state, and the autumn ASEAN Plus Three and EAS meetings with no US representation, the new enlarged EAS would serve as the fulcrum for annual consideration of broad regional problems with all of the major players fully represented and engaged. It signified a consolidation of regionalism on a more sustainable foundation. Yet, it left unsettled the relationship between trilateralism within East Asia and wider multilateralism. The Six-Party Talks in 2003–8 had appeared to offer the answer to how the great powers in Northeast Asia would work together to address security questions. In preparing the way to the Joint Agreement of February 2007 the United States had softened its position to allow for stageby-stage progress in denuclearization by North Korea and economic and other incentives from the other five states, while China had hardened its stance to support UN Security Council sanctions that could be lifted if progress was occurring in the negotiations. Yet, even before Barack Obama took office in 2009, pledging to sustain the Six-Party process and even to meet with North Korean leader Kim Jong-il – should it be conducive to an agreement – Kim denounced the US approach, rejected the process and took a threatening pose towards regional security. Although China agreed to new Security Council sanctions in response to a second North Korean nuclear test, its refusal to coordinate with the other four states in pressuring the North to 29

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return to the talks cast doubt on the prospects for security cooperation. When North Korea was found to have torpedoed a South Korean ship on 26 March 2010, confirmed by an international investigation team led by South Korea, China’s refusal to acknowledge this even as it hosted Kim Jong-il left grave doubts about its strategic ambition. While the United States and its allies were anxious to keep the focus on the North Korean threat, as the North ratcheted up its rhetoric, China tried to change the subject to a supposed US threat, condemning joint US-South Korean military exercises in response to the attack and attacking the US alliances in the region as well as sustaining criticism of arms sales to Taiwan. India’s inclusion in Asian regionalism has drawn increasing attention. In 2005 it was part of the formation of the EAS. Japan sought its entry as did key states in Southeast Asia, such as Singapore. Japan’s interest grew, as seen in the July 2010 Two-Plus-Two dialogue. Stressing security cooperation and building on recent talks on civilian nuclear ties, this dialogue demonstrates the broad geographical range Japan is seeking to ensure that China does not achieve regional hegemony. Barack Obama’s November 2010 visit to India was also hailed as an opportunity to boost bilateral relations with relevance for Asia’s changing multilateralism. One country that is often overlooked in the pursuit of regionalism in East Asia is Russia. In the Russian Far East for the annual conference on its development and relations with neighbouring states, President Dmitry Medvedev remarked that developing strategic ties with countries of the Asian Pacific region is important, adding: ‘We shall offer our vision of how to build up a polycentric non-bloc security and co-operation architecture in the region’ (President of Russia 2010). Looking ahead to the 2012 APEC summit in Vladivostok, he repeated warnings about the dangerous trend of depopulation in the Russian Far East as well as persistent unsatisfactory conditions in which areas require assistance from the centre and large numbers of people have incomes below the subsistence level. Yet, his reference to ‘non-bloc security’ on the eve of attending the Vostok-2010 military exercise, and at a time of Chinese military exercises and planning for US-South Korean military exercises, underscored the salience of security for regionalism and Russia’s rejection of the status quo. With the Six-Party Talks dormant, Russia’s vision of regionalism remained unclear. The new EAS would put security in the forefront and guarantee an annual visit of the American president, beginning with the 2011 summit in Jakarta. With five great powers and the right mix of actors, it would likely overshadow APEC, ASEAN Plus Three and ARF as the second major international organization after the United Nations Security Council, capable of addressing the most urgent challenges to global security multilaterally. Yet, it would take time to institutionalize and it would have to struggle against revived efforts to strengthen exclusive regionalism, reflecting China’s ambitions. After a decade of concentrating on ASEAN Plus Three and then the new trilateral summit, a resurgent China had ample reason to strive to develop these organizations. In 2005 it had succeeded in assigning the responsibility of forging an East Asian community to ASEAN Plus Three rather than the EAS. With its enhanced clout, notably economic power, China could be a formidable force for an exclusive region.

Conclusion Over two decades, regionalism in East Asia has struggled to integrate three conflicting ideals. The most widely accepted of them is the goal of establishing joint economic space, which will give a large boost to participating countries. Given the exceptionally entrenched mercantilism first in Japan and South Korea and lately in China, this ideal may prove misleading, but it continues to be strongly embraced. The second ideal is one of forging a community that in important respects brings Asians closer together and champions values that, if not contradictory to ones seen as based 30

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on Western tradition, at least conveys the distinctiveness of East Asia. However, no progress has been made in defining those values, as increasingly China’s distinct understanding of the contrast with universal values has left others suspicious. Third, proponents of regionalism, regardless of their ostensible objectives, have often been under the sway of a balance of power ideal. The greater the disparity of US power and the perceived power of their own state or of a combination of regional states, the more the incentive to achieve a balance with the United States. The greater the expectation that their own state will gain leadership in the region, the stronger is the desire to press for regionalism. This third ideal has often taken priority; yet China’s ascendance in the region makes it unlikely that this ideal will influence other states any longer. Instead, it is becoming a divisive force, leading China to intensify its push for exclusive regionalism in the face of resistance – in favour of participation by the United States in an inclusive form of regionalism with additional great and middle powers, reaching the entire length of the northern and southern hemisphere. The Six-Party Talks and ASEAN Plus Three tested China’s seriousness in advancing, stage-by-stage, with ample reassurances towards regionalism. Yet, China alienated Japan, South Korea and the core members of ASEAN in successive moves that belied its slogans of ‘peaceful rise’ and ‘harmonious world’. When the EAS was formed in 2005 it was a warning to China that neighbouring states would not accept regional dominance. In May–July 2010, that warning was amplified at the trilateral summit, the Shangri-la meeting, the ARF, and various gatherings of the United States and its allies or partners in the region. Plans were set in motion for an 18-nation EAS with potential for a different kind of regionalism, prioritizing ideals in another manner. The ideal of regional economic integration remains well-entrenched, but concern about overdependency on China has emerged as a cautionary force. With China’s mercantilism based on the heavy weight of state-owned enterprises not subsiding and its exchange rates artificially manipulated, prospects remain dim for substantial institutionalized regional integration. If by an FTA one means reduced barriers to trade, then there is room for progress. If China were to boost domestic consumption dramatically, this transformation of its growth model could also lead to closer cooperation. Yet, emphasis on exports, technology transfers to Chinese firms, and stimulus measures that cause a bubble in property and stocks do not raise confidence in a level playing field for economic partners. The ideal of an East Asian community has already been exposed as spurious. It proved to be wishful thinking on the part of those eager to assist China in the next phase of globalization. When Beijing brushed aside the goodwill expected in South Korea as early as 2004, with its shocking claims to the historic kingdom of Koguryo, it proved to be just a harbinger of other callous handling of sensitive themes crucial in developing a shared sense of community (Rozman 2008, 2010c). The odds are high that a struggle over values will ensue in which a shared sense of community is found among nations working to convince China of the benefits of changing course. With economics and community-building incapable of solidifying regionalism, the struggle over reorganization in Asia will centre on balance-of-power concerns. In the context of the larger EAS, China will have a hard time lining up broad support. As for the states that, in various analyses of the past decade, appeared to be amenable to China’s influence, most have made clear that they are interested in hedging against possible sinocentrism or even balancing against Chinese assertive behaviour. South Korea and Japan have shifted sharply in that direction, and some states in Southeast Asia are also distancing themselves from Chinese notions of exclusive regionalism. The only regional organization that still offers some possibilities for leadership to China is the SCO. However, expansion to include associate member Iran would pose an affront to many countries China is courting, and expansion in South Asia is stymied by the conflict between India 31

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and Pakistan and Sino-Russian differences over it. In fact, the uncertainty of Russian ties, especially given sharpening divisions in how to deal with Central Asia and perhaps North Korea, limits China’s chances for a balance of power within the EAS. In these circumstances, through US leadership the quest for regionalism may shift to a search prioritizing regional security focused on such challenges as proliferation of weapons of mass destruction, terrorism and even China’s military build-up.

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3 The shift to the modern world in East Asia War, memory and regional identity Peter Preston

East Asia entered the modern world of reason, science and industrial-capitalism via a tangled exchange with extra-regional powers in Europe and North America during which indigenous forms of life were more or less thoroughly remade. Incoming groups sought trade but were not averse to the use of violence or the establishment of settlements, and so indigenous polities were slowly overborne as empire holdings were established. East Asia became a peripheral area within a globe-spanning industrial-capitalist system centred on Europe and North America. But these sprawling multiethnic empires were never going to last. Simple demographics ensured their demise, but the manner of their eclipse, the contribution of local agents, and the nature of their political successors were not guaranteed. It was a contingent process; one part of a general crisis of empire systems. The crisis can be variously dated: in Europe, from 1914 to 1945/89 (war, ruin, occupation and recovery); in East Asia, from 1911 to 1975 (rebellion, war, ruin and development); and in America, from 1941–08/10 (war, dominance and overstretch). The crisis manifested itself in various ways: there were national reform movements in both core and periphery; there were restricted conflicts in peripheral territories; and finally there was a period of general warfare. From the early twentieth century through to the early years of this century there were multiple wars: these wars had various participants, they occurred in various places, they were sustained for various lengths of time, and they inevitably they gave rise to different memories. In the case of East Asia, the slow process of the disintegration of foreign empires was accompanied by general warfare, followed by cold war conflicts plus at the same time multiple local clashes as new states settled issues of borders. At the present time, East Asia is home to a number of stable, orderly and rich countries. Their histories can be read as comprising a series of layers of experience: pre-contact civilizations, the era of foreign empires, the period of crisis, the independence period, cold war, followed by broad success within the East Asia region. Each layer of experience carries its own stock of memories, which shape the present and point to the future – one crucial aspect of this past is the business of war. The legacies of warfare shape collective memory and the national past, and provide areas of interstate tension, which makes the present seem – at least in this regard – somewhat precarious. The problems in East Asia are subtle, however, as the region is successful and this entails greater integration – so revisiting available truths and confronting the legacies of the past is becoming a common problem. There are two readily available ways of conceptualizing the importance of memory: first, the idea of collective memory, which looks at the multiplicity of ways in which socially constructed 33

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memories are transmitted down through time within the social world (Halbwachs 1992); and second the idea of the national past, which points more directly to the exchange between the elite and the masses in the production of the collective self-understandings of a political community (Wright 1985). Both lines coincide in stressing the importance of the remembered past in the understandings and actions of agents in the present – and this is true of the routines of everyday life, the work of community and formal organizations and in the machinations of the state (and here, of course, action can be turned either towards domestic or international audiences). This chapter will begin with the widest historical frame through which to consider the enduring role of the past in the present – and move towards a narrower focus on contemporary East Asia.

The shift to the modern world: Europe, East Asia and the United States All political elites confront the task of managing change. They must read and react to enfolding structural change, plot a route to the future and organize their population accordingly. International relations (IR) theorists have addressed these issues in three main ways: realism (rational state actors must respond to shifting power relations); liberalism (rational actors can respond to mutually beneficial opportunities in the marketplace); and social constructivism (socially embedded actors reflexively grasp their circumstances to inform action in respect of diverse goals). This last noted approach brings IR theorists into contact with scholars from many disciplines within the social sciences: for example, historians, sociologists and cultural critics. This dialogue opens up the issue of identity – and here, in brief, there are two key ideas: collective memory (the multifarious ways in which a community sustains identity); and the national past (the quasi-formal way in which a polity sustains its identity). The latter is of particular relevance: a national past is a provisional contested compromise between the ideas of the official elite and the diverse opinions of the masses; it offers a summary view of the nation – recording its past, detailing its present and sketching out a route to the future. East Asia has been shaped in complex interchanges with Europe and the United States; the three regions inherit long intermingled histories in common and these feed through into individual national pasts. First, in Europe, the twentieth century saw a series of interlinked wars involving the metropolitan empire powers. The result of these wars was the ruin of the metropolitan heartlands and their loss of the territories of empire. The continent that had ushered in the modern world was politically and culturally eclipsed. The project of the European Union was inaugurated in response to these disasters and in parallel with national welfare state systems has proved to be surprisingly successful. One unexpected consequence of this success is that deepening integration is raising questions of identity, not just various national identities but also a common European identity. Second, in East Asia the twentieth century saw a related sequence of ruinous wars. The overarching effect was the decline of empires, but the local contributions involved aspirations to late-empire, civil war and the manoeuvrings associated with state-making. Despite these wars, East Asia has emerged as one of the world’s most powerful regions: first, in Japan, later in the four ‘tiger economies’ and more recently with China, whose reform programme, following a similar period of conflicts, and looking to the East Asian model, has generated very rapid development. Once again, success creates its own novel demands and the East Asian region’s general place within the modern world and the relationships of its component parts are in question. And third, the record of the United States offers a variant upon this theme. The country was formed in a revolutionary war of independence against its metropolitan core. Thereafter there were numerous further wars: civil war, then wars of dispossession against the native peoples of the continent, thereafter late empire wars in Latin America and Southeast Asia, which culminated in 34

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claims to great power status in the declaration of the open door regarding accessing China; later there were wars against Japan, cold wars down the East Asian littoral and from 1989–91 a brief episode of hubristic celebration that culminated in 2008 accompanied by a nascent recognition of relative decline within the tri-polar global system and thus the familiar problems of managing expectations in an era of diminished status. Seen in this perspective, the relations between Europe, East Asia and the United States are not simply pragmatic – shaped by the immediate demands of political events or economic contracts – but are shaped by a great depth of shared experience. And these experiences have in part shaped the present East Asia – further affected by the tensions of indigenous state-making and cold war. All this prompts several questions: what is the nature of this shared history, what are its legacies for today and how does it shape contemporary thinking?

Shared history: the record of the twentieth century The process of general crisis spawned a multiplicity of wars: ethnic, class, interstate and between empires. The European and East Asian continents were the sites of extensive military campaigns: the destruction was extensive and the casualties were measured in millions. The USA participated in the later wars but suffered relatively few casualties (Judt 2008b).

Crisis, memory and recovery in Europe In recent years the European Union has sometimes been presented as a model of social life to which the rest of the world might aspire (Rifkin 2004). However, in contrast to such selfadvertisements the early part of the twentieth century involved a long sequence of interlinked wars (Mazower 1998); the conflicts were many, the costs horrendous. The principal conflicts:

          

1914–18 1917–22 1936–9 1938 1939–45 1941–5 1941–5 1945–51 1956 1968 1989

Great War Russian Revolution & Civil War Spanish Civil War Austrian Anschluss and Munich Agreement Second World War Invasion of Soviet Union Participation of USA Occupation of Germany Hungarian Uprising Prague Spring Opening of Berlin Wall

Scale indicated: the resultant death toll1

  

Great War Second World War Total

8,000,000 41,000,000 49,000,000

The events of the Second World War shaped subsequent European history and shape European memory. National pasts were more or less extensively reworked: the British elite 35

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claimed a moral victory, affirmed a spurious continuity with pre-war arrangements and began the task of making a welfare state (Addison 1995); the French elite accommodated the shocks of military occupation by celebrating resistance whilst reaching back before Vichy collaboration to an earlier ideal of republican democracy (Kedward 2005; Judt 2008a); and the West German elite began processing the material, political and moral catastrophe of the National Socialist years whilst recovering the much broader civilized history of the people of Germany (Evans 1997). The division of Europe saw imported overarching official ideologies deployed, with local elites adjusting as best they could, thus creating the idea of the free West and its Eastern European counterpart in state socialism. In Western Europe the institutional apparatus of the European Union slowly took shape and the end of the Cold War saw its rapid movement to the centre of European politics. At the present time, histories of the continent are available, addressed to national audiences. They are selective, but what is now in prospect is a European national past.

Crisis, memory and recovery in East Asia In East Asia, the twentieth century saw the collapse of foreign empires, civil wars and a major region-wide war. In China, the historical core of the region, there were numerous conflicts: the 1911 revolution; warlord violence; class-based civil war between the Kuomintang and the Communist party; the Sino-Japanese war; and finally the wider Pacific War itself assimilated to the Second World War (Elleman 2001; Dreyer 1995). After 1945 there were further civil wars, numerous wars of colonial retreat, plus the proxy wars associated with the cold war concerns of the United States. The contemporary pattern of states and nations emerged only recently and at great human cost. The sequence involved multiple conflicts:

           

1911–26 1918–41 1927–37 1931–45 1941–5 1945–50 1946–9 1946–54 1948–60 1950–3 1954–75 1978–91

Chinese Revolution followed by Warlord era First-phase anti-colonial movements First Chinese Civil War Sino-Japanese wars Pacific War Indonesian Revolution Second Chinese Civil War First Indo-China War Malayan Emergency Korean War Second Indo-China War Third Indo-China War

These wars involved multiple participants; not merely the soldiers of one country fighting those of another, but armies made up of multiple ethnic groups, perhaps fighting in remote places far from their home areas, in armies commanded by leaders from outside the area, and for nominal causes of which they might well be ignorant or indifferent. These wars were typically fought using modern weapons, some of which were recycled from the stocks of colonial powers, others introduced during the Pacific War and later provided by supporters of the various forces. These wars were pursued at great cost to those civilians unlucky enough to be caught up in the fighting, as the modern weaponry was highly destructive and the armies using them generally indifferent to civilian losses. 36

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Scale indicated: the resultant death toll

         

Warlords and Civil War 1916–37 Chinese Civil War 1946–9 Sino-Japanese wars and Pacific War Southeast Asia occupations Korean War 1950–3 First Indo China War 1946–54 Second Indo China War 1954–75 Indonesian regime change 1965 Third Indo-China War Total

4,000,000 2,500,000 12,600,000 5,000,000 2,800,000 600,000 2,700,000 500,000 1,500,000 32,200,000

The general crisis, which has shaped contemporary East Asia, has been read into official and popular consciousness in a number of ways. However, these matters are not settled either domestically, where competing memories are readily available, or internationally, as it is possible to point to a number of competing national pasts that have been the occasion for international tensions and popular protests. As the violence subsided, the newly empowered elites pursued various projects. These had common themes: there was a clear desire to establish clarity in respect of new territorial arrangements, thus where Europeans sought a measure of unity, elites in East Asia sought clarity of difference; thereafter, most elites sought development in the guise of growth and welfare. This took multiple forms: in Japan, an understated economic nationalism; in South Korea, an authoritarian national development; in Taiwan, national development clouded by unresolved civil war; in Hong Kong, a curious re-colonization coupled to accidental outward-directed economic development; in Southeast Asia, there were numerous military dictatorships in Thailand, elite rule in the Philippines, guided democracy and development in Indonesia, corporatism in Malaysia and an energetic state-led development in Singapore. In Indo-China, war continued into the 1990s, thereafter, further variants of the pursuit of national development took shape; and in China the success of the Communist party in liberating the country was tarnished by the utopian excesses of Mao, before the reforms of the later years of the century saw sweeping change and the creation of one more variant form of state-led national development.

Crisis, memory and the present day for the United States By the turn of the twentieth century American politicians were ready to assert their status as a great power through colonial wars in Latin America and Southeast Asia. In East Asia, America was active from the late nineteenth century and asserted itself against European powers by promulgating the doctrine of the Open Door, claiming a special affinity for China, a matter of missionaries and gunboats (Gong 1996; Cummings 1999). In time, these interests clashed with those of Japan (Iriye 1987, 1997). The Pacific War produced a new political pattern in the region: external foreign empires were dissolved; indigenous elites secured power; and the USA assumed a key role and maintained large armed forces in the region. America’s wars in East Asia2

  

1898–1902 Philippines-American War 1941–5 Pacific War 1950–3 Korean War 37

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1946–54 1965 1954–75

Huk Rebellion Indonesian Coup Second Indo-China War

Scale indicated: the resultant death toll

      

Philippines-American War Pacific War Korean War Huk Rebellion Indonesian Coup Second Indo-China War Total

220,000 17,600,000 2,800,000 35,000 500,000 2,700,000 23,855,000

Postwar American policy focused on Northeast Asia: the elite sought a remodelled Japan; they were ill disposed to their erstwhile Soviet allies; and their population was war-weary. The mix had consequences: the nuclear bombing of Japanese cities (Hasegawa 2005); the reform programmes of SCAP (Supreme Command for Allied Powers); claims for a role in Korea; and support for the Kuomintang. In 1949–50 matters come to a head: the founding of the People’s Republic was read as the ‘loss of China’; tensions in the Korean peninsula boiled over as the North’s invasion precipitated the 1950–3 Korean War; and a region-wide response organized by the USA inaugurated the cold war in Asia. Economic and military aid flowed to allies: the SCAP reversed course; there was support for Taiwan, the British in the Malayan Emergency, the French in Vietnam (and later prosecution of war in Vietnam (plus Laos and Cambodia)), the elite in the Philippines, Sukarno’s 1965 coup, and for the Thai military the cold war divided East Asia but support given to its allies helped the region recover (Stubbs 2005). The 2008 Olympics signalled a turning point – East Asian recovery was clear, as was the eclipse of American power in the region.

Shared history reconsidered The intermingled histories of Europe, East Asia and the United States run back over several centuries and these exchanges have left their marks on polities in all three regions. The general crisis that engulfed Europe and East Asia in the twentieth century wrought dramatic change. The end of empires was followed by the emergence of new states and the rise to global power of the USA.

Legacies: comparing and contrasting these experiences The interlinked histories of these three regions, together with their contemporary legacies, could be unpacked through their sustaining relationships: the economic relations (colonial trade links, neo-colonial continuities and lately more equitable participation within an increasingly internationalized global system); social relations (flows of people moving around the territories of former empires and more recently the emergence of novel patterns as skilled professionals move around the internationalized system); cultural relations (mutual influences involving languages, religions, arts and letters, plus buildings, foods, sports, popular cultures and the like); and the political relations (the legacies of the period of interlinked unfolding modernity, that is, the laws, the institutions, the party systems, the public spheres and the presently available collection of national pasts). Such comprehensive enquiries would cover a vast range, but three aspects can be 38

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underscored. First, the extraordinary violence experienced by the peoples of Europe and East Asia during the twentieth century. Second, the different ways in which the elites and the masses in Europe and East Asia have dealt with these issues. Third, the nature of the recoveries in Europe, where the elites and the masses have addressed problematic records in the course of pursuing unification; in East Asia, where such issues, until recently, have been set aside as elites pursued differentiation through state-making, nation-building and development; and in the United States, which saw its location within the global system radically upgraded – and whose elites drew the conclusion that war is an available policy option. Thus, once unpacked, the exchanges between these three regions admit of shifting comparisons across a range of time periods, involving numerous issues and producing a bewildering spread of commonalities and differences, which might be summarily grasped as follows:

    

the experiences/memories of the shift to the modern world the experiences/memories of the crisis that remade the system the concerns respectively for unification, differentiation and hegemony the situated logics of contemporary national pasts the nature of regional identities

One: complex intertwined histories The shift to the modern world of science-based industrial capitalism, which was begun by accident in Europe, took political-institutional form in the guise of state-empires. These state-empires embraced large geographical territories and thus were inhabited by multiple ethnic groups. They were ordered in multiple hierarchies: economic (a broad functional division of labour throughout the state/empire sphere); social (a detailed social status hierarchy, perhaps also functional (ethnicity/economic role could be linked); cultural (an overarching great tradition was affirmed surrounded by local traditions); and political (a hierarchy of control running from metropolitan centres down to the local level peripheries). State-empire ideologies served to discipline populations. Such constructions work in a distinctive fashion. Unlike nationalisms, which can run reductive arguments (rhetorically, nations are removed from the social world and placed in the natural world (race or ethnicity) or the realm of history (in the asocial very long run) or the realms of culture (carried, for example, in discrete languages)), which turn contingent social identities into the nominally given, state-empire ideologies must confront subject populations that are diverse and where claims to common ethnicity or history or culture are manifestly false, and so the empire is distanced from the perhaps messy contemporary social world and its realization is lodged in the future as its elites claim that progress flows from empire membership – material, social, cultural and political – and will be secured in the future. In East Asia the process of the expansion of the modern world entailed the radical reconstruction of extant patterns of life and political institutions: thus existing economies were reworked in line with the demands of global science-based industrial capitalism. The extent of the reach of modern economic practices varied from place to place. There was no simple process whereby forms of economic life were extinguished in favour of market-based activities, rather the interchange was long drawn out and the interactions formed endless permutations; thus existing social relations were reworked – new forms of economic life entailed revised forms of social life. As a result, cultural practices changed and existing polities were absorbed and recast within states/ empires. In all these territories, state-empire ideologies were promulgated and whilst their reach within local populations varied – some groups affirmed the ideas, others ignored them and some bided their time, learned the lessons and in time lodged their own counterclaims (variants on the 39

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ideas on offer) – they shaped the local exchange with the irresistible demands of the modern world and their legacies can be seen in the present. Overall, the shift to the modern world is an ongoing open-ended process – it was inaugurated in Europe – it expanded – other extant civilizations were variously dissolved, absorbed or remade – it took the institutional form of state-empires. This long period provides the base-line materials of contemporary national pasts.

Two: general crisis – the system reordered – contrasting views In the early twentieth century competition amongst European powers for advantage precipitated a sequence of interlinked wars. These were paralleled by further conflicts variously located in the peripheral areas of these state-empires as denizens of empire sought ends to foreign rule, projects cast in terms of independent statehood, nation- building and development. In general, these movements failed. However, the decision of the Japanese elite to extend their empire holdings deep into China ensured conflict with the USA and precipitated a general war in East Asia. Ongoing major conflicts in both the core and periphery of the state-empire system ensured its collapse. The European-centred system of state-empires disappeared: in Europe, nation states appeared, built around the metropolitan cores of the earlier state-empires; in East Asia, nation states appeared, built around the aspirations of replacement elites (more particularly, those who could successfully lay claim to part of disintegrating empires); and the USA attained an unexpected albeit contested international pre-eminence at the heart of a project turned to the creation of a global liberal-market system. The wars of the crisis era involved diverse locations, they involved multiple participants and they produced multiple memories. There is no simple history to be recorded: that is, there are no direct carry-overs into contemporary national pasts. There are legacies, but these are the result of elaborate and ongoing processes of active forgetting and remembering. Overall, the period of general crisis resulted in the disintegration of European-centred state-empires. The global system was radically reordered. It was through this process of violent change that the contemporary pattern of nation states emerged. These events were read into national pasts: in Europe, often in terms of shame and regret; in East Asia, often in terms of progressive projects turned to the future; and in the USA, in terms of a putatively universal liberal-market project.

Three: elite concerns for unification, differentiation and hegemony The Pacific War came to an end in August 1945. State-empires were either gone or un-recoverable, notwithstanding some further wars of colonial withdrawal. Where there had been a number of empires embracing territory in the geographical areas of Europe and East Asia, what now appeared were sets of nation states within areas that became regions within the overall global system. Thus reforms took place across a series of scales: global, regional and national. These process were further inflected by cold war conflicts: in Europe, the continent was divided with the eastern areas looking to the leadership of the Soviet Union whilst the western areas looked to the USA; and in East Asia, the territories were divided into a state socialist core around China and a state capitalist littoral oriented towards the leadership of the USA. In Europe, elites were disposed to unification or at the very least cooperation; in the USA, elites sought to create an integrated global liberal-trade regime (Kolko 1968; Aron 1973); but in East Asia, elites were disposed to differentiation, for as empire-states dissolved, replacement elites emerged concerned with state-making, nation-building and development. Replacement elites 40

East Asia: war, memory and regional identity

were concerned to establish their control and their collective identities; thereafter, varieties of international cooperation were not resisted, as with, for example, ASEAN, or the defence linkages of Taiwan, South Korea and Japan to the USA. In the years following the wars, East Asia and the United States saw dramatic institutional changes in politics as novel states and nations were created and lodged variously within wider regional patterns. The period of intense rapid change fed into contemporary national pasts. Replacement elites were marked by war; the populations of new nations were similarly marked. The episode provides a further set of resources to be invoked and read into contemporary national pasts.

Four: situated logics of contemporary national pasts In Europe, national pasts embrace the resources of baseline ideas about modernity and thereafter are suffused with reflections upon the period of crisis, collapse and occupation. The necessity of reconstruction is also embraced. The line of travel is towards unification. In significant measure, European national pasts come to revolve around war as something to be acknowledged, an occasion for remembering and mourning the dead, and an episode to be recalled in shame – thus, nationalism flows out of the routine experience of Europeans. However, in contrast, in East Asia, national pasts embrace the resources of baseline ideas dominated by the period of crisis, but it is read differently. The crisis gave aspirant replacement elites their chance and they took it; they seized control of particular parts of the territories of disintegrating state-empires and turned them into states pursuing nation-building. The line of travel is towards differentiation. Notwithstanding the violence and loss, the experience could be read positively – as the achievement of independence and, thereafter, regional cooperation was available in the form of varieties of networks. So nationalism flows into the routine experience of peoples in East Asia. In contrast, in the USA, events are read in terms of ethics (the war was morally virtuous), military campaigns (the war was a technical triumph), diplomacy (the war was a mixture of success, in regard to Europe/Japan, and failure, in respect of the USSR and PRC) and a distinctive route to the future, one in which the country offers a universal and optimistic line for all nations. National pasts in Europe, East Asia and the United States involve significant elements of remembered war – occasions when action made a difference (Wright 1985). In the case of Europe, the difference made was loss of state-empires and the achievement of nation states disposed to pursue formal unification; in the case of East Asia, the difference made was of the loss of overarching stateempires and the opportunity for independence and network-carried co-operations; in the United States, events were read in terms of a morally laudable victorious war and the embrace of a responsibility to order wider events to the benefit of all.

Five: the idea of regions in East and Southeast Asia A region is not a natural given, it is a construct; it is the outturn of the interacting projects of diverse national agents. One aspect of all this will be the ways in which these agents tell the story of the region. Turning to regional rhetoric, it is possible to identify a multiplicity of agents offering diverse arguments addressed to a multiplicity of audiences – a shifting mix of agents, arguments, actions, institutional vehicles and explanatory/justificatory commentary (including scholarship). There could be several ways in which the story of a region might be told; different agents make different arguments for different audiences. The elites are, however, the key – and so the ensemble of ideas and activities will revolve around the substantive projects pursued by elite agents. 41

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There are a number of ways in which the discourse might run. The central arena of these discursive constructs is memory, understood as an active social process of the creation of meaning. First, political talk (projects/rhetoric) will involve identifying the players who are involved (co-operators/competitors); it will require constructing the idea of a region; it will need institutional vehicles (the organizations that both carry and embody the project/rhetoric); and it will require popular dissemination (thus, the ASEAN summit photo-opportunities and perhaps, for example, the ASEAN gift shop at Changi airport). Second, state-planning talk (projects/policy rhetoric) will involve interpreting the demands of political masters, in other words turning politics into policy. It requires drawing up plans for what can be done, which will involve drawing lines on maps; preparing schedules/contracts of actions; and statements asserting the value of the planned actions in order to exhort popular support. Third, corporate-planning talk (projects/instrumental rhetoric) will involve selecting a market (for example, the European or American market); thus an audience is identified and advertising and product can thereafter be tailored and delivered. Fourth, popular talk will be both passive – that is, accommodating the demands of political, state or corporate worlds – or active, that is, deploying available popular ideas to identify and characterize a region. In either case, external demands are read in terms of the resources of the local tradition – quite how they will be read is dependent on the particular tradition and the ways in which external demands unpack in practice. In respect to East Asia, a region can be identified in economic, social and cultural interlinkages. However, political tensions left over from the long episode of the shift to the modern world inhibit moves towards regional organizations or a common regional identity: there are valuable organizations (thus bilateral FTAs or currency-swap agreements) and there is a wealth of talk about East Asia, which in some measure over-rides current political tensions within the region and asserts a macro-cultural identity. In Southeast Asia there are clearer signs of regional integration/identity. Acharya (2000) argues that region-ness can be a part of identity. First, beginning with pre-contact Southeast Asia, region-ness looks somewhat implausible, but then came commerce and colonialism, where the former did act to integrate the region and the latter cut through these patterns, linking discrete parts of the area to their respective metropolitan cores. Second, the period of decolonization saw an intermingling of continuing links to colonial cores, with region-ness understood in terms of pan-Asianism or Third Worldism and the ambiguous impact of cold war. Third, it is with ASEAN that a local project to build a region begins and it turns out to be successful, with its most recent expansion presented as completing the project. In the case of East and Southeast Asia, the material taken into memory looks to the long experience of colonialism, general crisis and collapse/recovery. It is these patterns of events that provide the materials to be read into a series of national pasts. The national past is a subtle construction that serves to link individuals to the ordered political realm. As such, it is a matter of intense concern to elites, and any revisions to a given national past are likely to have not merely domestic but also regional and global ramifications.

Contemporary East Asia: the past in the present East Asia’s shift to the modern world has been a long, drawn-out process. It evidences all the familiar mix of progress and upheaval, and much of its recent history has been suffused with violence – events that provide a rich stock of experiences that find expression in both collective memory and various national pasts. More recently, the countries of the region have experienced great economic, social and political success. This creates a paradoxical situation: as these communities draw together within a deepening regional context, they must adapt by reconsidering inherited ideas, adjusting mutual self-perceptions and taking the earliest steps towards conceptualizing a regional identity. 42

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Memories of colonial empires and war In Southeast Asia, memories of French, Dutch and British colonial rule belong to the distant past; these colonial powers are long gone and memories have faded, neither negative nor positive but merely irrelevant. Other issues have supervened: in Indo-China, the American interventions; in Indonesia, the long period of Suharto’s rule; in Singapore and Malaysia, longestablished mutual unease. Of course, the region has ordered itself via ASEAN, committed amongst other things to consultation and consensus-building (Acharya 2000). Yet in Northeast Asia, memories are stronger and generally negative. In China, the national past invokes ‘one hundred years of humiliation’, a nationalist perspective that embraces not merely distant foreigners – Europeans and Americans – but also near neighbours, in particular Japan, with its imperial-era aggressions (Zhao 2004; Hughes 2006). In South Korea, the episode of colonial rule from Tokyo is recalled in hostile terms (Cummings 1997; Shin et al. 2007). Yet in Taiwan, the recollections of Japanese rule are softer. In China and South Korea, at the present time, these memories are ritually re-affirmed and they inhibit the search for regional cooperation and block the emergence of a collective East Asia identity. However, in general, colonial days are long gone. In contrast, the period of general crisis continues to shape memories. Certain events, remembered by many, exist as either official ideology or as national past: the Nanjing Massacre; Baton Death March; comfort women; the bombing of Hiroshima. Sometimes the official memorialization is contentious, for instance, the Yasakuni Shrine or (in a different register) the Smithsonian Museum exhibit of the Enola Gay. Some events are remembered but are not part of official memory or national past: the 1941–2 fall of Singapore; the forgotten armies in Burma; the No Gun Ri Massacre; the My Lai Massacre. Other events fade from view: the often violent end to the foreign colonial regimes; the race aspects of the Pacific War; the fates of the combatants who chose the wrong sides (Karens, Ambionese or Thai fascists); the fates of those who chose wrongly in the struggles for statehood; the experiences of the civilians defeated, such as Japanese settlers in Manchuria; and so on. East Asia comprises a number of independent locally ruled polities. There are no colonies; there are no dependencies. Local elites are more often than not oriented to the pursuit of national development; and whilst the shift to the modern world has been accomplished there are some continuing stresses and strains. At the present time the region is home to unsettled anxieties about the past:





Border disputes – matters left over from the general crisis. For example, Japan/Russia over the Northern Territories, four islands to the north of Hokkaido; Japan/China over the Senkoku/Daiyou islands adjacent to the northern coast of Taiwan; Japan/South Korea over islands in the Straits of Tsushima; China/ASEAN members over the resources of the South China Sea. Events during the years of warfare – matters left over from the regions’ wars. For example, Japan/South Korea over the issue of forced prostitution during the war years, with the former reluctant to officially acknowledge responsibility; Japan/China over the issue of the behaviour of Imperial Japanese forces during the seizure of Nanking, where debate revolves around the extent of a massacre of civilians; Japan/USA over the issue of the systematic areabombing of Japanese cities in late 1944 and early 1945, where the latter are disinclined to accept any moral responsibility; Japan and its neighbours over the issue of textbooks, where national governments, civil society groups, journalists and scholars all contend over the ‘correct’ recording of history – a squabble that has attained a ritualized form as victims of 43

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Japanese wartime aggression repeatedly demand expressions of regret in the form of ‘apologies’. Domestic problems – unresolved domestic matters. For example, the issue of the mass killings that accompanied the 1965 coup in Indonesia; in summer 2008, in the run-up to the Beijing Olympics, the riots amongst ethnic Tibetans and related demonstrations in favour of Tibet, alongside the symbolic journey of the Olympic torch in Europe – all of which provoked much unhappy debate as these episodes marked unresolved conflicts left over from the years immediately following the formation of the People’s Republic. Contested rituals of mourning the millions of dead – unresolved issues from the regions’ wars. For example, the annual Yasakuni Shrine ceremony in remembrance of Japan’s war dead has become a contentious issue, where within Japan opinion divides between fervent nationalists and various networks of the loose peace movement. Internationally, opinion is hostile to this annual event as it is read as a refusal to acknowledge the damage caused to the region by the Japanese variant of late-imperialism. Recently, the event has become mixed up with the shifting dynamics of international politics (will the Japanese prime minister attend and if so will it be in a ‘private’ or ‘official’ capacity?) and the curious business of apology diplomacy (where the ceremonies are the occasion for demands for further, fuller, more sincere apologies from the Japanese state to the victims of earlier years). Intermixing remembrance and contemporary political issues – these are contemporary issues. For example, 4 June 2009 marked the twentieth anniversary of the incidents in Tiananmen Square and in Hong Kong, as usual, there was a large gathering/march and a number of figures from overseas travelled to Hong Kong to participate. The anniversary also saw the publication of memoirs prepared by Zhao Ziyang, which offered an insiders’ view of events. However, in mainland China the anniversary was not marked, thus the events remain an unsettled contested memory. Some issues point towards the future – in Europe, the ‘allied scheme of history’ (Davies 1997: 39) offers an explanation of the Second World War that reduces events to the moral victory of the western allies, the heroism of the Soviet armies and the responsibility of the National Socialists, which systematically misrepresents events (eliding the actual confusions of war and postwar) and provides a starting point for Europe-wide reflection, whereas in East Asia there is no simple analogous tale available to shape reflection.

National pasts and the consequences of success A national past offers a story: it tells a political community where they come from, who they are and where they might expect to be in the future. National pasts are elaborate constructions compounded of elements taken from the historical experiences of the communities in question. National pasts are usually cast in reductive terms: if the nation is grounded in ethnicity or deep history or language, if the nation is a given, if it endures, then acquiescence can be represented as rational. But such claims are false. The strategy is misleading. Nations are constructs and so is the national past. It is one aspect of the elite’s continuing task of reading and reacting to the demands of enfolding structural change. As the world changes around a polity, then the elite must respond, and one aspect of that response will be a reordering of the national past the better to order collective action oriented towards the future. The interlinkages between Europe, East Asia and the USA are many and these will be subject to reflection as these regions confront change with its uneven mix of success and relative decline. 44

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Notes 1 Data in this paper is given only as a rough guide to the scale of the deaths – it is mostly from World History at KMLA, accessed August 2009–10; other material is from Norman Davies (1997) Europe: A History, London, Pimlico; and Norman Davies (2006) Europe at War 1939–1945: No Simple Victory, London, Macmillan; some data is from Max Hastings 2008 Retribution: The Battle for Japan 1944–45, New York, Alfred Knopf. It might be noted that in all these wars direct American losses were only a small part of numbers given, thus in the Pacific War direct losses were around 150,000, but the scale of the wars are indicated by the overall totals. Hastings comments that the Pacific War prompted the American elite to the view that it could fight wars at relatively low cost to itself (see chapter 22 and on this theme see Tony Judt 2008 ‘What Have We Learned If Anything’ in New York Review of Books 55.7 May 01 2008). 2 This is a very rough list – plus for the USA there were three major domestic wars (War of Independence 1775–1882; the Civil War 1861–5; plus the Indian Wars of the nineteenth century – the list also mixes overt war with some selected cold war interventions, Philippines and Indonesia – but there are many more.

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4 A non-Eurocentric global history of Asia John M. Hobson

Introduction When observing the rapid rise in interest among Western academics concerning the equally rapid rise of East- and South- Asia in general and China in particular, I am struck by a strong sense of déjà vu in two key regards. First, of course, the story seems to replicate in an all too familiar fashion that which unfolded in the 1980s concerning the ‘Japanese scare’, a story that was constructed in the United States as but the latest ‘Yellow Peril’ (Hobson 2006), given that this discourse stems back to the late nineteenth century (Hobson 2012: chs. 5 and 11). Thus the Chinese story of the 1980s ‘Japanese Peril Redux’ comprises the ever-burgeoning US trade deficits, US dependency on Yellow capital, the buying up of parts of America and, worse still, the possibility of both a future challenge to American hegemony and a present challenge to American identity based around the sanctity of the laissez-faire state and the sovereign individual. The second sense of déjà vu concerns the point that the present rise of China and India, following on the heels of Japan and the East Asian newly industrializing countries (NICs) in the 1960–2010 era, feels in certain key respects to propel us back to the future of the 960–c.1800 period. For in this period we witness the ‘first industrial miracle’ in world history as it unfolded within Sung China, as well as the rise and development of a polycentric infant global economy after 1492 that hinged primarily on China, India, the Middle East and North Africa, with Europe only coming to play a dominant role after 1800, having been a mere bit-player in the Indian Ocean trading system prior to this watershed. Moreover, while Eurocentric world history celebrates the emergence of Europe as a first-developer, with China, India and Japan cast in Europe’s long shadow as late-developers, in this chapter I shall invert this vision. Thus Europe was not merely a latecomer to the infant global economy but it was also a late-developing civilization, one that enjoyed the ‘advantages of backwardness’ insofar as it borrowed and assimilated many inventions that had been pioneered in the East – principally China but also the Middle East/North Africa and India (as I signal in the conclusion). In this chapter I shall explore the era c.960–1800 as a means to recast the Eurocentric conception of world history in general, and the place of Asia and Europe in particular. Thus, in inverting the standard Eurocentric temporal-narrative, I shall argue that the mainstream of global history up to the nineteenth century appears primarily as Eastern and, after a short, albeit not 46

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insignificant Western interlude lasting for about two centuries, appears to be returning back to Asia in general and South- and East- Asia in particular. Moreover, as I shall mention in the conclusion, without the considerable help provided by the East in general and China in particular, I would venture to suggest that there might never have been a Western interlude – at least not the one that has unfolded in the way that it has. A key claim is that China’s rise today, for example, should not be thought of either as something new and ‘exotic’ or that the direction of the global economy is taking a ‘China turn’. The assumption that global history began with the Europeans after 1492 obscures the point that the West emerged within a period of what I call ‘Oriental globalization’; and that this in turn had developed off the back of ‘Oriental regionalization’, which had previously unfolded between c.500 and 1492 (for a full discussion see Hobson 2004: chs. 2–4, Pieterse 2006, 2011). Accordingly, I prefer to speak of the return of China and the return of Asia to the centre of the global economy, as well as the return of Oriental globalization, albeit this time alongside the relatively nubile phenomenon of Westernization/Occidentalization. The key conceptual move that all this entails is that China in particular, as well as Japan and India, have been subjects or pro-active agents of the global economy long before the likes of Columbus and da Gama stepped out to proclaim, disingenuously as I reveal below, that they had discovered a backward and uncivilized East that had long been isolated from the rest of the world. But equally, in so doing, I reveal some of the symbiotic and shared linkages that have bound China, India and Japan on the one hand, and all of them with Europe on the other – a point that serves to call into question the Eurocentric construct of the ‘yellow peril’ and its concomitant association with the essentialist discourse of the clash of civilizations (see Hobson 2007). Finally, the age of Oriental globalization came to an end in the early nineteenth century as it was superseded by an ascendant imperial West. Interestingly, one of the biggest questions that a non-Eurocentric global history throws up is why the Eastern-led global economy gave way to one that was led by the West. Eurocentric world history assumes that after c.1500 the West jumped into an endogenously derived per capita income-growth path that rapidly left the East behind. But against this it should be noted that China and India in particular were in a position to push through into modern economic growth prior to the imperial and neo-imperial intervention of the West. And this in turn throws up the fascinating question as to the role played by Western imperialism in stymieing Eastern growth. This I shall address briefly in the context of the three cases that I examine in this chapter. More generally, then, in exploring this non-Eurocentric landscape I answer three key questions: 1. 2. 3.

How have China, India and Japan exercised agency in shaping the infant global economy since 1492 through Oriental globalization? Are Chinese, Japanese and Indian trading power, as well as Chinese capital power, radically new phenomena or do they have precedent in Asia’s past? To what extent did Western imperialism after 1800 play an important role in containing Eastern development?

While I allocate a single section to consider each of these three countries – China, India and Japan – I shall apportion more focus on China given its topicality at the moment.

The ‘myth of China’s withdrawal’ after 1434: China at or near the centre of Oriental globalization Today it is increasingly acknowledged that China’s massive trade surplus and financial power is having a major impact on the global economy. One pair of scholars talks about ‘Chimerica’, a term 47

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that connotes the symbiotic relationship between China and America, with the latter dependent upon the former’s capital in order to support the activities of the US consumer and investor (Ferguson and Schularick 2007). The equally interesting issue concerns China’s role in the credit crunch/financial crisis that has gripped the world economy since late 2007. Here the issue revolves around the extent to which US financial investors and bankers were able to take reckless decisions because of the capital glut that flooded in from China, as well as the degree to which US interest rates were pushed artificially low in the process. Certainly it is true to say that the jury is out on this issue, but equally, we might speculate that Chinese financial power has been an unwitting factor in the unfolding disaster. Either way, though, what I seek to reveal here are the many parallels that exist between China’s current global creditor position and its surplus trading capacity with the situation in the post–1492 global economy. In the first instance it is important to note that the conversion of China’s domestic economy on to a predominantly silver standard in the mid–fifteenth century was an important move. For this domestic shift had major ramifications not just concerning China’s central role in the nascent global financial system, but also for Europe’s entry into it. In turn, the historical background to this requires noting the power of China’s economy that emerged as a result of the Sung ‘industrial miracle’ of the eleventh century. A few points are necessary to illustrate this claim. Particularly notable here is that by 1078 China produced 125,000 tons of iron. But it was not until 1700 that Europe as a whole would surpass that level, and it was only after 1800 when Britain would finally catch up (Hartwell 1966). Moreover, unlike in Europe, the Chinese produced cast-iron, which was forged in blast furnaces using piston-bellows driven by water-power as early as 31 CE. China’s lead in steel production (which goes back to the second century BCE) was no less impressive, particularly given that Britain would only catch up as late as the second half of the nineteenth century. Also important in this particular context is that Indian ‘Wootz steel’ and Middle Eastern ‘Damascus steel’ not only predated European production by many centuries but surpassed in quality that which the Europeans were capable of producing in the nineteenth century (Dharampal 1971: 220–63). Not surprisingly, it was to China, India and the Middle East that British steel producers looked when trying to unearth the secrets of effective steel production in the nineteenth century. Interesting, too, is that the substitution of coal for charcoal, which is usually thought to be a British innovation of the eighteenth/nineteenth century under conditions of de-forestation, occurred first in China during the Sung. And, striking though all these achievements in the iron and steel industry were, they were but the tip of a large industrial iceberg of inventions and innovations that are too numerous to detail here (see Hobson 2004: 50–61). The key point is that the emergence of the Chinese economic powerhouse after c.1100, which, when combined with the conversion of its currency on to a predominant silver standard around 1450, set the stage for the interlinking of East and West through what might be termed the ‘global silver recycling process’. This was added to in significant part by the fact that China was not just the world’s major ‘silver sink’ alongside India (Frank 1998), but that it was also the world’s manufacturing power par excellence. Because these two processes were linked, I shall discuss them simultaneously. The earliest period that we have manufacturing production data for is 1750 onwards. In that year, according to the data produced by Paul Bairoch (1982), China led the world in GDP, manufacturing production and manufactured exports. Indeed, it enjoyed 33 per cent of the world’s total share of manufacturing output – a figure that was 1,600 per cent that of Britain’s and was still more than 200 per cent that of Britain’s as late as 1830. These comparisons are notable given the common Eurocentric assumption that Britain was the leading manufacturing producer around 1750. Moreover, even as late as 1820, Chinese GDP was 29 per cent of world GDP and 48

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equalled the whole of Europe’s contribution. It is probable that were these relative figures available for the whole period of Oriental globalization (c.1492–1800) then they would most likely weigh even more in favour of India and China, given that Europe was still very much a peripheral regional economy prior to 1800 and that Chinese and Indian exports precede 1750 by about a millennium (see Abu-Lughod 1989; Wink 1990; Frank 1998). The key point here is that for many centuries prior to 1750 Europe endured a structural trade deficit with China, thereby revealing that the American and European trade deficits with China today are nothing new but merely constitute a ‘return to historical normalcy’. Much like today, this trading system overlapped with the financial system. Today, the formula is fairly simple. The Chinese economy is a large net exporter and is based on a very modest consumption culture. The result is the creation of a massive savings and trading surplus (generated by households and increasingly companies). Conversely, the American economy supports a rampant consumer culture alongside a very weak savings culture. It buys up large amounts of Chinese products thereby generating large Chinese trade surpluses and a US trade deficit. This Chinese surplus, along with domestic Chinese savings, is then lent back to finance inter alia America’s trade deficit, thereby supporting the rampant US consumer culture. Or as Cheng Siwei put it pithily in September 2009: ‘The US spends tomorrow’s money today. We Chinese spend today’s money tomorrow. That’s why we have this financial crisis.’ All in all, American consumption patterns coupled with Chinese trading and financial capacity have led not only to the entwining of these two economies but play a substantial part in driving the world economy. But as I now argue, a similar process occurred back in the era of Oriental globalization. The parallel situation in the era of Oriental globalization derived, albeit in part, from the strategy that the Europeans came up with in order to pay for their trade deficit with China. Unable to produce goods that the Chinese wanted to buy, the Europeans were forced to pay for the deficit by sending large quantities of silver across to China. Various scholars point out that the majority of this silver was plundered from the Americas, especially from Central and South America (Flynn and Giráldez 1994; Frank 1998). Not that the Europeans discovered the New World for this reason, of course. But it could be hypothesized that without this huge demand for silver that China’s vibrant economy could absorb, now that it was founded on a silver base, the American mines that produced this silver might have become unprofitable within a matter of decades (Pomeranz 2000: 273). The key point is that an unintended result of this flooding of silver into the Chinese silver sink was the creation of a ‘global silver-recycling loop’ that linked Europe and China into ever tightening financial relations. This process occurred as a function of the relative differentials in the silver-gold price ratio. Given that silver had a high price ratio relative to gold in China but a low one in Europe, so silver was exchanged for Chinese gold, which was then exported to Europe and exchanged for more silver before being exported back to China, where the process began anew (Flynn and Giráldez 1994). Moreover, this process saw the creation of a new western trade route that extended from Acapulco to the Philippines via the Spanish Manila Galleon and then on to China via Chinese junks. Ultimately this process took the form of a continuous global silverrecycling loop, enhancing both Chinese and European development in the process. Above all, though, it was this process that effectively sucked the Europeans into playing a direct role in the global economy for the very first time in a millennium, given that between 800 and 1492 they had played only a passive and indirect role. For the silver plundered from the Americas also provided the liquid means to oil Europe’s direct trading presence in the Indian Ocean after 1498. Notable here is that the major role played by the Dutch and English East India Companies was the carrying of this bullion back and forth between China and Europe, supplying these companies with the 49

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majority of their profits. Noteworthy, too, is that they also derived a significant part of their overall profits by acting as intermediaries within the dominant Asian inter-country trade. So important was China to the development of the global economy in the period 1492 through 1800 that various anti-Eurocentric authors have described it as ‘Sinocentric’ (Flynn and Giráldez 1994; Hamashita 1994; Frank 1998). But while China was indeed the leading power in the world, ultimately it was best characterized as primus inter pares. For the distribution of economic power in the world under Oriental globalization was ‘polycentric’, with China, India, the Middle East and North Africa, Southeast Asia and Japan all being significant players. This point will appear immediately as counter-intuitive to Eurocentric world historians. For they assume that it was precisely the ‘withdrawal’ of China from the world economy after 1434 that created a vacuum into which the Iberians poured. This is perhaps the most significant moment in world history since this allegedly opened up the Columbian epoch of the world, or the ‘Vasco da Gama epoch of Asia’, with the rest, as they say, being Western universal history (see esp. Roberts 1985; Landes 1998). Indeed, as David Landes put it: ‘Isolationism became China. Round, complete, apparently serene, ineffably harmonious, the Celestial Empire purred along for hundreds of years more, impervious and imperturbable. But the world was passing it by’ (Landes 1998: 98). Thus the ‘withdrawal’ is used to account for China’s great leap backwards while simultaneously signalling Europe’s great leap forwards after 1500, much as the ‘opening up’ of Asia at the hands of the Europeans is proclaimed as the factor that opened up the way for a nascent or proto-global economy that was to be led and governed by the West. But in contrast to the standard Eurocentric depiction, I offer a number of counter-propositions that I shall discuss in turn. The conventional picture of a Chinese withdrawal errs because Western historians take too literal a view of both the official ban and the Chinese tribute system. For the official documents are largely distorted by the Chinese government’s attempt at being seen to maintain a Confucian (i.e., isolationist) ideal. Moreover, the withdrawal is wrongly confirmed by the existence of a ‘regressive-imperial’ international tributary system, which was supposedly based on coercion and state-administered forms of tribute rather than commercial trade. But conventional readings misunderstand both the tribute system and the nature of the ban. The first rejoinder here is that the tribute system was also a trading system. As Rodzinski notes, the tribute system ‘was often, in effect, only an outward form for very considerable foreign trade. In many cases foreign merchants, especially those from Central Asia, presented themselves as the bearers of fictitious tribute from imaginary states solely for the purpose of conducting trade’ (Rodzinski 1979: 197; see also Kang 2007: ch. 2). Moreover, trade relations in East and Southeast Asia expanded as Chinese tribute relations expanded. And to this can be added a number of points. The fact is that the tribute system was more voluntary than forced. This was because gaining access to the Chinese market by paying nominal amounts of tribute was a means by which so-called vassals could enrich themselves. How else can we explain the fact that the Portuguese, Spanish and Dutch repeatedly asked to join the system as vassals? Moreover, vassal states often competed with each other in order to pay tribute – again so as to gain access to China’s lucrative economy. And a whole variety of rulers, including the Sultan of Melaka, the rulers of Brunei, the Cho la kings of Coromandel and the princes of Malabar, were anxious to send tribute so that they might gain Chinese protection against some of their neighbouring enemies. Testimony to the voluntary aspect of the system lies in the point that when vassals were deprived of their tributary status it often led to a violent reaction by the so-called vassal. For example, at the end of the sixteenth century Japan invaded Korea (a Ming vassal state) in order to force China to resume the tributary relationship and even threatened an invasion of China if she refused! One further strategy frequently deployed by Asian merchants was to produce phoney credentials, posing as emissaries paying tribute ‘as a fig-leaf for humdrum commercial trade’ (Frank 50

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1998: 114). The paradox of the Eurocentric view of the Chinese tribute system was that, in economic terms, the vassals gained more from it than did the Chinese. This leads on to my second point concerning the myth of China’s withdrawal: that for three key reasons the official ban on Chinese international trade was a myth. First, as already noted, the tribute system was in part a disguised trading system. Second, many private Chinese merchants traded by circumnavigating the official ban in a number of ways. Ironically, Eurocentrism’s portrayal of the Portuguese Cartaz system as a sign of European dominance misses the point that for the Chinese in particular, holding a Cartaz meant that they could masquerade as Portuguese in order to circumvent the Ming ban. Moreover, much Chinese trade was mixed up with Japanese (but was really Chinese piracy) and was extremely prosperous. But perhaps the most common method for circumventing the ban lay with the Cantonese trade practice, where the ballast required on the return journey took the form of trading goods (Curtin 1984: 169). The ruler of the island kingdom of Ryu kyu  was particularly creative, encouraging Chinese private merchants from Fujian to settle there from where they could engage in lucrative trade with China. In return, all he had to do was send the occasional deferential tribute mission to China. This was part of a more general strategy pursued by private Chinese merchants, who relocated into other parts of the region from where they could export products back to China. In the first half of the sixteenth century Chinese merchants spread to all parts of the commercially strategic South China Sea; from Indo-China, Malaysia, Siam, and over the arc of islands from Sumatra to Timor to the Philippines. They dominated this inter-regional trading network well into the nineteenth century, even after the British arrival. Moreover, they traded westwards and eastwards and were linked back to Fukien in China. Last but not least, there was also a thriving smuggling trade. Significantly, because government officials often collaborated with the smugglers, the ban obviously became unenforceable. Indeed, so large was the smuggling trade that during the 1560s the Ming government eventually gave in and legalized the smugglers’ main port (Port Moon). The third reason why the ban was a myth lay in the fact that not all private trade was banned. Much of it was officially sanctioned in three key ports: Macao, Chang-chou in Fukien province, and Su-chou in western Shensi province. Later, in Ch’ing times, trade was conducted through Amoy, Ningbo and Shanghai. Various writers have pointed to the significance of the ChineseSoutheast Asian trade link. In particular, Manila was an extremely important entrepôt for the whole global trading system because it was from there that China gained a good deal of its silver (via the Spanish Manila Galleon). Indeed between 1570 and 1642 alone, an average of 25 Chinese ships were sent to Manila per annum (Deng 1997: 108). This connection not only remained important for much of the period after the ‘ban’ but in fact intensified at the end of the eighteenth century. But overall, the clincher lies with the simple point that most of the world’s silver was sucked into China, thereby confirming that the economy was not only fully integrated within the global economy but was robust enough to enjoy a strong trade surplus. China’s dominance within world trade came to an ignominious end in 1828, when the British finally broke their historic deficit with China. However, rather than reflecting a dynamic trading capacity on the part of the British, the reality was that the deficit was quashed by the perfidious politics of British imperialism. There were two principal means by which this was achieved. First, parts of India were ‘refurbished’ to grow tea. Thus while in 1850 the British had relied for all their tea supplies from China, within only 50 years they were importing 85 per cent of it from India. Second, the far more important weapon was the exporting of opium into China. Having relied on Turkish opium since the late-eighteenth century, the British then ‘refurbished’ parts of India as a source of opium supply, which was then exported into China. By 1828 Indian opium comprised 55 per cent of all British exports into China (even though the Chinese state had officially banned 51

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its consumption). When Commissioner Lin tried, quite understandably, to curtail the drug trade in 1839 the British used this as a pretext for the Opium Wars. In these ways the British came to reverse their historic trade deficit with China while adding to their reputation as the ‘Perfidious Albion’. For the fact is that only by drug-pushing in China (backed up by British military power) and drinking Indian tea in England could the draining of bullion into China be terminated.

The ‘myth of the Japanese withdrawal’ after 1639: Japanese developmental agency prior to the Meiji restoration in 1868 As with their analysis of China after 1434, Eurocentric scholars place much emphasis on the claim that after 1639 Japan supposedly withdrew into isolation through the state’s policy of Sakoku (‘closed country’). After that date, only the Dutch and Chinese were officially permitted to reside in Nagasaki, from where they imported foreign products. And such imports and exports were supposedly negligible. Accordingly, such isolation is thought to have accompanied, or simply led on to, the drying up of the Japanese economy under a reclusive Oriental despotism in the guise of the Tokugawa Bakufu state. Once again the problem with this Eurocentric claim, much like its twin-claim vis-à-vis China after 1434, is that it misunderstands the policy of Sakoku and takes the phrase ‘closed country’ too literally. Like China after 1434, Japan after 1639 was neither closed off from international trade nor was closure the intent of the Japanese state. The state merely sought to regulate or control foreign trade in large part because it wished to keep out the Catholic Christian culture of the European traders (which is why the Protestant Dutch were allowed in). Most important here is that the Tokugawa was in fact fundamentally committed to maintaining trade. Nevertheless, to the Eurocentric mindset this regulationist or monopolist approach smacks of ‘regressive mercantilism’ (though many Eurocentric scholars view European mercantilism as a rational means of creating a national economy!) Either way, though, Eurocentric scholars insist that Japanese foreign trade fell off rapidly after 1639, and with it any prospect for progressive economic development withered on the isolationist vine. The fact is, that through most of the seventeenth century – including the period after 1639 – the amounts of silver exported into Asia by the Japanese far surpassed those of the British, Dutch and Portuguese combined (Hobson 2004: 149–50). Interestingly, following Satoshi Ikeda, Frank (1998: 106) points out that the Japanese and European situations were analogous in one respect: that they both imported manufactures from Asia (especially China) and exported silver to pay for them. The key difference, though, was that Japan produced its own silver at home while Europe plundered it from its American colonies. Nevertheless, Eurocentric scholars point to the ‘fact’ that in 1668 the Japanese state banned all silver exports. But according to recent research silver continued to be exported right into the middle of the eighteenth century. Japan exported silver and precious metals through the Isle of Tsushima into Korea and China, and the amounts shipped exceeded those that had earlier been transported out of Nagasaki by the Dutch and Chinese. No less significant is that when silver exports dried up in the mid-eighteenth century they were replaced by large and sustained copper exports. As Satoshi Ikeda notes in his summary of the findings of this recent research: ‘This cycle of Japanese export items was a result of the [Tokugawa] Bakufu’s effort to maintain the total value of trade’ (Ikeda 1996: 55, my emphasis). There is further evidence to suggest that Japanese trade continued after the declaration of Sakoku in 1639. It is usually thought that Japan engaged in a classic mercantilist policy of importsubstitution in order to build up various domestic industries such as sugar and silk behind its high protectionist walls. But, in fact, high volumes of silk imports from China were maintained right 52

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into the latter part of the eighteenth century. Also substantial silk imports came by way of Korea (which often exceeded the volume that arrived in Nagasaki). While raw silk imports became restricted in the eighteenth century, nevertheless Chinese and Southeast Asian silk cloth was imported right down to the end of the Tokugawa period (i.e. 1868). Similarly, while Japanese domestic sugar production became strong in the first half of the nineteenth century, prior to that time large volumes were imported. But even after that, Chinese sugar imports were continued in order to maintain trading relations with China. The familiar Eurocentric assumption that only the Dutch and Chinese were permitted to trade with Japan is rendered problematic by the fact that significant trade was continued with Siam, Korea and especially the Ryu kyu s (which was in fact authorized by the Japanese state). This was linked to the fact that Japan, having been ejected from the Chinese tribute system in 1557, set up its own rival tribute system. Korea was the only state that was treated as a virtual equal. The Ryukyus were considered to be subordinate, the Dutch even more so. There was also considerable unofficial private trade as well as smuggling undertaken by Japanese merchants – a scenario that echoes the Chinese situation after 1434. Moreover, like their Chinese counterparts after 1434, so after 1639 many Japanese merchants relocated into other parts of Southeast Asia in order to continue their trading activities (a process that finds its corollary in the relocation of Japanese multinational corporations (MNCs) in the late twentieth century). In particular, Japanese and Chinese private merchants enjoyed a vigorous trade with each other in the seaports of the South China Sea. Thus the Japanese policy of Sakoku was designed not to limit trade with the outside world per se, but to limit trade only with the Catholic powers of Europe. In respect of both these aims, the policy appears to have been very successful. Overall, then, the standard Eurocentric claim that the American Commodore Perry opened up a ‘closed Japan’ to world trade after 1853 and thereby rescued it from its self-imposed (backward) isolation is problematic only because Japan had been open for global business well before then. And perhaps the clincher here lies in the point that Japanese national income in 1820 – very nearly a half-century prior to the Meiji Restoration – was sufficiently large to accord it a respectable position within the European GDP league table (see Maddison 1995: 182–190), thereby suggesting that economic development did not spring out of nowhere but was an important feature of the Tokugawa period (1603–1868). This in turn points to a claim I substantiate elsewhere: that Japan under Sakoku was an early- rather than a late-developer (Hobson 2004: 88–93). Moreover, while it is true that Japan was caught up in the Western informal imperial imposition of unequal treaties, nevertheless the Meiji state had the most autonomy of the three countries examined in this chapter, which would help account in part for its successful industrialization; a point I return to in the conclusion.

The ‘myth of Indian isolation’ before 1498: Indian agency in the ‘Vasco da Gama epoch’ The notion that India was isolated from the mainstream of world trade and was discovered with the arrival of Vasco da Gama is brought into question in the first instance by one small and relatively unknown fact – that da Gama only made it across to India with the help of an Islamic Gujarati pilot, known as Kanha, whom he fortuitously picked up at Malindi on the east coast of Africa. Interestingly, Gerald Tibbetts (1971: 9–11) provides strong circumstantial evidence to discount the famous Arab navigator Shihab al-Din Ahmad Ibn Majid, who is usually thought of as the pilot in question. That the role of the Indian navigator had been significant was revealed by the fact that on the return journey his absence meant that da Gama – and what was left of his scurvyravaged crew – was extremely lucky to have made it back at all. But the relevance of this here is 53

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that it raises the question as to how an Indian would have had the knowledge to deep-sea navigate across to India (that is, without following the coastline along the Arabian Sea). And it is the answer to this that opens up a story that has been obscured by Eurocentric history: that India had been connected to a proliferating Oriental regionalization for many centuries before da Gama was born. Arab, Persian and Indian pilots had been navigating the Indian Ocean for hundreds if not thousands of years, with the knowledge orally transmitted down the generations so that it could be jealously protected from other navigators (which is the real reason why there is generally an absence of Indian world maps, as opposed to the Eurocentric assumption that India was isolated from the world). It is significant to note that trade extended between India and the Roman Empire – as was recorded in the famous Periplus of the Erythraean Sea of the first century CE (Hourani 1963; Wink 1990). It was at that time that a major European precedent was set that would last the best part of two millennia – the emergence of a sustained European trade deficit with India. It is also noteworthy that part of this deficit was incurred through the importation of Indian cotton textiles. Later on, after the eighth century CE, India became a major link between Southeast Asia and China on the one hand, and the Middle East, Africa and ultimately Europe on the other. Thus, while the Islamic Middle East constituted the pivot that linked ‘Oriental’ trade with Europe, India constituted the global trading pivot. After c.500 CE what I call Oriental regionalization emerged, which linked up all the major regions of the world except for the Americas and Australia (Hobson 2011). Merchants from West Asia/ Middle East were especially active in establishing colonies on the northwest coast of India. And it was in the few centuries following 650 that the Islamization of Gujarati merchants occurred. By the tenth century the first phase of this process was consolidating (with the second phase emerging after 1492 with the rise of Oriental globalization, as the Americas were brought into the nascent system). From the tenth century on, Indian merchants, especially from the Coromandel Coast, traded eastwards. Particularly important was North India, where the prosperity of Gujarat was based on its flourishing trade with West Asia as well as East Africa. Significantly, by the thirteenth century, northern India ‘internationally’ traded inter alia everyday manufactured textiles, metals, semi-processed raw materials and bulk foodstuffs (rather than solely luxury goods as the Eurocentric thesis maintains). And so to return to where I began this section: given the major role played by the Gujarati merchants in the Oriental-dominated trading system for many centuries it was hardly surprising, then, that it was a Gujarati pilot who guided da Gama across to India once the latter had managed to fumble his way down the west coast of Africa before finally circumventing the Cape. Important, too, is that given the sheer weight of Indian mercantile power in the Indian Ocean it was hardly surprising that the European interlopers, beginning with the Portuguese, managed to gain only a small slice of the Indian Ocean trade. Despite disingenuous and vainglorious Eurocentric pronouncements of various European trading monopolies, the fact is that only 6 per cent of total shipping tonnage in the sixteenth century was Portuguese. Moreover, the Portuguese monopoly of the pepper trade was striking only for its absence, where in Malabar, for example, the Portuguese managed to ship a mere 10 per cent of the total amount produced, while they succeeded in handling only 5 per cent of the Gujarati pepper trade. When they tried to block trade from Calicut to gain a larger slice of this trade, new trade routes emerged spontaneously under the auspices of Indian mercantile agency to circumvent the Portuguese. In fact, the only spice in which the Portuguese managed to achieve a near monopoly was cinnamon (though this proved a pyrrhic victory given that the profits generated were reaped by corrupt governors and officials). Much the same story applied to the Dutch in their dealings with the Indians in particular and other Asians in general. 54

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Of course, Eurocentrism cites the carrying of a cartaz (Portuguese passport) as the sign of a Portuguese monopoly in the Indian Ocean. This required that Asian merchants pay a 3.5 per cent tax to the Portuguese. What this misses, however, is that for many Asians the cartaz turned out to be a resource that could be utilized to their advantage (one example of which was mentioned earlier with respect to the Chinese merchants). Another advantage that it implicitly offered was that many Asian ship-owners chose to buy a cartaz because it was cheaper and more economically rational than arming their ships. For the fact is that before the belated arrival of the Portuguese, the Indian Ocean trading system had been conducted along relatively peaceful lines (Curtin 1984: 144–148, 159–167, ch. 8). Significantly, up to about 1800, Indian (and Asian) merchants effectively utilized the European interlopers as a resource in order to enhance their own profits. Typically, Indian merchants intermingled with various European merchants. The Europeans had no choice but to cooperate if they wanted to make a profit from the Indian Ocean trade. Much the same story applied to the subsequent relationships between Indian and Dutch merchants as well as Indian and English merchants. This was no more clearly realized than by the point that a significant portion of European trading profits were derived from the intra-Asian country trade, as noted earlier. Significant, too, is that the British were only able to finance their trading activities by drawing on Indian capital that was supplied by the many rich Hindu banians. One implication of this narrative is that it was only after 1800 that Europe finally eclipsed India’s level of economic development. In terms of relative shares of world manufacturing, India was second only to China as late as 1830. As of 1750 India enjoyed around 25 per cent, which exceeded the whole of Europe’s share (23 per cent). Moreover, even as late as 1830 India’s share was still double that of Britain’s (Bairoch 1982: 296). No less significant is that in 1820 Britain’s GDP was about a sixth of that of China’s and about a third of that of India’s. Britain’s GDP only matched that of India as late as 1890 (Maddison 1995: 180, 182, 190). Indian per capita income was probably about equal to that of Europe’s in 1750, with the latter overtaking the former only around 1800. As with the case of China, so I concur with Pomeranz (2000) and Frank (1998): that the key watershed in global history that signalled the advent of Western hegemony occurred around 1800, rather than 1500 as Eurocentric world historians claim. Finally, if Japan had the most autonomy vis-à-vis the West during the nineteenth century, India had the least. Thus while India exhibited the green shoots of industrial modernity prior to the advent of the British Empire, these were cut off by the British in what amounted to an imperialist economic containment strategy during the eighteenth and nineteenth centuries. A key British weapon of choice was the imposition of free trade as a means to de-industrialize India. Thus having been dependent upon Indian cotton manufactured imports in the seventeenth century, the British government responded by placing heavy tariffs on Indian imports in the early eighteenth century. Later on, in the nineteenth century, the British ensured that the Indian market went unprotected (i.e. by imposing Indian free trade). At Lancashire’s behest, duties were abandoned on cotton imports into India between 1882 and 1894 (having been lowered to 5 per cent between 1859 and 1882). Thus, having held the Indian cotton manufacturing system down with one boot (through very high British tariffs), the other boot kicked British manufactures into India unimpeded, in what amounted to one of the most unfair ‘free kicks’ that Perfidious Albion ever awarded itself. Undoubtedly, this was also one of the most well-taken free kicks that the British accomplished. For while in the seventeenth century the British economy was a net importer of Indian textiles, by 1815 Britain exported approximately 250 million yards of cotton worth about £40m, while by 1874 it exported 3.5 billion yards worth about £190m. By 1873, 40–45 per cent of all British cotton textile exports went to India. Thus, having once exported cotton manufactures to Britain, by the mid-nineteenth century India had been transformed into a raw cotton 55

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supplier for the Lancashire industry, which in turn exported the finished product back to India. In short, the social cost of the advancement of the British textiles industry was the de-industrialization of the Indian industry (see Dutt 1943). Much the same story applied to the iron industry during the nineteenth century, which was particularly damaging given that the Indian economy had been one of the world’s foremost iron and steel producers.

Conclusion There are four key points of note that emerge from this discussion. First, it reveals that the current situation in which the American trade deficit with China is paradoxically financed through Chinese capital is not a unique historical revelation; it is entirely in keeping with historical precedent, reaching back half a millennium. In parallel fashion, Western consumption patterns after 1450 coupled with Chinese surplus trading and financial capacity not only led to the entwining of these two regional economies, but they also played a substantial part in driving the global economy forward. However, the difference is that back then Europe also financed the trade deficit with the plundering of other peoples’ resources – in this case the silver from the Americas. Equally, though, the derivation of profits from arbitraging Chinese gold for yet higher amounts of silver parallels the situation today, where the US derives substantial income from China’s purchasing of US treasuries. Second, it recasts Eurocentric world history in a different light. The Eurocentric narrative asserts that the shrinking of the globe had its initial roots back in the European Age of Discovery around 1500, when the expansionist Europeans first travelled to the ‘Far East’ and ‘Far West’ and broke down the alleged archaic walls that had hitherto cut off an uncivilized and isolationist East from the world at large, thereby opening up the ‘Vasco da Gama epoch’ of Asia. But my narrative suggests an inverse scenario: that it was the East that had expanded outwards (since about 500 CE during the ‘Afro-Asian Age of Discovery’), initially through Oriental regionalization and later, after 1492 through Oriental globalization, at which point the Chinese in effect finally sucked the Europeans out of their ‘barbarian’ relative isolationism that they had endured between c.800 and 1492. And thus it was that Vasco da Gama’s ‘discovery’ of India might have been a revelation to the Europeans, but it was old news to the Chinese, Muslims, Africans, Javanese and others, all of whom had been in regular trading contact for almost a millennium. Third, the discussion throws up the role of Western imperialism in causing the transition from an Eastern-led global economy to a Western-led one. My claim is not that imperialism can fully explain the ‘great divergence’, but that its presence or absence played at the very least a catalytic role. The three cases examined in this chapter are particularly interesting because they reside along a continuum, with India enduring the least autonomy under formal British imperialism, the Japanese much more in relative terms, with China residing in the middle. This is interesting because, of course, in the nineteenth century Japan was able to industrialize under conditions of relative autonomy, while India was de-industrialized under formal British imperial control, whereas China struggled under the yoke of the ‘century of humiliation’ that only ended in 1843. However, because China’s problems were not confined solely to British neo-imperial intervention, I conclude that Western imperialism played an important but not an exclusive role in the great divergence. Finally, it is important to note that perhaps the greatest ‘service’ that China, India (and West Asia/North Africa) performed was their contribution to the rise of modernity and the rise of the West. For Oriental globalization and the nascent global economy constituted a conveyor belt along which the more advanced Eastern ‘resource portfolios/inventions’ were carried across to propel the rise of the West. These enabled all the key turning points, including the transmission of: 56

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the financial institutions and techniques that enabled the Italian financial revolution after 1000 CE; the key nautical/navigational techniques that made oceanic seafaring possible (in the absence of which the Europeans would have been confined to local waters); the transmission of the gun, cannon and gunpowder that enabled the European Military Revolution (1550–1660); many of the key ideas that underpinned the rise of the Renaissance, Scientific Revolution and the Enlightenment; and, last but not least, many of the key ingredients that underpinned the British agricultural and industrial revolutions of the eighteenth and nineteenth centuries (Hobson 2004: chs. 5–9; Hobson and Malhotra, 2008). Accordingly, I close by noting that in contrast to the Eurocentric narrative of the ‘clash of civilizations and the supremacy of the West’, we would be better off talking about the ‘dialogue of civilizations’ as well as both ‘Western and Eastern agency’.

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5 East Asia when China was at the centre The tribute system in early modern East Asia David Kang

In 1592, Japanese General Hideyoshi invaded Korea with more than 160,000 troops on approximately 700 ships, eventually mobilizing 500,000 troops, intending to conquer China after first subduing Korea (Swope 2005: 41). More than 60,000 Korean soldiers, eventually supported by 100,000 Ming Chinese forces, defended the Korean peninsula. After 6 years of war, the Japanese retreated and Hideyoshi died, having failed spectacularly in his quest to conquer China and Korea. Thus, the Imjin War ‘easily dwarfed [the wars] of their European contemporaries’, involving men and material five to ten times the scale of the Spanish Armada of 1588, which was described in Renaissance Europe as the ‘greatest military force ever assembled’ (Turnbull 2002; Hawley 2005: xii; Swope 2005: 13). In itself, that should be interesting enough for students and international relations (IR) scholars to explore the history of East Asia. Yet even more important for the study of IR, Hideyoshi’s invasion of Korea marked the only military conflict between Japan, Korea and China for more than six centuries. For 300 years both before and after the Imjin War, Japan was a part of the Chinese world. That the three major powers in East Asia – and indeed, much of the rest of the system – could peacefully coexist for such an extended time span, despite having the military and technological capability to wage war on a massive scale, raises the question of why stability was the norm in East Asian international relations. In fact, from 1368 to 1842 – from the founding of the Ming dynasty to the Opium Wars between Britain and China – there were only two wars between China, Korea, Vietnam and Japan: China’s invasion of Vietnam (1407–28), and Japan’s invasion of Korea (1592–8). These four major territorial and centralized states developed peaceful and long-lasting relations with each other. The more powerful these states became, the more stable were their relations. China was clearly the dominant military, cultural and economic power in the system, but its goals did not include expansion against its established neighbouring states. By the fourteenth century, these Sinicized states had evolved a set of international rules and institutions known as the ‘tribute system’, with China clearly the hegemon and a presumption of inequality, which resulted in a clear hierarchy and very long peace.1 The surrounding states benefited from the system, and cultural, diplomatic and economic relations were both extensive and intensive.2 These smaller Sinicized states emulated Chinese practices and to varying degrees accepted Chinese centrality in the region. Built on a mix of legitimate authority and material power, the tribute system provided a normative social order that also contained credible commitments by China not to exploit 58

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secondary states that accepted its authority. This order was explicit and formally unequal, but informally equal: secondary states were not allowed to call themselves – nor did they believe themselves – equal with China, yet they had substantial latitude in their actual behaviour. China stood at the top of the hierarchy, and there was no intellectual challenge to the rules of the game until the late nineteenth century and the arrival of the Western powers. Korean, Vietnamese and even Japanese elites consciously copied Chinese institutional and discursive practices, in part to craft stable relations with China, not to challenge it. The East Asian historical experience was markedly different from the European historical experience, both in its fundamental rules and in the level of conflict among the major actors. The European ‘Westphalian’ system emphasized formal equality between states and balance of power politics, and was marked by incessant interstate conflict. In contrast, the East Asian ‘tribute system’ emphasized formal inequality between states and a clear hierarchy, and was marked by centuries of stability among the core participants. Although there has been a tendency to view the European experience as universal, studying the East Asian historical experience as an international system not only allows us to ask new questions about East Asia, but it also provides a mirror for our own international system in the contemporary era. After all, much of world history has involved hegemons building hierarchy and establishing order, and studying these relations in different historical contexts promises to provide new insights into contemporary issues. Although anarchy – the absence of an overarching government – is a constant in international life, IR scholars are increasingly aware that, ‘every international system or society has a set of rules or norms that define actors and appropriate behavior’ (Krasner 2001: 173), which Christian ReusSmit calls the ‘elementary rules of practice that states formulate to solve the coordination and collaboration problems associated with coexistence under anarchy’ (Reus-Smit 1997: 557). Rarely have we explored East Asian international relations from this perspective. Indeed, we tend to take for granted the current set of rules, ideas and institutions as the natural or inevitable way that countries interact with each other: passports that define citizenship, nation states as the only legitimate political actor that is allowed to conduct diplomatic relations, borders between nation states that are measured to the inch, and, perhaps most centrally, the idea of ‘balance of power politics’ as the basic and enduring pattern of international relations. Yet this current international system is actually a recent phenomenon in the scope of world history. These international rules and norms arose among European powers only beginning in the seventeenth century. In 1648, the great powers of Europe signed a series of treaties creating a set of rules governing international relations that became known as the ‘Peace of Westphalia.’ Over the next few centuries, the European powers gradually regularized, ritualized and institutionalized these ‘Westphalian’ definitions of sovereignty, diplomacy, nationality and commercial exchange. For example, although diplomats and merchants occasionally carried various types of identifying credentials before the nineteenth century, it was not until 1856 that the US Congress passed a law giving the Department of State sole power to issue official documentation of citizenship, and only after the First World War did passports become commonplace (Lloyd 1976). One outgrowth of this particular Western system of IR is that equality is taken for granted, both as a normative goal, and also as an underlying and enduring reality of international politics. In this current system, all nation states are considered equal, and granted identical rights no matter how large the disparity in wealth or size. In fact, the notion of equality is deeply woven into our modern thinking about domestic rights, international rights and individual ‘rights of man’, from French philosophers to the US Declaration of Independence that ‘holds these truths to be self-evident … that all men are created equal’. In IR, the idea of equality is most clearly expressed in the belief that the ‘balance of power’ is a fundamental process: too powerful a state will threaten other states and cause them to band 59

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together to oppose the powerful state. This idea – that international relations is most stable when states are roughly equal – conditions much of our thinking about how international politics functions. In this way, the European experience, in which a number of similarly sized states engaged in centuries of incessant interstate conflict, has now become presumed to be the universal norm. Thus, Kenneth Waltz’s confident assertion that ‘hegemony leads to balance’ and has done so ‘through all of the centuries we can contemplate’ – is perhaps the default proposition in international relations (Waltz 1993: 77).3 Yet these patterns, ideas and institutions are actually specific ideas from a specific time and place, an Enlightenment notion from the eighteenth century. That is, there is as much inequality as equality in international relations, both now and in the past. And in fact, there are actually two enduring patterns to IR, not just the balance of power but the opposite idea – that inequality can be stable – also exists. Known as ‘hegemony’, the idea is that under certain conditions a dominant state can stabilize the system by providing leadership. Both equality and inequality could be stable under certain conditions, or they could be unstable under other conditions. Important for us to realize is that even ‘anarchic’ systems differ, and different anarchic systems develop different rules, norms and institutions that help structure and guide behaviour. Because the European system of the past few centuries eventually developed into a set of rules, institutions and norms that are now used by countries around the world, we have tended to assume that this was both natural and inevitable, and that all international systems behave the same way. With the increasing importance and presence of East Asian states in the world, it has been common to apply ideas and models based on the European experience in order to explain Asia. For example, Aaron Friedberg’s famous 1994 article compared modern Asia to the past 500 years of European history, concluding that, ‘for better or for worse, Europe’s past could be Asia’s future’ (Friedberg 1993: 7). As Susanne Rudolph has observed, ‘there appeared to be one race, and the West had strung the tape at the finish line for others to break’ (Buzan and Acharya 2007; Rudolph 2007: 2). Few scholars have taken East Asia on its own terms and not as a reflection of Europe, and few have crafted theories that can explain East Asia as it actually was.4 We care about the history not only because of how it might broaden our understanding of the past, but also because of what it might mean for contemporary issues in East Asia. Knowing East Asian history helps us put in context and make sense of the region’s economic dynamism and interconnected relations in the past half-century. Today’s East Asian system is often discussed as if it emerged fully formed – like Athena from the head of Zeus – in the post-Second World War and postcolonial era. However, as this chapter will show, many East Asian countries have been deeply economically integrated and interconnected, geographically defined, centrally administered political units for much longer than those of Europe. To explain East Asian international relations in the twenty-first century, we might begin by exploring how the region got to where it is today.

What is ‘East Asia’? When studying East Asia, it is sometimes seductive to claim that behaviour is immutable, permanent and unchanging from the ancient mists of time up to the present era. This is understandable, because many East Asian countries have a long history of cultural achievement, state formation and economic vibrancy – and were identifiable more than 1,000 years ago as the countries they are today: China, Japan, Korea and even Vietnam. However, East Asia has changed as much as any other part of the world: some cultural traits have historical roots, others do not, and all are constantly evolving depending on the circumstance, situation, institutional constraints, political and economic exigencies, and a host of other factors. We should avoid making sweeping claims that present either an unbroken chronological 60

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continuity or an encompassing geographic component. Indeed, East Asia has a long and complex history of international relations, stretching back over 2,500 years to the ‘Warring States’ era in what is now China (475–221 BCE). Unified political rule emerged after this period in China; in Korea the Silla dynasty (AD 57 – AD 938) had unified the peninsula by AD 668, and Korea was ruled by one government from that time up until 1945 – a period of more than 1,300 years. The ‘Nara’ state in Japan (710–794) began centralized rule that ultimately became the modern Japanese state. Centralized rule also emerged in what is now northern Vietnam in 968, when a man named Dinh Bo Linh allied himself with a Cantonese warlord, defeated other local warlords and received the title of ‘Commandery prince’ and later ‘king’ from the Song Chinese rulers. That protoVietnamese kingdom eventually became what is today known as Vietnam. Even while these kingdoms were emerging more than 1,000 years ago, on other frontiers in East Asia there remained the famous semi-nomadic tribes on the north and west of China. My goal in this chapter is not to survey the entire rich history of more than 3,000 years of East Asian international relations – that would be a huge task even for one entire book. Rather, this chapter will focus on the five centuries that preceded the arrival of the West: the fourteenth to the nineteenth centuries. Ranging from the founding of the Ming Chinese dynasty in 1368 to the Opium Wars between the UK and China (1368–1842), this era represents the culmination of centuries of state-building in East Asia, and the East Asian international system was at its most complete and developed. The geographical domain of East Asian international relations studied in this chapter focuses mainly on the four Sinicized states of China, Korea, Vietnam and Japan. These countries were the major actors in the system, and they constituted an international society that clearly knew the rules for membership, how status is evaluated and the rules of the game. The entire early modern East Asian region began with Manchuria in the north, the Pacific to the east, the mountains of Tibet to the west, and the nations of Thailand, Malaysia and Indonesia to the south.

The tribute system in East Asia This chapter contains three overarching themes: first, almost all political actors in East Asia accepted a set of unquestioned rules and institutions about the basic ways in which international relations worked. Known as the ‘tribute system’, and involving in particular a hierarchic ranking based on status, these rules were taken for granted as the way in which political actors interacted with each other. Largely derived from Chinese ideas over the centuries, by the fourteenth century these ideas and institutions had become the unquestioned ‘rules of the game’. Within this system, cultural achievement in the form of status was as important a goal as was military or economic power. The status hierarchy and rank order were key components of this system; and ranking did not necessarily derive from political, economic or military power. China was the unquestioned hegemon, and status derived from cultural achievement and social recognition by other political actors, not from raw size or military or economic power. All political units in the system played by these rules and did not question them. Even political units that rejected Confucian notions of cultural achievement – such as the nomads – accepted unquestioningly the larger rules of the game, the way hierarchy was defined, and the manner in which international relations was conducted, and they defined their own ideals and cultures in opposition to the dominant ideas and institutions of the time.5 Movement up and down the hierarchy occurred within the rules, and it was not until the arrival of Western powers in the nineteenth century that there was an alternative set of rules for how to conduct international relations. Second, within this larger set of rules and institutions existed a smaller Confucian society made up of China, Korea, Vietnam and Japan. I use the term ‘society’ to mean a self-conscious political 61

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grouping where shared ideas, norms and interests to determine membership in the group. Their interests may not be identical, and indeed group members’ goals can often conflict, but they share the same basic understandings about what are the criteria for membership in the group, the values and norms of the group, and how status is measured. These four states accepted Chinese ideas and were culturally similar; although many other political units existed in the system, and although those other states used the larger rules of the game, it was essentially these four states that comprised an inner circle based mainly on Confucian ideas. Within this Confucian society, however, Japan was the liminal – or boundary – case. In fact, Japan sat at the edge of the society of Sinicized states, and was clearly the most hesitant about accepting Chinese ideas and Chinese dominance, and the most interested in finding alternative means of situating itself in relation to the other states. Although clearly deriving many of their domestic ideas, innovations, writing and cultural knowledge from China, the Japanese were always sceptical of China’s central position. Indeed, Japanese scholars and officials often made a distinction between Chinese civilization, which they revered, and the Chinese state, which they often held in contempt. Yet at the same time, even while the Japanese were hesitant and sceptical about viewing themselves as a Confucian, Sinicized, state, it remained far more Confucianized than the rest of the political units in the region, such as Siam or the Mongols, and Japan challenged the existing order only once in more than 500 years. Another notable difference between Europe and early modern East Asia was the absence of internecine religious wars in East Asia between different types or sects of Confucianism and Buddhism. As Alexander Woodside notes, ‘there were no Huguenot wars… no large-scale holy wars, religious inquisitions, or St. Bartholomew massacres in Chinese, Vietnamese, or Korean history,’ calling the avoidance of religious wars ‘their greatest historical achievement’ (Woodside 1998: 194, 204). Finally, these rules and norms were consequential for diplomacy, war, trade and cultural exchange between political units in East Asia. The tribute system and its ideas and institutions, far more than a thin veneer of meaningless social lubricants, formed the basis for relations between states. With its inherent notions of inequality and its many rules and responsibilities for managing relations among unequals, the tribute system provided a set of tools for resolving conflicting goals and interests short of war.

The tribute system and the Confucian society By the fourteenth century, the tribute system had evolved into a set of rules, norms and institutions with China obviously the hegemon, which resulted in a clear hierarchy and very long peace. The rules of the game and the hierarchy were explicitly defined. The surrounding states benefited from the system; China appeared to have no need to fight, and the secondary powers no desire to fight.6 The simple explanation for why this system was stable is that China was a status-quo hegemon, and the other states in the region knew and accepted this. China had written the rules of the game for international relations and was the source of many domestic political and social institutions in the region. This Confucian international order in East Asia encompassed a regionally shared set of formal and informal norms and expectations that guided relations and yielded substantial stability. The tribute system emphasized formal hierarchy among nations while allowing considerable informal equality (Fiskesjo 1999; Keyes 2002). As long as hierarchy was observed, and China recognized as dominant, there was little need for interstate war. Sinicized states, and even some nomadic tribes, used some of its rules and institutions when interacting with each other. Status as much as material power defined one’s place in the hierarchy: China sat highest, and secondary states were ranked by how culturally similar they were to China – not by their relative power. 62

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The core of the tribute system was a set of institutions and norms that regulated diplomatic and political contact, cultural and economic relations, and in particular explicitly stated a relationship between two political units. In contrast to the modern Westphalian ideal of equality among nation states, the tribute system emphasized the ‘asymmetry and interdependence of the superior/inferior relationship’, and inequality was the basis for all relations between two units (Hevia 1995: 124, 132–133). The tribute system was formalized in two key institutions: recognition by the superior state, known as ‘investiture’, and the sending of embassy envoys to the superior state. Investiture involved explicit acceptance of subordinate tributary status and was a diplomatic protocol by which a state recognized the legitimate sovereignty of another political unit, and the status of the king in that tributary state as the legitimate ruler (Yoo 2004). Tribute embassies served a number of purposes – they stabilized the political and diplomatic relationship between the two sides, provided information about important events and news, formalized rules for trade, and allowed intellectual and cultural exchange among scholars. Missions themselves – composed of scholar-officials, interpreters, physicians, alternates, messengers and assistants – could comprise hundreds of people. For example, when the Chinese emperor established a tributary relationship with another country or community, this established the sovereignty of that country in Chinese eyes and entitled the recipient rights of entry into China. The Da Qing tongli (Comprehensive Rites of the Great Qing) begins the section on receiving envoys with reference to the ancient Zhou dynasty (1027–221 BC): ‘In the Rites of Zhou the Grand Conductors of Affairs (Daxingren) handled the rites and ceremonies of the guest. Kingdoms external to the nine provinces were called foreign kingdoms ( fanguo)’ (Hevia 1995: 118). As in the modern Westphalian system, this mutual recognition of legitimacy and sovereignty was the key diplomatic aspect of the tribute system. Classifying foreign kingdoms as guo (country) shows both difference and similarity: guo was the designation for Qing itself, so foreign kingdoms are viewed as similar, although unequal, units. The tributary was expected to use the Chinese calendar in all communication to the emperor, send diplomatic missions or embassies to China at regular intervals, and present documents or ‘tallies’ that allowed access to China’s borders. However, different regulations and rites applied to different categories of visitors, according to their status. For example, more exalted diplomats were excused from kowtowing and were also allowed to trade privately. These benefits were denied to lower-status officials (Wang 2005). As James Hevia notes, ‘the superior/inferior relationship is signified as such in several ways… superiors initiate, set affairs in motion, are a source; but inferiors bring affairs to completion’ (Hevia 1995: 124). Yet beyond these measures, China exercised little authority over other states: ‘When envoys bowed before the Chinese emperor, they were in effect acknowledging the cultural superiority of the Chinese emperor, not his political authority over their states’ (Smits 1999: 36). Relations with China did not involve much loss of independence, as these states were largely free to run their domestic affairs as they saw fit, and could also conduct foreign policy independently from China (Son 1994).

The Confucian society Korean, Vietnamese and even Japanese elites consciously copied Chinese institutional and discursive practices, in part to craft stable relations with China, not to challenge it. These states, along with China, composed a Confucian society where values, goals and standing were mutually shared and recognized. The core principles of Confucianism involved kingdoms that ‘shared certain governmental, ritual, educational, literary, intellectual, and social practices with the other members of this same category, the proof of which could be found in the existence of a body of “institutional records” that recorded such practices, as well as the presence of “wise men” who maintained those records’ (Kelley 2003: 68). ‘Confucianism’ is thus a set of ideas based on ancient 63

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Chinese classic philosophical texts about the proper ways in which government and society were to be organized. Woodside notes that: ‘The term “Confucian monarchies” hardly conveys the breadth of the civilization that these countries shared’. He points out that, ‘all three societies [China, Korea, and Vietnam] were governed by a scholar elite with a particular type of historical consciousness’ (Woodside 1998: 193). A shared Confucian worldview had a measurable impact on state relations. Perhaps most significantly, the more Confucian states such as Korea held higher rank in Chinese eyes, and this afforded them different diplomatic, trade and access privileges with China. Korea was no stronger than Japan, but was ranked more highly by virtue of its relations to China and its more thorough adoption of Confucian ideas. Korea in particular was seen as a ‘model’ tributary and was unquestionably near the top of the hierarchy (Yun 1998). Indeed, Korea’s rank in the Ming hierarchy of tributary states was a point of pride, and they ‘saw their relationship to China as more than a political arrangement; it was a confirmation of their membership in Confucian civilization’ (Haboush and Deuchler 1999: 68; Swope 2009: 43). Choso n-Ming relations were quite close, with Korea annually dispatching three embassies to China from the fifteenth to eighteenth centuries, whereas Japan was restricted to one mission every ten years. This stable relationship continued under the Qing, and Hevia notes that ‘Korea emerges in Qing court records as the loyal domain par excellence. In the Comprehensive Rites, Korea appears first among the other domains, and imperial envoys dispatched to the Korean court are always of a higher rank’ (Hevia 1995: 50). States or actors that rejected Confucianism could still partake of the tribute system, albeit at lower rank and with lower privileges. Korea and Vietnam, in particular, were centrally administered bureaucratic systems based on Chinese and Confucian ideas. This cultural relationship included language and writing, calendar, literature and art, educational system, and political and social institutions, in addition to the accepted norms and rules for international relations focused on here. Like the equating of contemporary ‘modernity’ with ‘Westernization’, Chinese ideas had a measurable impact on subordinate states’ domestic, as well as international, behaviour. They developed complex institutional structures and a civil service with ‘embryonic bureaucracies, based upon clear rules, whose personnel were obtained independently of hereditary social claims, through national meritocratic civil service examinations’ (Woodside 2006: 1). For example, Korean and Vietnamese political institutions – such as the six ministries and state council – were identical to those in China. So extensive was Korean acceptance of their subordinate position and Chinese ideas that Korean court dress was identical with the court dress of the Ming dynasty officials, with the exception that the dress and emblems were two ranks lower (in the nine-rank scheme) in Korea.7 Japan was more ambivalent towards China than was Korea, while also clearly the most hesitant of the Sinicized states about accepting Chinese ideas and Chinese dominance, and the most interested in finding alternative means of situating itself in relation to the other states. Yet at the same time, Japan remained far more Confucianized than the rest of the political units in the region, such as the Mongols or other nomads. In this way, Japan sat at the edge of the Confucian society. Early in its history, Japan experimented with a Chinese-style governance system and sent tribute missions to China.8 With the promulgation of the Taiho Code in 701, Japan during the Heian era (749–1185) introduced a Chinese-style government utilizing a bureaucratic system that relied heavily on imported Tang dynasty institutions, norms and practices. Japan’s university system by the eleventh century was based on a curriculum that studied the Chinese classics, as was the organization of its bureaucracy, and the capital city of Kyoto was modelled after the Tang dynasty capital of Chang’an in China (Shiveley 1999). Yet early attempts to import Chinese bureaucratic approaches in the eleventh century failed in the smaller, more backward environment of Japan (Grossberg 1976). 64

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However, the Chinese example as a normative precedent remained very important even for the Tokugawa Japanese (Elisonas 1988). Japan and China continued to trade informally, with up to 90 Chinese ships visiting Japan each year during the seventeenth and eighteenth centuries, and Japan imported more than 1,000 Chinese books each year (Osamu 1980). When Tokugawa shoguns were looking for legal and institutional models on which to structure their own government and society, ‘they were usually Chinese in origin’, such as the ‘Six Maxims’ first issued by Ming founder T’ai-tsu in 1398, as well as Qing and even T’ang and Song legal and administrative codes (Jansen 1992: 65, 228). Indeed, the Tokugawa jikki (the official annals of the Tokugawa era) contains numerous references to Japanese legal scholars consulting with Chinese and Korean scholars as they attempted to interpret various Chinese laws and precedents and modify them for Tokugawa use. Further reflecting the acceptance of the tributary system as legitimate is the fact that Korea, Japan, Vietnam and other states used the institutions of the tribute system and also replicated these rankorders in their own relations with other political units. Ostensibly, if the institutions of the tribute system were merely a means of placating China, states would have abandoned use of the tribute system whenever possible. However, the tribute system was the region-wide political framework that allowed for diplomacy, travel, and official and private trade between all the states in the region. For example, by the early fifteenth century, the Korean Choso n court had divided foreign contacts – such as envoys from Japanese, Jurchens and Ryukyus – into four grades, and several statuses within these grades: various Mongol tribes were rank 4; the Ryukyus rank 5 (Kang 1997; Robinson 2000). Swope notes that, ‘when addressing states such as Ryukyu they [Korea] considered to be inferior in status within the Chinese tributary system, they implied… paramountcy. Japan they regarded as an equal or as an inferior depending upon the occasion’ (Swope 2002: 763). These grades corresponded not only to different diplomatic statuses and rights, but also entailed different trading and commercial rights, regulated Japanese and Jurchen contact, and covered issues such as repatriation of traders and sailors who had been shipwrecked in Japan. As well, Japan maintained tribute relations with other states, most notably with the Ryukyus (Smits 1999).

Borders between states Defining territory and establishing the legitimate sovereignty of different political units are two of the most basic tasks in international relations. A good indicator of the stability in the system was that the borders between Korea and Vietnam and China were relatively fixed, and did not significantly change during the five centuries under review. Clear boundaries between states are a good indicator of their status quo orientation towards each other. In this way, borders are ‘political divides [that are] the result of state building’, and they are a useful indicator of a state’s acceptance of the status quo (Baud and Van Schendel 1997: 214; Batten 2003). Yet settled borders are not mere functionalist institutions designed to communicate preferences – they also inherently assume the existence of two parties that recognize each other’s legitimate right to existence. By the eleventh century, Korea had established the Yalu River as its northern border, and it was affirmation of this border and Korean acceptance of tributary status in the fourteenth century that precluded a war between the new Ming Chinese and Choso n Korean dynasties. In 1389, near the beginning of the Ming dynasty, the Ming notified Koryo  that it considered the area of northeast Korea that had been under direct Mongol control to be part of its territory. Koryo  decided to fight the Ming over the demarcation of the border, and it was this campaign, and General Yi So nggye’s unwillingness to fight (preferring negotiation), that led to the fall of Koryo  and, three years later, the creation of a new dynasty, Choso n (Kim 2006). Yi immediately opened negotiations with China, and the Ming did indeed settle for Choso n’s tributary status. Significantly, in exchange for entering into tribute status with China, Choso n Korea retained all territory previously held by Koryo . 65

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In fact, the Mongol invasions of the thirteenth century, wako pirate incursions along the coast, and a resurgent Ming China might have prompted a full militarization of the new fourteenthcentury Choso n dynasty. Yet the opposite occurred – the founding of the Korean Choso n dynasty in 1392 heralded an intensification of Confucian practices, and ‘scholar-officials…became directly involved in policymaking at all levels’ (Deuchler 1992: 292; Yoo 2004). This intensification of Confucian practices has been called the ‘neo-Confucian revolution’, when scholars imposed their ideas about proper government and society over the objections of the military class. The founders of the new Choso n dynasty were not outsiders rebelling against an established order – in fact, they came from the educated elite – and their dissatisfaction was driven by a desire to intensify neo-Confucian practices, not overturn them (Duncan 1988–9: 58–59). Relations between China and Korea were close and stable for more than 500 years, with the two sides exchanging numerous envoys and regularly trading. By the fifteenth century, Korea’s long northern border – along both the Yalu and Tumen rivers – was essentially secure and peaceful, and these two rivers have formed the border between China and Korea ever since (Figure 5.1). The Vietnam-China border was also clearly demarcated. This took place in 1079 and ‘has remained essentially unchanged to the present day’ (Taylor 1999: 147). At that time, the Vietnamese and Chinese had agreed that ‘the Quan Nguyen and Guihua prefectures [were] two sides of a “fixed border” (qiangjie) region between the two states’ (Anderson 2007: 145). A fifteenth-century Vietnamese map shows the ‘official [route] for Vietnamese embassies traveling to the Chinese capital of Beijing. Going north from the capital, the map… moves past the walled

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city of Lang-son to the great gate on the Chinese border leading into Guanxi Province’ (Whitmore 1994: 492). When China and Vietnam signed their modern treaty in 1999 they agreed upon essentially this same border (Figure 5.2). Systemic stability seems to have been good for the political regimes in each of these Sinicized East Asian countries, which in comparative perspective were remarkably long-lived. Tellingly, this was the case even more for the weaker states. The East Asian experience may be the Pacific obverse of ‘imperial overstretch’. Rather than being foolish for relying on bandwagoning and regional diplomatic order, instead of constant self-strengthening and displays of resolve and commitment, in retrospect these states appear quite canny.9

Difficulties with a realist explanation for historical East Asian relations The most likely alternative explanation for the stability of the system would be that which sees the tribute system as merely symbolic – and to explain the behaviour of the state instead by emphasizing the realist factor of the state’s relative capabilities. This realist approach would involve two basic hypotheses: that for material reasons China, despite being the most powerful actor in the system, was unable to conquer Korea or Japan; and that Korea and Japan deferred to China’s centrality because they saw little chance to defeat China militarily, and thus preferred compromise to fighting. However, there is a fair amount of evidence that China actually did have the material and logistical capabilities to conquer Korea if it had wanted; the only war between Korea, Japan and China in the five centuries under study involved Ming dispatch of 100,000 troops to defend Korea against a Japanese invasion (the Imjin Wars of 1592–1598). Not only could the Ming send massive numbers of troops to Korea – at virtually the same time and on the other side of China, the Ming intervened in border disputes in Burma, suppressed a major troop mutiny in the northwest garrison city of Ningxia, and used another 200,000 troops to crush an aboriginal uprising in Sichuan (Swope 2009: 15). Rather than being constrained, it appears the Ming had more than adequate logistical and military resources to move against Korea had it so desired. For its part, Japan was able to send 150,000 troops on 700 ships to Korea; further evidence that when they decided to fight, these states had the capacity to do so on a massive scale that, ‘easily dwarfed those of their European contemporaries’, involving men and material ten times the scale of the Spanish Armada of 1588 (Swope 2005: 13). There is also little evidence that China was merely deterred by effective Korean military preparations. Choso n Korea had been so peaceful for two centuries that on the eve of the Imjin War of 1592 it had less than 1,000 soldiers in its entire army (Park 2006: 6). Kenneth Lee observes: ‘After 200 years of peace, Korean forces were untrained in warfare and were scattered all over the country in small local garrison troops. Koreans were totally unprepared on land’ (Lee 1997: 99), while Ki-baek Lee describes the quality of the Korean military in 1592 as ‘meager and untrained’ (Lee 1984: 210). After the Imjin War, stability returned. Eugene Park notes that, ‘the late Choso n state maintained an army no bigger than what was dictated by internal security’, estimating the Korean military in the eighteenth century comprised only 10,000 ‘battle-worthy men’ (Park 2006: 6). Notable is the lack of empirical evidence that either China or Korea considered war against each other a likely possibility. If realist considerations of relative capabilities were the key factor in their relationship, we should find in the historical records of both Korea and China extensive discussion among strategists about possible military actions, and debates over how best to deal militarily with each other. However, these are absent in both the Choso n and the Ming veritable records. Particularly significant is that both Korea and China have extensive records of just such military calculations about how to deal with the Nomads on their northern borders. 67

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Vietnam’s border with China, 1079–present

Source: Kelley 2005.

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Perhaps most difficult to explain is Japanese General Hideyoshi’s invasion of Korea in 1592. Here a much smaller state invaded a close ally of the dominant power in the system. Japan and Korea ostensibly should have allied together to balance China, yet the opposite occurred. Korea certainly never allied together with other states – such as Japan – to balance China, even if at the beginning of the Imjin Wars China deeply suspected that very possibility. It took three months of intense Korean diplomacy to convince Ming China that Korea was not conniving with Japan against China (Ledyard 1988–9: 84). It is doubtful that a balancing strategy would ever have occurred to Korea, because China was the only pole in the East Asian state system. Furthermore, why Hideyoshi decided to invade Korea remains unclear, although most scholars point to status or economic – not military – considerations. For example, Swope notes that, ‘Hideyoshi craved recognition and homage from foreign rulers. This goal should not be trivialized’, and Elizabeth Berry also concludes that, ‘[Hideyoshi] was clearly less interested in military dominion abroad than in fame’ (Berry 1982: 212; Swope 2009: 64–65). Hideyoshi himself wrote to the Korean King So njo in 1590, stating: ‘I plan that our forces should proceed to the country of the Great Ming and compel the people there to adopt our customs and manners… Our sole desire is to have our glorious name revered in the three countries [of China, Korea and Japan]’ (Swope 2009: 58). Korean King So njo replied: Our two countries have always kept each other informed of all national events and affairs… This inseparable relationship between the Middle Kingdom and our kingdom is well known throughout the world…we shall certainly not desert our lord and father country and join with a neighboring state…Moreover, to invade another state is an act which men of culture and intellectual attainments should feel ashamed… (Swope 2009: 58) Significantly, if Hideyoshi’s decision had been based on views that Japan was militarily capable of conquering China, we should see ample evidence of strategic discussion among Japanese generals and Hideyoshi about how Japan compared to China in terms of its military capacities, Ming leadership or organizational capabilities, or the strategic situation that Japan faced with respect to China. However, notably absent is any Japanese assessment of the relative military capabilities of the two sides, and Berry concludes that, ‘there is no evidence that he [Hideyoshi] systematically researched either the geographical problem or the problem of Chinese military organization’ (Berry 1982: 216). In sum, the burden of proof is on those who believe that the distribution of capabilities was the main factor in international relations at the time – to not only supply a plausible hypothesis that explains the patterns of stability and violence at the time, but more importantly to provide empirical evidence that would substantiate those claims.

Civilization and the other: ‘nomads’ Coexisting with these major Sinicized states were many different types of political units that resisted China’s civilizational allure, most notably the various pastoral, highly mobile tribes and semi-nomadic peoples in the northern steppes (variously known as Mongols, Khitans, Uighurs and others). A thorough discussion of these peoples and their foreign policies is beyond the scope of this chapter, and the main point here is to contrast their cultures and identities with those of the Sinicized states.10 The nomads were less centrally organized due to the ecology of the steppes, which favoured mobility and thus made tribal domination difficult. What centralization did exist was mainly due to the personal charisma and strength of the ruler, and thus ‘tribal rivalries and fragmentation were common’ (Perdue 2005: 520). Even the Zunghar Empire, which 69

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emerged in the late seventeenth century, had only ‘an increasingly “statelike” apparatus of rule’, and never developed the same centralization or institutionalization as did the Sinicized states (Perdue 2005: 518). China (and Korea) and nomads existed along a vast frontier zone, and the disparate cultural and political ecology of the various nomads and China itself led to a relationship that, although mostly symbiotic, never resulted in a legitimate cultural or authority relationship between the two. These nomads had vastly different worldviews and political structures than the Sinicized states. They rejected Confucian ideas of civilization, such as written texts or settled agriculture; they were playing a different international game by different rules, and thus crafting enduring or stable relations was difficult. The frontier was only turned into a border when other states such as Russia began to expand eastward in the eighteenth century, and the nomads were left with nowhere to move.11 As David Wright (2002: 58) asks, ‘Why all the fighting?’ Although popular imagination sees the nomads prowling like hungry wolves outside the Great Wall, attacking randomly and whenever possible, there was in fact a logic to Chinese (and Korean) interactions with the nomads (Robinson 1992). At its core, the Chinese-nomad relationship was about trade. Nomads needed three things from agricultural China: grains, metals and textiles, and they would trade, raid or engage in tribute to gain them. Peter Perdue notes that, ‘it was almost never the ambition of a steppe leader to conquer China itself. Steppe leaders staged raids on the Chinese frontier to plunder it for their own purposes’ (Perdue 2005: 520). For its part, China used offence (as Johnston emphasizes), defence (the Great Wall), trade and diplomacy in attempting to deal with the nomads. Thomas Barfield argues that when trade was more advantageous, the nomads traded; when trade was difficult or restricted, they raided China’s frontier towns to get the goods they needed (Khazanov 1984; Barfield 1989). The Chinese weighed the costs of warring with the nomads against the problems of trading with them. As Sechin Jagchid and Van Jay Symons write, ‘when the nomads felt they were getting too little or the Chinese felt they were giving too much compared to the relative power of each participant, war broke out’ (Jagchid and Symons 1989: 1). However, endemic frontier skirmishes stemmed not only for material reasons, but also for reasons of identity and deeply held cultural beliefs. Nomads were willing to trade with the Chinese and Koreans, but they had no intention of truly taking on Chinese norms and cultures as did Korea, Vietnam and Japan. This led to a ‘chasm between Chinese and nomadic perceptions of themselves and each other….’ (Jagchid and Symons 1989: 4). David Wright concludes that: China’s failure to solve its barbarian problem definitively before the advent of the Manchu Qing dynasty was a function neither of Chinese administrative incompetence nor of barbarian pugnacity, but of the incompatibility and fixed proximity between very different societies, ecologies, and worldviews. Many statements in historical records strongly suggest that the Chinese and the Nomads had clear ideas of their differences and were committed to preserving them against whatever threats the other side posed (Wright 2002: 76) Chinese-nomad relations highlight the importance of ideas to the outbreak of violence. Material power is important, but just as important are the beliefs and identities that serve to define a group, state or people. China was able to develop stable relations with other units that adopted similar civilizational identities: states that conducted diplomacy in the Chinese style, and states that were recognizable and legitimate to the Chinese. It was much harder to establish stable relations with political units that rejected China’s vision of the world. 70

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International trade in early modern East Asia The East Asian system was not only a political system, and there were also extensive economic interactions that bound these states together. All states in the system used the same Chinese-derived international rules and norms in their dealings with each other. With China unquestioningly at the centre of the system, some states deeply accepted Confucian ideas, while others – such as the Southeast Asian polities – merely used those rules in their relations with each other. China sat at the centre of a vast trading network, and Chinese staple and luxury goods were desired literally around the world. The Ming era saw a rapid economic expansion of the Chinese domestic economy and market, and cotton, silk and sugar became commodities available for sale throughout East Asia. A national Chinese internal market developed, aided by Ming efforts to build an extensive canal system that linked the north and south, and subsequent Qing investment in a series of roads that linked the east and west. Perhaps the most famous international trade route was, of course, the ‘Silk Road’ that connected China to the Middle East and beyond by way of Central Asia. In existence for well over 2,000 years, that ancient trade route was the source for the transfer of many innovations, ideas and goods from and to China and the outside world. Yet probably more important in terms of volume was the vast maritime trade connecting Japan, Korea and Northeast Asia to China and Southeast Asia, as well as India and the Middle East and even Europe, and traders have plied the oceans in search of profits and riches for centuries. Indeed, China as hegemon was the key to the success of the system. Incorporation into the Chinese world left the secondary states free to pursue domestic affairs and diplomacy with each other as they saw fit, and also brought economic and security benefits at a cost lower than engaging in arms races or attempting to develop a counterbalancing alliance against China. A key component was the economic benefits to be had from engaging in trade. The system was geographically quite wide. China was the central trading focus of most East Asian states, but extensive trade also existed between states ranging from Japan to Java and Siam, and at times even including India and the Middle East. Trade with the West (initially mainly the Portuguese and the Dutch) in the seventeenth and eighteenth centuries was at most a minor portion of overall East Asian trade, and only became consequential in the nineteenth century as European powers moved into Asia both politically and economically. Far from being a barrier, the ocean connected the entire region, and provided the means for linking states, peoples and cultures. In fact, the various Pacific trade routes stretched from Japan and Russia down through China, wending their way past the Philippines and Malaysia into Indonesia, thus connecting them. The countries in this system were part of a thriving, complex and vibrant regional order. As Janet Abu-Lughod writes: The literature generated both in China and abroad gives the impression that the Chinese were ‘not interested in’ trade, that they tolerated it only as a form of tribute, and that they were relatively passive recipients…This impression, however, is created almost entirely by a literal interpretation of official Chinese documents….Upon closer examination, it is apparent that much more trade went on than official documents reveal, and that tribute trade was only the tip of an iceberg of unrecorded ‘private’ trade (Abu-Lughod 1989: 317) Trade served as a double-edged instrument of system consolidation, for it facilitated not only more intense state-to-state interactions but also the development of domestic state institutions. The picture that emerges is one in which the various states and kingdoms of early modern East Asia were involved in an elaborate trading system, one governed by national laws, diplomacy and 71

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protocols, with states attempting to control, limit and benefit from trade. Thus, early modern East Asia was interconnected diplomatically, culturally, economically and politically. This is contrary to the conventional Western perspective that views historical East Asia as uninterested in trade and largely consisting of isolated and autarkic economies. This Western perspective came about in part because of a superficial understanding of the full nature of East Asian trade networks, and partially because Western states had a much more difficult time trading in East Asia than did their East Asian counterparts. The emerging new consensus holds that, far from the West’s bringing trade and interaction to a somnolent East Asia in the seventeenth century, there existed a vibrant East Asian economic trading system well before the West arrived. China and its neighbours had far more interaction with each other than has been traditionally acknowledged. Recent scholarship is finding that trade, both private and tributary, made up a significant portion of both government revenues and the national economies. Furthermore, trade tended to expand region wide following increases in Chinese power, and tended to contract when China was preoccupied with internal troubles.

Conclusion The East Asia international system was hegemonic, unipolar and hierarchic with a rank-order that emphasized cultural achievement. This was different from the European system, which emphasized principles of equality, was a multipolar region comprised of numerous states of similar size, and experienced a pattern of balance of power. The East Asian system proved to be stable and endured for centuries. However, with the arrival in force of the Western powers during the nineteenth century, the system collapsed quickly as East Asian states struggled to adapt to the challenges posed by the West. The arrival of the West – its norms, institutions and ideas – created an enormous challenge to the existing worldviews of East Asian nations. At the beginning of the twenty-first century, as East Asian states are becoming once again powerful, coherent and dynamic in their own right, it has been common to ask whether these states are now completely Westernized or whether any strands from the past run up to the present. How the past affects the present is surely an open question, and it is unlikely that there will ever be a definitive answer. But it is worth asking whether East Asia’s past has any effect on its modern preoccupations, perceptions, goals or intentions. Perhaps the most prudent conclusion to draw is one that avoids either extreme. That is, East Asian peoples want what most people in modern societies want – security, safety, status and wealth. Furthermore, all states – including China – unquestioningly accept the basic Westphalian norms and institutions that govern contemporary international relations. That is, there are still some things that make us all the same. Yet at the same time, how East Asian states, cultures and values have evolved – and the specifics of how East Asian peoples view themselves, their relations with their neighbours and their place in the world – may also be partly a function of their own particular history, and we would be wise to acknowledge that fact.

Notes 1 I should note I am using the modern social science term ‘hegemon,’ not the Chinese term, bawang (霸王), which refers to a powerful person at a time when there is not a legitimate dynasty in place, such as Xiang Yu before the Han Dynasty was established. Thanks to Liam Kelley for this point. 2 Even the nomads valued Chinese stability, and John Mears notes that, ‘Nomadic confederacies… seemed best served by the preservation of a stable Chinese regime’ (Mears 2001: 8). See also Perdue 2005: 521. 72

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3 See also Osiander (2001); Mearsheimer (2001); Kaufman et al. (2007). On balancing in East Asia, see Friedberg (1993–94), Betts (1993); Brzezinski and Mearsheimer (2005). 4 Exceptions are Johnston (1995) and Hui (2004). 5 An extraordinary diversity of peoples, cultures and polities existed on the northern steppes, and for expositional ease I refer to these in the text as ‘nomads,’ although the term is far from satisfactory. 6 Even the nomads valued Chinese stability, and John Mears notes that, ‘Nomadic confederacies… seemed best served by the preservation of a stable Chinese regime’ (Mears 2001: 8). See also Perdue (2005: 521). 7 That is, the court dress of a Rank I (the highest rank) Choso n official was identical to that of a Rank III official at the Ming court. 8 The seventh century ritsuryo (code-based) state was explicitly modelled on the Tang bureaucracy. William Wayne Farris, ‘Trade, Money, and Merchants in Nara Japan,’ Monumenta Nipponica 53 No. 3, (1998), pp. 303–334, p. 319. 9 Thanks to Greg Noble for this point. 10 China-nomad relations have been the focus of extensive research, including Khazanov (1984); Barfield (1989); Sechin and Symons (1989); Wright (2002); Perdue (2005); Crossley (2006). 11 The major exception were the Manchus. Descended from Jurchens, the Manchus were never Mongols, and for long stretches of time their economic agenda was comparable to Choso n, Ming and other more settled societies. Indeed, the Manchu conquest of the Ming was more opportunism than design, and while ruling China and absorbing some of the traditional Han institutions, they retained unique Manchu elements as well. Although Manchu worldviews and identity never completely Sinicized, they used many of the institutional forms and discursive style of traditional Chinese dynasties in dealing with the neighbouring states. See Elliot (2001).

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Part II

Economic issues

6 The significance of the overseas Chinese in East Asia Gordon C. K. Cheung

Introduction1 Very often, those who have studied overseas Chinese and Chinese business activities in Southeast Asia have heard a legend, which precisely characterizes the ideas, if not myths, behind overseas Chinese business networks and the peculiar political culture in Southeast Asia. The legend begins with a backdrop of the civil war of Indonesia in 1965–6, when Sukarno, then president of Indonesia, chased Suharto (a rebel military leader) in Jakarta. A Chinese grocery-store owner risked his life by saving Suharto in his store. After the end of the civil war, Suharto eventually became the new president. As a result, the Chinese grocery-store owner who had saved the new president’s life became the richest Chinese businessman in Indonesia. The name of the grocerystore owner was Liem Sioe Liong,2 who later established the Salim Group, which became the largest ethnic Chinese corporation in Indonesia. Although we are not trying to authenticate the historical facts about the legend, there are three obvious implications. First, overseas Chinese economic power is enormous, and there is extensive historical Chinese influence in Southeast Asia. Second, Chinese businesses and their networks with Southeast Asian countries are intermingled with the so-called patron-and-client relations or crony capitalism (Pye 1985: 111–120; Haggard 2000: 25–27). However, it leaves a big question over whether or not these are true depictions of Chinese business networks. Finally, the academic field studying the overseas Chinese and the rise of China is becoming increasingly important, especially in relation to their economic interdependence. The study of the overseas Chinese is an ever changing academic adventure with new academics impelling those areas beyond history or ethnic relations; they study overseas Chinese in Western Europe, touch upon identity building and bring along information technology and its connection with the overseas Chinese (Leung 2004; Louie 2004; Shih 2007; Ding 2007/2008; Thunø 2007). The modest objective in this chapter, however, is to understand overseas Chinese from the historical and regional perspectives with particular reference to the rise of China. This chapter will be divided into four sections. The first section explores the meanings and various definitions of overseas Chinese. The second section traces overseas Chinese contemporary history, with an emphasis on Southeast Asia. Third, the chapter will move away from the historical narrative to locate various approaches of the business networks. Last, but not least, the chapter will examine 77

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the correlation between overseas Chinese and the rise of China by focusing on Chinese soft power, their philanthropic behaviour and the recent trend of the returnee Chinese.

The meaning(s) of overseas Chinese Until April 2008, the Dr Shao You-Bao Overseas Chinese Documentation and Research Centre at the University of Ohio in the United States estimated that there were about 38.6 million ethnic Chinese in the world, including roughly 76,000 in Oceania, 6.63 million in Americas, 1.83 million in Europe, 28.37 million in Asia and 32,000 in Africa.3 Understandably, this information can only serve as a general guideline for the overseas Chinese distribution in the world.4 Yet, it suggests that the number of overseas Chinese and their geographic diversity allow them to be studied not only from the nation state’s perspective but also from regional, global and even transnational relations. The term ‘overseas Chinese’, according to the study by Lu Yu-sun, was first used by Hsu Yun-chao in his commentaries. The commentaries recorded that some Chinese traders in Yokohama of Japan had launched a campaign in 1898 to raise funds for a school to be established, this school was called ‘The Overseas Chinese School’. This was probably the first occurrence of the term ‘overseas Chinese’ (Lu 1956: 1). In addition, according to The Encyclopaedia of the Chinese Overseas, the definition of overseas Chinese very much depends on how they are categorized. Generally speaking, however, overseas Chinese conceived as ‘Chinese in foreign countries’ has become widely accepted (Pan 1999: 15). Nevertheless, the study of the overseas Chinese remains a challenging academic endeavour. Who are the overseas Chinese? Should we use ‘overseas Chinese’, ‘Chinese overseas’, ‘huaqiao’, ‘ethnic Chinese’ or ‘Chinese diaspora’ to categorize the Chinese outside China? Overseas Chinese suggests a more ethnic-oriented identity, Chinese overseas is more impartial, whilst Chinese diaspora is better to capture the notion of economic and networking relations, especially through border-crossing activities in the age of globalization (Wang 2000; Cheung 2004; Huang 2010). Although the clarification of these meanings is particularly useful in academic enquiry, we shall be using overseas Chinese in this chapter to constitute a general picture of their characteristics in order to highlight the importance of their historical understanding, business networks, transnational relations, global economic power and their relations in the rise of China.5

Overseas Chinese in history The history of early generations of Chinese immigrants was a mixture of tears and tragedy. For one thing, the Chinese immigrants in the early generation were very often poor or low in social status. Like other international migrants, emigrants from China began a long time ago – since Qin and Han dynasties (around 221 BC–AD 220) (Liu 2006). Nevertheless, the late Qing dynasty (late nineteenth century) witnessed the largest outward migration from China because of the social and political turmoil in late Qing. The reasons why the Chinese emigrate overseas are complicated, yet, apart from the social and political turmoil in China, the overall motivations of their migration patterns are compatible with standard theories of transnational migration (Castles 1998). In particular, some have migrated because of the extreme poverty in rural China. Others have been attracted by the overseas economic opportunities. In general, Chinese migration is described as ‘the phenomenon of Chinese living and working abroad with the likelihood of settlement, whether or not these Chinese intended to do so from the start’ (Wang 1991: 4). The earliest and surest contact between mainland China and Southeast Asian countries, according to Victor Purcell’s analysis, was during the Han dynasty; the place was then called 78

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Annam (now Vietnam) (Purcell 1965: 8). Most of the people who went to Southeast Asia and returned to China were probably traders. ‘There is certainly no evidence that in the Han period any Chinese settled in the lands beyond the seas’, according to C. P. Fitzgerald, ‘although it is at least possible that trades began to move on seasonal expedition, sailing south in the winter, and returning to China with the South-West Monsoon in the summer’ (Fitzgerald 1969: 1). As pointed out by Loris Mitchison: The first Chinese to settle in [S]outh-east Asia were often ships’ crews who stayed, with or without imperial permission, to rebuild their junks in cheap, local wood, or to take advantages of particularly favourable trading conditions and local demands for Chinese skills. (Mitchison 1961: 15) Others might also suspect that those overseas Chinese who first set foot on Southeast Asia had connections with shipping and sea voyages. After the Second World War, overseas Chinese were associated with revolutionary political struggle after the People’s Republic of China (PRC), or mainland China, was established in 1949. Apart from the creation of the Overseas Chinese Affairs Commission (OCAC), some subnational, or party-level organizations were built in order to advocate socialist ideas among the overseas Chinese according to Mao Zedong’s revolutionary thoughts. Overseas Chinese were considered as representatives, agents or even spies for the PRC and of spreading revolutionary ideas from mainland China. This part of history was intermingled with the decolonization process, the internationalization of socialist revolutionary ideology and the containment policy of the United States (Cheung 2005: 61–63). For instance, the Bandung Conference was held in Indonesia in 1955 as a solidarity movement among the developing countries to work against imperialism and expansionism, especially against the United States. Mao Zedong – together with the PRC – was the epitome of a revolutionary leader. Overseas Chinese in Southeast Asian countries were subsequently labelled with revolutionary and socialist images (Mackie 2005). Taking Indonesia as an example, the economic relations between China and Indonesia were affected mainly by politics. The most noticeable elements of Indonesia’s economic development were the Eight-Year Plan of August 1960 and the Economic Declaration in March 1963. Yet, during the Sukarno period (1950–1965), Indonesia’s economy was under the tight control of the state, which somewhat mirrored socialist economic planning (Robison 1986: 71). This period also witnessed the intricate relations between the civilian and bureaucratic/military sectors (Robison 1992: 68). Political ideology and the economic system adopted during the Sukarno period facilitated good relations between Indonesia and the PRC. Bilateral economic and trade relations had reached a climax in 1965. For example, in the same year, 11 per cent of Indonesia’s imports were from China (Nyaw 1993: 143). But the economic relations between these two countries sunk to their nadir when Sukarno was overthrown by Suharto after the civil war in 1965. As a result, direct trade between China and Indonesia was driven to a standstill for a long time, whilst diplomatic relations between them did not normalize until 1985. After the death of Mao Zedong in 1976 and the beginning of Deng Xiaoping’s open-door policy in 1978, the image of overseas Chinese was transformed, and their economic contribution was praised. Subsequently, the revolutionary ideas and the manipulation of overseas Chinese as political tools were replaced by a more practical policy, when the cultural revolution had mitigated in the late 1970s and China’s ‘party-to-party’ relations were transformed to ‘government-togovernment’ relations (Chang 1980: 290). In practice, after 1978, with the functional role of 79

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the overseas Chinese in mind, Deng Xiaoping resumed the operation of the provincial Overseas Chinese Affairs Office (OCAO), especially in Fujian province. According to Chang Chak Yan’s study: As an executive body, the OCAO and NPC [National People’s Congress] work under the direct leadership of the party at the same level. OCAO is the government body at the local level, mainly responsible for dealing with overseas Chinese affairs. (Chang 2000: 64) Many private companies, managed by the officials of the OCAO, were established in order to come up with a comprehensive economic and business support for the overseas Chinese (Chang 2000: 66–67). One crucial element that needs to be stressed, nevertheless, is that the overseas Chinese could not understand whether Chinese policy re-orientation was motivated by the micro-economic modernization requirement in China or by the macro-political motive towards the former Soviet Union (Venkataraman 1998: 174–175). The renewal of interest in China itself in the possible significance of the overseas Chinese inevitably caused concern in some Southeast Asian countries. In particular, after the Asian financial crisis in 1997, overseas Chinese increasingly tried to hedge their economic power between their host countries and mainland China. For instance, foreign direct investment (FDI) kept flowing into China even when Malaysia imposed currency controls in 1998–99 (Cheung 2004: 673). More importantly, in the case of Malaysia’s Chinese migrants, they became ‘alienated and antagonistic because of their powerlessness in the face of a Malay-led coalition government and the perceived abuses of the special rights as a result of arbitrary implementation’ (Yeap 1992: 1). Yet, this point perhaps can be substantiated by my discussion with the members of the Malaysian Chinese Association (MCA) in the late 1990s in Malaysia. When asked about the meaning of ‘consensus politics’ (a common term referring to the political cooperation between the MCA and other parties in the largest political coalition [Barisan Nasional]), they were reluctant to answer and kept silent. It might suggest that the ‘scientific’ elements of ballot box and election should be compromised by the ‘art’ of political negotiation and adaptation among the MCA in Malaysian political reality. Yet, in terms of economics, they threw themselves more into the circle of the business development in which they excelled. The overseas Chinese business image was highly engraved in the heart of the leader of Malaysia. The former Malaysian Prime Minister Mahathir, in his book The Malay Dilemma, painted a vivid picture of the overseas Chinese business: ‘Chinese business is basically a family enterprise, and as the family is an extremely important unit in Chinese society the foundation of the business is fairly solid, at least during the life-time of the founder’ (Mahathir 1970: 53). Recognition of the strength and importance of Chinese capital in Malaysia helps to explain the creation of the New Economic Policy (a social and economic reengineering granting more preference to the Malays) established in the early 1970s. As Dieleman (2007: 15) points out, ‘… [E]thnic Chinese make up only a very small minority of the populations of most Southeast Asian countries, they tend to contribute a disproportionally large share to economic activity in the region’ (Dieleman 2007:25). The so-called ‘positive discrimination’ towards the Malays was a strategy developed to redistribute economic resources in response to the challenge posed by the Chinese diaspora. However, after the normalization of China’s policy towards the overseas Chinese, the economic and financial contributions of the overseas Chinese gradually came to be seen in a more positive light and the potential benefits of ‘Chinese’ capital were increasingly realized through continuous investment and business networking.

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Approaches of Chinese business networks The potential importance of overseas Chinese business networks has begun to attract the attention of foreign governments. One of the first government-funded projects designed to develop an understanding of overseas Chinese business networks was undertaken by the East Asia Analytical Unit (EAAU) of the Australian government, resulting in a well-known report entitled Overseas Chinese Business Networks in Asia (EAAU 1995). In Southeast Asia, the businesses of the overseas Chinese have long served as a classic example of cluster, or network-building. Henry Yeung argues that ‘local institutions and social norms have strongly shaped the emergence of Chinese capitalism in Southeast Asia, giving it a distinctive peculiarity and set of practices’ (Yeung 1999: 8). The study by Mak and Kung (1999) on the formulation of Chinese diaspora networks indicates that such ties were multidimensional. They conclude: ‘The social network of the Chinese Diaspora works beyond a mere business-inducing medium… it also serves as a feeler of social-political stability’ (Mak and Kung 1999: 15). Such unique Chinese networks give rise to a conceptual as well as operational method in understanding Chinese business relations as well as other more subtle overseas Chinese business management styles (Long 2003). In Chinese context, business networks very often are linked with another concept called guanxi or guanxixue. Writing from an anthropological perspective, Mayfair Yang clearly defined this: ‘Guanxixue involves the exchange of gifts, favors, and banquets; the cultivation of personal relationships and networks of mutual dependence; and the manufacturing of obligation and indebtedness’ (Yang 1994: 6). Her path-breaking book helped us to understand the nature and importance of guanxi. Subsequently, many academic studies have tried to establish how guanxi can be nurtured, particularly in relation to the promotion of business and economic activities. However, the impacts of guanxi have not always been considered positive. Once guanxi has become part of the business and political arenas, the importance and status of the rule of law comes into question, especially in many business and political relations. In politics, for example, William Callahan questions, and even challenges, that more relations (alternatively, social capital) in Thailand is actually a ‘problem’. He contended: Yet as I have shown, many of these social capital successes are seen in Thailand as political problems because they are embedded in the wrong social context. Rather than social capital accumulation being the main concern of activists, scholars, and policy makers, corruption is seen as the source of the kingdom’s political and economic ills, ranging from recurring coups to poor quality governments and economic crises. (Callahan 2005: 504) It is clear that the study of business networks between the overseas Chinese in the current economic rise of China needs to include guanxi as a key focus of attention. This is because the reality is that China is still in a transition to a market economy and much of its economic system, and the institutions that govern it, are still undeveloped and personal connections remain vitally important. Economic interests, power relations and state capacity are being created and re-created on a day-to-day basis as a consequence of economic and political reforms. Personal connections are consequently even more important in the absence of the effective rule of law and impartial governance. As a consequence, ‘the combination of cultural norms and the socioeconomic and political situation in China means that guanxi ties are particularly important’ (Luo 2000: 25). If we want to understand the significance of guanxi ties, therefore, we need to place them in their specific cultural, institutional, regional and even ethnic contexts for underpinning the ties between the overseas Chinese economic networks and Chinese economic development more generally. 81

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Recent scholarship has cast light on the importance of some of these relationships in understanding the rise of powerful overseas Chinese business networks. Victor Zheng’s analysis of the rise and decline of big Chinese family businesses, for example, developed two concepts to explain its development: equal inheritance and jiazu jituan (family-based consortium). He revealed the ‘secret’ of Chinese family business as: The equal inheritance system acts as the catalyst for adaptation. Adaptation leads to diversification and organizational restructuring. Diversification and reformation [have] forced the Chinese family business to develop its own type of business structure. Therefore, jiazu jituan, a distinctive type of structure that looks like a banyan tree, can be more or less understood as a reflection of business evolution and development. (Zheng 2010: 149) To test the idea of Chinese business networks in Southeast Asia, a new research focus emerged on the interdependence between the Chinese business networks and the wider social and political environment within which it is embedded. In The Rhythm of Strategy: A Corporate Biography of the Salim Group of Indonesia, Marleen Dieleman criticized the ‘cultural dependency’ (playing the card of Chinese networks and family business) and the ‘administrative heritage’ (Chinese disaggregating from the socio-economic environment of the host country) theories of overseas Chinese business studies (Dieleman 2007: 27–28). As a result of the case studies of the Salim Group, the author argued that a ‘co-evolution theory’ that looks at both the interplay between the company and the country-specific environment would be more appropriate as a new theoretical departure on overseas Chinese studies (Dieleman 2007: 135). So important is this ‘co-evolution’ between the overseas Chinese and their social and economic environment, that it is illustrated in more detail in the following section.

Overseas Chinese in the rise of China China’s refusal to depreciate Chinese currency after the Asian financial crisis in 1997 earned a genuine degree of respect across East and Southeast Asia (Cheung 2007: 31–34). If there is anything to explain the rise of China, especially in the region of East and Southeast Asia, the political gesture of not devaluating renminbi or yuan (Chinese currency) certainly helped China to gather some social capital amongst a broader regional acceptance of its historical hierarchy and increasing economic preponderance, albeit not a truly institutionalized formation process (Redding and Witt 2007: 117), resulting in soft power enhancement. For decades, the Chinese language had been banned as an academic subject in Indonesia, the ban being lifted in 1998. More recently, according to the August 2010 cover story in Yazhou Zhoukan, (a weekly magazine published in Hong Kong) the mayor of one of the cities in East Java in Indonesia eventually decided that all schools should offer Chinese language teaching (Yazhou Zhoukan, 1 August 2010: 24). In addition, this suggests the importance of Chinese language in the future generations of Indonesia. Amongst the overseas Chinese, the rise of China and the use of the Chinese language in carrying out business activities are interrelated. The Chinese government’s reinforcement of the use of soft power coincided with the overseas Chinese in those aspects, such as the emergence of a Chinese speaking (Sinophone) region, the philanthropy from the overseas Chinese and more importantly the returnee Chinese to China, all constituting a more comprehensive picture of their economic interdependence. 82

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Chinese soft power and the ‘Chineseness’ of the overseas Chinese Somewhat surprisingly given China’s relatively recent reincorporation into the international system generally and into East Asia in particular, it has become increasingly commonplace to speak of China’s growing ‘soft power’, or the ideational influence it is beginning to exert as a source of developmental inspiration and assistance (Ding 2010). It has also become fashionable to talk about the emergence of the ‘Beijing Consensus’ as an alternative developmental paradigm to its more familiar competitor from Washington. Recently, the notion of a Beijing Consensus has been further developed to describe the growing economic interdependence between China and its trading partners (Huang 2010: 31–47). Although there is clearly some debate about the exact meaning and even utility of these terms, the notion of soft power in particular does capture something of the potential importance of ‘Chineseness’ and the embedded Chinese culture that is inherited and practised by the overseas Chinese on a daily basis. As far as Chinese culture is concerned, it is also a cost-effective way to capitalize on the existing Chinese culture by linking together the overseas Chinese through a cultural network. The concept of soft power was originally conceived by Joseph Nye in Bound to Lead as a parallel way to work with hard power (coercive power). He pointed out that ‘[s]oft co-optive power is just as important as hard command power. If a state can make its power legitimate in the eyes of others, it will encounter less resistance to its wishes’ (Nye 1990: 32). The concept came into fuller appreciation when he finally anchored the concept on three power resources: culture, political values and foreign policies (Nye 2004: 11). Yet, from the state-centric level, China’s soft power is nothing more than another intangible foreign policy tool. Kurlantzick made it very explicit in Charm Offensive. He pointed out that: As Beijing has looked outside its borders, it has altered its image across much of the globe, from threat to opportunity, from danger to benefactor. This transformation has allowed China to suggest to the world that it can be a great power… This transformation is due to a range of factors, including some beyond Beijing’s control. But, it is due largely to China’s growing soft power, which has emerged as the most potent weapon in Beijing’s foreign policy arsenal. (Kurlantzick 2007: 5) This is, understandably, one of the major considerations when China designs its foreign policy with the facilitation of soft power in mind. In addition, another major reason to rely on soft power is that China is reluctant to have military confrontation with the United States. When Hu Jintao, China’s president, first used the term ‘peaceful rise [heping jueqi]’ in autumn 2003, it indicated an alternative, if not supportive, power reconstruction process by using culture, Confucianism, soft power and education (Cheung 2008). One way or another, the exercise of soft power as the public diplomacy of a country has been further used as a core selling point. Simon Anholt, an independent policy adviser to the British government, clearly stated the importance of using culture to facilitate public diplomacy: The cultural aspect of national image is irreplaceable and uncopiable because it is uniquely linked to the country itself; it is reassuring because it links the country’s past with its present; it is enriching because it deals with non-commercial activities; and it is dignifying because it shows the spiritual and intellectual qualities of the country’s people and institutions. (Anholt 2007: 99) In addition, a more concrete linkage between the state (the PRC) and the soft power of the overseas Chinese perhaps can be reconstructed through those less tangible variables such as 83

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Chinese languages. My argument, however, is that different dialects spoken by overseas Chinese is not necessarily a blockade dividing overseas Chinese into different ethnic groups. Nevertheless, the ability to use formal Chinese language, and more importantly the use and understanding of written Chinese, actually transcends the geographical diversity across the global regions where mainland China (PRC) is witnessing the reconfiguration of a Sinophone region. Shih captured such emerging predominance: Hence, unlike the conception of the Chinese diasporas, the Sinophone foregrounds not the ethnicity or race of the person but the languages he or she speaks in either vibrant or vanishing communities of those languages. Instead of the perpetual bind to nationality, the Sinophone may be inherently transnational and global and includes wherever various Sinitic languages are spoken. (Shih 2007: 30) The overseas Chinese consume and absorb the popular culture through Chinese films, songs, TV and various Internet media in addition to Chinese language spoken every day. Those cultural elements serve collectively as transnational actors reproducing the soft power of China in their day-to-day cultural encounters. Such a reproduction process weakens the conventional ingredients that constitute nation state, sovereignty, geographical regions, military preponderance, etc. By way of the intangible elements involved with commercial interests and business activities, an economic region generating amongst the overseas Chinese will gradually become an economic force promoting China’s economic rise. According to Ding Shen, the current relations between China and the overseas Chinese can be facilitated further in a global era of digitization: China’s current situation as a rising power has changed its status from that of a marginal participant in the Western-dominated world system to a key player in Pacific Asia’s globalization processes. This enables Beijing to distance itself from Western hegemonic influence, and requires it to compete with other states for the loyalties of a diaspora population. Given this setting, the underlying connections between Chinese diasporas and their ethnic motherland have an increasing impact on Chinese politics and foreign policies. (Ding 2007/2008: 641) In other words, both China and the overseas Chinese are witnessing an empowering process through the orchestration of soft power, which is being reassembled through various cultural, social, economic and even business channels. Language, culture and business relations are working in an interdependent way to thicken soft power amongst the overseas Chinese.

Overseas Chinese philanthropy As far as Chinese business is concerned, academics are particularly interested in business networks and even ‘political business’ relations. In Gomez’s view, political business is a concept with which to analyse ‘the various forms of links between politics and business that can have positive or negative impact on local economies and political systems’ (Gomez 2002: 3). The organizational style of Chinese business and the close links that have developed between Chinese business leaders and political elites in Southeast Asia, in particular, have drawn unfavourable attention to the confluence between money and power in East Asia, and its role in entrenching what has often been described as ‘crony capitalism’. In this regard, Joe Studwell has painted a powerful picture of the so-called ‘Asian godfathers’ who dominate business in Southeast Asia. He also suggests that 84

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‘there is little doubt that godfather economics have been the agent for much of the increased poverty and inequality in South-east Asia’ (Studwell 2007: 180). The possibly negative and selfserving consequences that flow from close business-government ties have also been highlighted by other analysts, such as Unger (1998), who has drawn attention to Thailand’s development problems. Nowhere better illustrates the potentially corrosive influence of ‘Chinese’ capital’s connections with local political elites than Indonesia, where major Chinese business interests prospered in a mutually rewarding relationship with Suharto’s authoritarian regime until it was brought down by the financial crisis (see Robison and Hadiz 2004). It is perhaps because of the sensitivity about these sorts of political relationships that another less explored facet of overseas Chinese business relations has become more important: their philanthropic activities. According to Chinese philosophy and Chinese business ethics, philanthropy actually constitutes a fundamental part of Chinese business ethics. Donation should be considered as an integral part of one’s business development, especially when someone is very successful in business. The Chinese logic of give-and-take ideally should be worked out in such a way that business can prosper, profit can be made, and the society and the needy should be taken into consideration. In this context, charitable activities are seen as virtuous for family members and good for business. Many well-known overseas Chinese businessmen, such as Aw Boon Haw and Tan Kah Kee, were famous for their philanthropic activities and their donations to their qiaoxiang (homeland) in China. In particular, Tan Kah Kee, who was considered as a model of an overseas Chinese philanthropist, had strongly linked with his qiaoxiang, Xiamen in mainland China. Aw Boon Haw (a Burmese-born Chinese from a Hakka family) built his business empire in producing pharmaceutical products, especially Tiger Balm ointment, as well as newspapers and banking industries in Malaysia and Singapore. One of the legacies of his charitable activities was the building of two Tiger Balm Gardens or Haw Par Villa (Chinese mythological theme park) in Singapore and Hong Kong (Huang and Hong 2007). He insisted that the parks should be opened free of charge to the general public. The one in Hong Kong was eventually demolished and the site has become luxury residential apartments, due to the bankruptcy of Sally Aw Sian, who was the chairwoman of the hugely indebted family business, Sing Tao Daily, in Hong Kong. The other in Singapore was bought by the government of Singapore in 1985 under the administration of the Singapore Tourist Promotion Board. When Aw Boon Haw died in 1954, the English media called him ‘the king of philanthropy’ (Huang and Hong 2007: 48). Therefore, from the business point of view, philanthropy can be a valuable vehicle to safeguard and preserve the image of Chinese business. Peterson argued: ‘Philanthropy also functions as a medium through which relations of power and patronage are inscribed, reinforced and challenged’ (Peterson 2005: 89). Alternatively, because merchants and business people are ranked the lowest according to Confucius teaching and tradition, the connection between business and philanthropy among the overseas Chinese can be interpreted as an education in practice and redemption of one’s reputation. In addition, overseas Chinese philanthropy can also be used as a measurement of the level of nationalism and concern for the economic development of the motherland (China). After China was confirmed to host the 2008 Summer Olympic Games, an aura of aspiration materialized to call for support from the overseas Chinese communities to celebrate such national honours. According to 2008 nian shijie huashang fazhan baogao (2008 World Chinese Entrepreneurs Development Report), in July 2002, Beijing municipal government decided that the Beijing National Aquatics Centre (Water Cube) should be built entirely from the donations of the people in Hong Kong, Macao, Taiwan and overseas Chinese (Chinese News Services 2009). As a result, more than 940 million yuan (US$139 million) was raised from 350,000 people across 107 countries. This is the only Olympic project that was supported entirely by overseas Chinese donations (Chinese News 85

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Services 2009: 12). Yet, amongst those who contributed the most, for instance Fok Ying Tung/ Fok Tsun-ting, Li, Shau-kee, Li Ka-shing, Cheng Yu-tung and Kwok Ping-sheung are actually super tycoons having very strong business relation in Hong Kong, Southeast Asia and China (Chinese News Services 2009: 13). In other words, making donations does serve as a token of transnational relations between overseas Chinese and the state-building process. Overseas Chinese support of a cultural and international event held in Beijing enabled the transformation of their image from investors to nationalists, which, in return, entails transnational relations and the sedimentation of social capital. This is not to suggest that access to Chinese resources or trust can be gained by a single donation. Building social capital with China takes time. The fact is that their donation cum contribution helps to turn their business and economic power into cultural capital that improves their relationship with the central government and facilitates business activities on the mainland.

Returning economic transformers It is not easy to specify the precise role of the overseas Chinese in the rise of China. How do they link up their relations with China? What sorts of transferable factors can they provide to China? Do they change anything in relation to the regional development of China, if not the state as a whole? Recently, the economic rise of China (after 1997 especially) gave rise to a new development for returnees to transform Chinese economies. Amongst the returnees, most were from the United States. According to Professor Yin Xiao-huang, Director of Global Studies Programme in the Arts and Humanities at Michigan State University, two major phases of influx of Chinese to the United States have been recorded. The first phase was due to the Immigration and Nationalization Act of 1965, which ‘removed racial criteria from the US immigration policy’ (Yin 2007: 123). As a result, an increase of 237,292 from 1960 to 2,858,291 in 2002 (a 12-fold increase) was recorded (Yin 2007: 123). The second phase was caused by the Tiananmen Square incident on 4 June 1989 in China. As a consequence, the Chinese Student/Scholar Protection Act was issued by US President George H. W. Bush under Executive Order #12711. More than 60,000 students/scholars from China were allowed to apply for permanent residency (Yin 2007: 125). These were the best and the brightest scientists or scholars, who contributed greatly to the United States both academically as well as in business circles. Yin argues that Chinese Americans are strongly attracted by the economic rise of China, and that there has rapidly emerged a trans-Pacific Chinese migration/community network.6 During the Obama administration, two Chinese Americans, Steve Chu and Gary Locke, were appointed as Secretary of Energy and Secretary of Commerce, respectively. Their appointments, according to Professor Yin: Will help facilitate US–China relations. Of course, as ‘Americans’, they will always promote and defend US interest in their dealing with China, but the fact that they are ethnically Chinese and that they both maintain close contacts with China will surely help them understand much better China/Chinese society than many of their non-Chinese counterparts.7 Many Chinese Americans do not naturally fit into the traditional pattern of overseas Chinese, such as clanship, social networks or generally guanxi. According to Bernard Wong’s study on the Chinese in Silicon Valley, the Chinese community there exists mainly through institutionalized establishments, such as work places, school, professional association and various hobby-related 86

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clubs (Wong 2006: 9). More importantly, his study understands the social networks and the directions of migrants from a different strand. He contends: The movement of the new Chinese immigrants can no longer be understood as taking place in a one-directional fashion: it is often nonlinear, circular, or zigzagging. Similarly, the circulation of capital and talent is conditioned by social and economic circumstances in a global context. The departing and receiving countries of these transnational immigrants may change in time. Places of work and places of residence may not coincide. (Wong 2006: 10–11) Speaking about Silicon Valley, where a large pocket of bright and intelligent Chinese can be found, it was actually during the late 1990s and early 2000s that a large number of returnee Chinese went back to China, resulting in a new concept of Haigui (Chinese returnees). Haigui refers to those Chinese returnees who studied abroad (mainly in the United States) and chose to return to China as a result of its rapid economic development. Chinese returnees began their ‘reversed exodus’ in the 1990s. Jiang Zemin came up with a 12-character slogan in the third plenum of the 14th Party Congress in 1993 to help attract those who studied overseas to come back to China: ‘Support overseas study, encourage people to return, and give people the freedom to come and go [zhichi liuxue, guli hui guo, lai qu ziyou]’ (Zweig et al. 2004: 739). One of the key reasons to attract these highly skilled returnees is to tap into their new technology and overseas networks. Another major reason is that Beijing ‘doubts whether the profit-oriented MNCs [Multinational Companies] ever genuinely transfer technologies’ (Chen 2008: 196). As a result, programmes aimed at the returnees were launched, such as the Chang Jiang scholars or the ‘100 talents programme’ (bai ren jihua), providing extra funding, financial incentives and even science labs to increase the incentive to return to China (Chen 2008: 196). According to Yow Cheun Hoe, executive editor of the International Journal of Diasporic Chinese Studies (a Chinese academic journal based in Singapore), individual cities and provinces such as Shanghai, Beijing and Guangdong all came up with unique policies and incentives to lure Chinese to return to their respective places to invest and to work.8 According to the calculation of Wang Yaohui (vice chairman of China International Economic Cooperation Society), there were about 233,000 students (24.9 per cent) returned from overseas in 2005 alone.9 However, he emphasized that it was not a one-way ‘brain drain’ but ‘brain circulation’ (Wang 2007). For a long time, overseas Chinese have been conditioned by the economic and political changes in China. In the country’s economic rise, it occurs that overseas Chinese investment and human capital collectively help transform the economic landscape of China. Most recently, in 2007, China’s State Council commissioned a research team from Tsinghua University, led by professor Long Denggao, to set up a database of the overseas Chinese foreign direct investment in China. After two years of painstaking research, they came up with the Qiaozi qiye shujuku kaifa yu yinyong yanjiu (Development and Research Application of the Overseas Chinese Business Database 2009). So far, this is the only comprehensive study providing official data on overseas Chinese investment in China. According to their in-depth study of those 70,000 enterprises and estimation(out of 298,000 enterprises), up to 2007, they collectively invested US $400 billion in China 10 (ibid 2009: 18). Geographically speaking, 60 percent of the investment from Hong Kong and Macao was concentrated in the Pearl River Delta, investment from European and Latin America focused on Yangtze River Delta and the investment from Southeast Asia was scattered across the whole China (ibid: 6). Overall, the report indicates that overseas Chinese capital and investment have become a critical part of Chinese economic transformation and success in the past. 87

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Conclusion To conclude, we have pointed out that the overseas Chinese is by no means a static concept. The theoretical notion of the overseas Chinese entails different perspectives and definitions that are intellectually stimulating. The previous historical caricatures of images of the overseas Chinese changed again from being the economic victims during late Qing period and political scapegoats (if not entirely) during Mao’s era to transnational victors, especially after Deng’s opendoor policy, and more recently after 1997. China as a state – and overseas Chinese – collectively help create a transnational network that can fit into a broader regional and global political economy. From a further academic pursuit, overseas Chinese studies are increasingly being teamed with the economic rise of China. We cannot avoid considering the huge contribution of the overseas Chinese as far as Chinese economic reform and development are concerned. In particular, as I have mentioned above, the Chinese government continues to conduct systematic studies to diagnose and facilitate a constructive collaboration with the overseas Chinese. If the economic rise of China is still the lynchpin, the future direction of the relationship with overseas Chinese in mainland China’s development will, in my opinion, probably see three major developments. First, the existing unregulated provincial and local business relations with the overseas Chinese will be replaced by a more national and macro consideration. Although it is still premature to consider the overseas Chinese as China’s future economic national interest, it appears that more emphasis and attention will be placed on the central government’s consideration. Second, the current attitude towards the overseas Chinese will shift from customer-based relations to market-based relations. In other words, the current model of the overseas Chinese investment has to be transformed. The investment/production model will gradually give rise to an investment/consumption model with a view of turning the Chinese market to cater for overseas Chinese products and investment distribution. Finally, the current sporadic investment incentive will be replaced by a more strategic thinking from the whole development chessboard in order to enhance the comprehensive economic power of China. Economies of scale will be considered; strategic economic investment is likely to be collectively performed by various consortiums of overseas Chinese business. All in all, a broader academic interest, therefore, can place overseas Chinese studies in connection with global political economy, transnational studies and even identity re-building process.

Notes 1 I would like to thank the PSA/APSA Exchanger Award for the support of the presentation of this chapter at the Australian Political Studies Association Conference 2010, Connected Globe: Conflicting Worlds, at the University of Melbourne, 27–29 September 2010. The writing of this chapter also incurs lots of academic debts. First, I would like to thank Mark Beeson for his invitation to contribute to this handbook. I would also like to thank Professors Long Denggao, Yin Xiao-huang and Yow Cheun Hoe for sharing their expert views on the most current overseas Chinese development. 2 Throughout this chapter, I use all the Chinese names in the original Chinese format, surname first and followed by name. 3 Distribution of the Overseas Chinese Population. Online, available at: http://www.library.ohiou.edu/ subjects/shao/ch_databases_popdis.html (accessed 17 July 2010). 4 Another source, resulting in similar findings, can be located from the website of the Overseas Chinese Affairs Commission, Republic of China (Taiwan). 5 Another reason for using overseas Chinese is that this is the contracted chapter heading of this handbook. 6 Personal communication, 25 August 2009. 7 Personal communication, 25 August 2009. 8 Personal communication, 19 September 2009. 88

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9 It was an aggregate figure. It basically meant that they could have gone for many years doing different levels of undergraduate or post-graduate studies. Some may have worked for many years in foreign countries. 10 According to the definition, those overseas Chinese enterprises should be allowed to operate by respective government offices. They should be owned (no less than 25 per cent of investment capital) by huaqiao, overseas Chinese and people from Hong Kong and Macao. Those foreign investment and Chinese companies were excluded. In addition, they did not include Taiwanese business (Taishang)’s capital.

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7 The developmental state and Asian regionalism Richard Stubbs

The developmental state emerged as a central feature of many of the societies of East Asia (Northeast and Southeast Asia) in the decades after the Second World War. Although the nature of the developmental state’s institutions and policies varied from society to society there were enough similarities to identify them as a distinct, and very successful, East Asian phenomenon. Moreover, the general outlines of the developmental states were maintained for more than a quarter of a century and became thoroughly entrenched in the region. Even when internal domestic pressures resulting from economic success and external pressures created by the end of the Cold War and the advent of globalization began to erode some aspects of the traditional developmental state, key elements remained. The argument of this chapter is that the similarities in the developmental state’s institutions and policies, and the common problems that governments around the East Asian region faced in adapting the extremely successful developmental state approach in the face of domestic and global challenges, provided a significant, common set of experiences from which to embark on region-building initiatives.

Common historical context The sequence of events that shaped East Asia in the wake of the Second World War provided a unique set of circumstances that promoted the rise of the Asian developmental state. By the early 1950s various wars – the Second World War, the Civil War in China, the Korean War and the various guerrilla wars around the region in places such as Malaya, the Philippines and Vietnam – had left the region in turmoil. Key elements of the physical and economic infrastructure such as bridges, railways, ports and so forth were in ruins and much of the social fabric that had provided continuity and stability was torn apart. The onset of the Cold War produced a gradual reversal of fortunes. The United States, in order to contain the growing threat from Asian communism, channelled enormous amounts of military and economic aid into Japan, South Korea and Taiwan. US aid, as well as US technological, administrative and organizational knowledge, combined with fragmented and weak societies, provided the basis for the development of relatively strong military, police and bureaucratic state structures. This strengthening of the coercive and civil elements of the state apparatus, juxtaposed to a weak, fragmented society, allowed for the centralization of political power (Dower 1979; Bowen 1984; Gold 1986; Woo 1991). 90

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US involvement in East Asia also rejuvenated the destitute economies of the region. Land reform was introduced and new technologies applied to agricultural production. As a result labour was freed up and moved to the urban areas, where industrialization was supported in part through the surplus from developments in the agricultural sector and in part through the injection of capital and new manufacturing techniques supplied by the US in the form of aid. Once the economies of its key allies in the region – Japan, South Korea and Taiwan – were back on track, the US used the leverage it gained from providing aid to push for a re-orientation from import-substitution industrialization to a greater reliance on labour-intensive, export-oriented industrialization (Ho 1978; Jacobs 1985; Amsden 1989; Wade 1990; Stubbs 2005). The imperatives of keeping communism at bay during the Cold War, and the heightened sense of menace that led to America’s intervention in Vietnam from 1965 to 1973, maintained Washington’s military and economic commitment to its East Asian allies. Massive amounts of military and economic aid continued to flow into the region, bolstering both the coercive and civil sides of the state. In addition, US economic aid as well as Washington’s spending in the region to fight the war in Vietnam gave a considerable boost to the various fledgling exportmanufacturing industries in South Korea, Taiwan and Singapore. Just as importantly, the US opened its war-fuelled, rapidly-expanding domestic market to goods from its Asian allies as a means of ensuring that the region’s economies stayed strong in the face of the communist threat. The end of the war in Vietnam in 1975 brought changes to East Asia’s regional political economy. The US continued to provide a nuclear ‘shield’ for its allies but its general commitment to the region was weakened by the dispiriting experiences of the fighting in Vietnam. Bases were closed in Thailand and annual military and economic aid to the region was cut by more than half. Yet US multinational corporations began to invest in the region both in terms of resource extraction and export-manufacturing. The most significant development, however, was the rapid rise in Japanese commitment to its neighbours and its investment in the region. The substantial influx of Japanese aid and foreign direct investment into non-communist East Asia from the late 1970s onwards was layered on top of the already considerable American economic and military investment and further boosted both the expansion of state capacity and economic development in the region. Japan’s move into East Asia was shaped by the Cold War. The old linkages to China and North Korea had been blocked by the Americans as trade with communist countries was embargoed following the outbreak of the Korean War. Japan, therefore, developed aid, trade and investment links with non-communist East Asia and in the process underwrote the region’s continuing prosperity. Most notable was the period after the 1985 Plaza Accord, by which the American government sought to increase the value of the yen against the US dollar so as to drastically cut the US trade deficit with Japan. Prompted by the rising price of the yen, as well as the high price of land and labour at home, Japanese multinational corporations opened up manufacturing centres in Southeast Asia, mostly in Singapore, Malaysia and Thailand, where conditions were generally very favourable to foreign direct investment (FDI) (Hatch and Yamamura 1996). What can be termed the facilitative conditions for the formation of the developmental state were, then, in place in East Asia during the 40 years or so following the end of the Second World War (Stubbs 2009). First, weak, fragmented civil societies paved the way for strong centralized states. In East Asia these circumstances were brought about by the physical destruction and social disintegration caused by the fighting during the Second World War, the Korean War, the Chinese Civil War and various guerrilla wars in the region. Second, there has to be a clear threat. In East Asia the threat was viewed as coming from Asian communism and was seen as putting at risk those societies that were allied to the United States and the West. This threat encouraged both leaders and the general population to seek ways of organizing a centralized authority so as to resist the 91

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threat. Third, there must be widespread external support for a centralization of power within society, or what Joel Migdal refers to as a ‘concentration of social control’ (Migdal 1988: 22–23, 275). In East Asia in the post-Second World War years the United States was fully supportive of strong centralized states in the region as a way of containing the threat from Asian communism. Fourth, resources, most importantly financial resources in one form or another but also skilled manpower and organizational and technical knowledge, should be plentiful. American military and economic aid and later American and Japanese aid and FDI contributed to the substantial amounts of resources that were channelled into East Asian economies as a result of the various hot wars and the Cold War. Finally, there should be a widespread acceptance within a society of a developmental ideology based on state intervention to promote rapid industrialization. In East Asia the developmental motivation of the regional elites was engendered by the fear of communism and the need to build a strong society to face down the threat. It was supported by a population that valued performance legitimacy or, in other words, a government that provided security, stability and prosperity (Johnson 1989: 4; Migdal 1988: 269–277; Woo-Cumings 1998; Zhu 2002, 2003; Stubbs 2005). Out of these facilitative conditions came the East Asian developmental state. It had five main characteristics: (1) a political elite committed to putting into practice a developmental ideology rooted in rapid industrialization and export-manufacturing; (2) a relatively autonomous, welltrained bureaucracy; (3) a pilot agency that controls industrial policy through its influence over planning, energy, production, finance and trade; (4) a rational industrial strategy that facilitated economic development; and (5) strong links between the bureaucracy and business that blurred the line between public and private and allowed the bureaucracy to guide industrial development (Johnson 1982; Onis 1991; Leftwich 1995; Woo-Cumings 1999; Deans 2000: 314–20). Cultivated by the post-Second World War facilitative conditions, a number of states emerged with these characteristics. In Japan, the one part of the old elite that survived mostly intact the defeat at the hands of the Americans was the bureaucracy. The political parties emerged slowly and the political leaders were generally in a relatively weak position in relation to their counterparts in the key ministries. The Ministry of International Trade and Industry (MITI) became the archetypal pilot agency coordinating the actions of the most important ministries, including the Ministry of Finance and the Bank of Japan (Johnson 1982). The advent of the Korean War brought massive amounts of US economic and military aid as well as special procurements, which were orders placed with Japanese companies by Washington for goods needed in the war effort. Over the next quarter century Japan’s developmental state, boosted by a continued influx of US funds, guided Japanese businesses to increasing levels of export manufacturing production so that the economy averaged GDP growth rates of more than 9 per cent during the 1950s and 1960s. Taiwan and South Korea followed the Japanese example. Both inherited relatively strong central administrations from the Japanese colonial period, and Taiwan also gained a number of former Kuomintang officials who fled the mainland in 1947–8 to escape the advancing communists. During the 1950s and 1960s both Taiwan and South Korea recruited overseastrained technocrats to bolster their administrative capacity. Each had authoritarian governments that gave their respective bureaucracies and their lead agencies considerable leeway in planning and executing industrial policies, assigning credit on favourable terms to particular economic sectors and even companies, and coordinating the actions of the businesses in order to bring about rapid economic development. Just as in Japan, American military and economic aid proved a massive boost to the Taiwanese and South Korean economies. Notably, the funds that were channelled into the region by the US during the Vietnam War produced a major push towards export-industrialization. Taiwan maintained an average of 9 per cent annual GDP growth rates from the early 1950s until well into the 1980s, and South Korea’s annual GDP 92

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growth rates were in excess of 8 per cent over the same period (IBRD 1971; Stubbs 2005; World Bank various years). The facilitative conditions produced developmental states in three other countries in what became the East Asian region. Singapore and Malaya/Malaysia developed strong bureaucracies, in good part stimulated by the British colonial administration’s need to expand key ministries and agencies to deliver goods and services that helped to alleviate people’s grievances and wean them away from the Malayan Communist Party’s guerrilla movement. The development of the Malayan administration was, then, a product of the Malayan governments ‘hearts and minds’ approach to counter-insurgency. Both colonial territories benefited from the quadrupling of natural rubber prices and the doubling of tin prices, which more than doubled government revenues (Stubbs 1997). From independence in 1965 the Singapore government followed a policy of localization of the administration and recruited highly trained individuals. The government also pursued an export-oriented manufacturing policy coordinated by the Economic Development Board. The Malaysian government continued to expand the administration through the 1960s and into the 1970s. Both governments used foreign direct investment to press forward with export-oriented industrialization. Both governments used interventionist policies that employed government agencies working with the private sector to promote economic development (Huff 1994; Drabble 2000: 162). Thailand’s development state was very much the product of US prodding. Of course, the Thai bureaucracy had a long tradition of initiative and leadership going back to King Chulalongkorn during the late1800s, but it expanded most noticeably during the 1950s and 1960s. US aid supported both Thai students undertaking periods of study in the US and returning to jobs in the administration, and the setting up of a Thai-based institution for training upper-level bureaucrats. New agencies were set up, such as the Budget Bureau of the Prime Minister’s Department and the Office of Fiscal Policy in the Ministry of Finance, which helped to coordinate Thailand’s rapid economic development (Muscat 1994; Pasuk and Baker 1995). Indeed one observer noted that Thailand in the late 1960s had a ‘strong, effective government’. And the Thai economy produced remarkable economic growth from the 1950s onwards as US aid was funnelled into the country to stave off the threat from local communist organizations. Most particularly, the Thai economic boom of the late 1960s was produced by the massive military spending by the US on fighting the war in Vietnam, especially establishing the main US airfields in northeast Thailand. Intriguingly, all three governments – Singapore, Malaysia and Thailand – were described as strong administrative states in the late 1960s and early 1970s. Fred W. Riggs (1966) famously called Thailand a ‘bureaucratic polity’. Milton Esman (1972: 62–71), a senior adviser in the Prime Minister’s Department in Malaysia and professor at Cornell, termed Malaysia an ‘administrative state’ and noted that the size of the government’s workforce was comparable to those of Denmark and the United Kingdom. And Chan Heng Chee (1975), of the University of Singapore and later Singapore’s ambassador to the US, noted the build-up of an effective and relatively autonomous ‘administrative state’ in Singapore in the decade after independence in 1965. All three countries, then – perhaps not quite to the extent of Japan, Taiwan and South Korea but in a rather similar fashion – had built up relatively strong states that to a considerable degree met the criteria for a developmental state. Moreover, the three Northeast Asian developmental states and the three Southeast Asian developmental states had produced such strong economic growth that by the late 1980s and into the 1990s they were widely characterized as ‘miracle economies’ or newly industrializing economies (NIEs) (Balakrishnan 1989; Economist Editorial 1989; World Bank 1993). However, from the 1980s onwards the facilitative conditions that had nurtured the developmental state came under pressure. The winding down of the Cold War and the rapid increase in the influence of the forces of globalization changed the overarching structures within which the 93

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economies of East Asia operated. In addition, the very success of the ‘miracle’ economies meant that the domestic setting had changed quite markedly. Slowly, the developmental state itself was forced to adapt to the new environment (Stubbs 2005; Beeson 2006: 184–198). First, the reduction in the perception of a communist threat to East Asia as the Cold War abated meant that the United States was no longer so willing to favour ‘concentrated social control’ within its allies. Indeed, fledgling democracies emerged in both South Korea and Taiwan in the late 1980s. The new governments changed the relationship between the political leaders and the bureaucracy such that senior officials had to relinquish some of their previous autonomy. At the same time, and amplified by the ideas embedded in the increasing significance of the forces of globalization, the US pressed for the neo-mercantilist policies of the developmental states to be changed. Washington wanted a greater emphasis put on privatization, deregulation and a general liberalization of the economy, all of which further reduced the capacity of the bureaucracy to control industrial policy. Second, the end of the Cold War and the advent of globalization altered the way that capital entered the economies of the developmental states. US military and economic aid had been channelled into the key East Asian allies’ economies in the main through their respective governments. However, the new forms of external capital, foreign direct investment and shortterm portfolio investment bypassed the government and went straight into the business sector. This meant that industrial priority was set as much by external decision-makers as senior bureaucrats within the country. Governments’ capacity to steer industrial development through the direct allocation of funds to bolster specific industries and companies was therefore markedly reduced. Third, the weak societies of the post-Second World War years, which had allowed for a centralization of power in the developmental states of East Asia, had been revitalized by the general prosperity that the developmental state delivered. As the economy grew, so businesses of all sizes expanded and thrived with the larger corporations in particular, gradually gaining increased economic and political leverage. The consequence of this development was that the relationship between the state and business, which had originally been dominated by the state, became much more evenly weighted and, in some cases, notably in South Korea, began to be tipped in favour of large business conglomerates. The developmental states had much more difficulty directing their economies. Furthermore, the increased complexity of the developmental state economies made it more problematic for governments to implement wide-ranging industrial strategies and to comprehensively manage the way in which their domestic economies became linked into the rapidly globalizing world economy. Yet key elements of the developmental state remained in place in many East Asian societies. While each of the developmental states had been entrenched to varying degrees, they were also eroded in different ways by a series of factors, including the end of the Cold War, the forces of globalization and changes in the domestic power relationships. Importantly, however, the ideas that underpinned the development state, as well as their structures and policies, continued on embedded in the formal and informal practices of government. Significantly, those that benefited from the developmental state, such as businesses that served the domestic market and benefited from protective tariffs or businesses that gained from state support for their export-manufacturing strategies, worked to keep the developmental state and its policies in place. Similarly, officials within the government who operated the developmental state had an interest in sustaining it, as did those in the policy institutes and academia that were committed to the neo-mercantilist approach to economic development. But perhaps most importantly of all, the rapid economic development, prosperity and social stability – particularly when compared to the disastrous period directly after the Second World War – that was associated with the rise of the developmental state 94

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meant that it had a good deal of support within the wider general public. Hence, although some of the facilitative conditions that had spawned the developmental state had changed quite markedly, there were still strong pressures to keep it. Wrestling with the many stresses and strains that swirled around the developmental state became, then, a common problem for the governments of East Asia. Regional governments had to search for ways to manage the demands created by the forces of globalization, while at the same time operating with administrative structures and facing many domestic interest groups that were still dominated by developmental state norms and values. Coming together in a regional organization to tackle these common problems, therefore, had an obvious appeal.

Regionalism and the developmental state Of the five original ASEAN members three – Malaysia, Singapore and Thailand – were widely considered developmental states and members of East Asia’s club of NIEs. A fourth, Indonesia, was also considered by some to be a developmental state and one of the region’s NIEs (World Bank 1993; Vu 2007). Only the Philippines, which was in a terrible economic state for most of the period from the founding of ASEAN in 1967 to the Asian Economic Crisis of 1997–8, was not thought of as a developmental state. This common frame of reference was a significant ingredient in allowing ASEAN states to appreciate the needs and aspirations of their fellow members. It was particularly helpful when it came to the negotiations over the ASEAN Free Trade Area beginning in 1992 (Stubbs 2000). To some extent, as new members joined ASEAN – Brunei in 1984, Vietnam in 1995, Laos and Burma/Myanmar in 1997 and Cambodia in 1999 – the developmental state as a common denominator among ASEAN members was diluted. However, the emergence of the ASEAN Plus Three (APT) and the addition of China, Japan and South Korea to ASEAN in 1997 meant that the importance of the developmental state experience and norms once again came to the fore in the regional organization (Stubbs 2002). The APT emerged out of the caucus meetings that the Asian representatives at the Asia-Europe Meeting (ASEM) held around the first ASEM in Bangkok in 1996 and the lead-up to the second ASEM in London in 1998. In anticipation of the first ASEM the ASEAN members, who were responsible for initiating and setting up the first meeting, had asked China, Japan and South Korea to join them (Stubbs 2002: 442–443). With the ASEAN members and the three Northeast Asian countries meeting to deal with ASEM issues during 1996 and 1997 it was not surprising that there should be an informal gathering of the leaders of the ASEAN and Northeast Asian countries at the 1997 ASEAN summit in Kuala Lumpur. Subsequent meetings of the APT heads of government were held at the following annual meetings of ASEAN. Importantly, of course, the APT was established just as the Asian Financial Crisis was coming to a head. The timing was important. The Asian Financial Crisis prompted a major assault on the interventionist policies of the various developmental states of the region. The IMF, initially at least, chose to impose on the region’s troubled economies that sought its help a set of policy solutions to the crisis, which included cutting government subsidies, reducing the government’s overall spending, and pushing for further liberalization of the region’s economies. At the same time, people such as Alan Greenspan, the Chairman of America’s Federal Board of Reserve, were predicting the convergence of capitalism in Asia in the ‘Western form of free market capitalism’ (Hamilton 1999: 45–46). Indeed, Rodney Bruce Hall (2003) identifies and examines the discursive strategies adopted by the IMF, the US Treasury and the Kim Dae-jung government in South Korea as the Asian Financial Crisis unfolded. These discursive strategies sought to delegitimize the developmental state model, which was equated with crony capitalism, and the national industrial policies pursued by the previously dynamic and very successful East Asian economies. 95

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The main purpose of this strategy was to advance the neo-liberal form of capitalism espoused by the US and most American-trained economists and technocrats. One of the consequences of the IMF and American government’s reaction to the Asian Financial Crisis was a sense of frustration and, as Richard Higgott (1998) has pointed out, resentment among a significant portion of key policy communities in East Asia. The IMF was widely seen as providing advice that simply exacerbated the problems created by the original crisis. The senior officials of the Fund were perceived to be following the expressed orders of the US government, which many in the region saw as taking advantage of an opportunity to undermine the successful, but competing, East Asian form of state-facilitated capitalism. Most Western policymakers and analysts did not take into account the obvious problems that had been created by the ill-conceived, Western-advocated liberalization of financial institutions. Significantly, then, many of those responsible for economic policy-making in East Asia were searching for ways of dealing with both the Asian Financial Crisis and the onslaught of criticism from the West just at the time that the APT was getting under way. There was a perception within key regional decision-making elites that at least among the membership of the APT there were politicians and officials who faced similar problems and who appreciated the difficulties that had been thrown up by the Asian Financial Crisis. Japan, South Korea, Singapore, Malaysia and Thailand – and some would add Indonesia – all had considerable and very positive experiences with the developmental state and, while some of the institutions and policies associated with the developmental state had been eroded, there were still significant ideational and institutional aspects in place. There are many examples of key elements of the developmental state surviving the Asian Financial Crisis. In Japan during the 1990s, despite the fact that the costs outweighed the benefits, the political and business elites ‘moved to preserve the status quo’ in terms of key relationships between businesses and between business and the state. Walter Hatch (2010: 250) argues that they did this because they wished to maintain their positional power within Japan’s political economy. Moreover, Mark Beeson (2009: 19) has pointed out that the Ministry of Finance, like other key parts of the bureaucracy, has worked to resist change. He notes that one way that the Ministry of Finance has done this is ‘to expand its power by managing the very reforms that were supposed to curb its influence’ (Beeson 2009: 19). Similarly, David Hundt (2009) has argued that in South Korea in the post-1997–8 crisis period the state bolstered its power with respect to the chaebols – the country’s major industrial conglomerates – and maintained the close relationship between government and business albeit in the context of restructured economic and financial policies. The South Korean government did this by employing its strong state capacity to impose increased liberalization in its financial sector and to introduce foreign capital into the banking system, and the market principles that came with it, in order to discipline the chaebols. As a result, the state is now stronger in relation to the South Korean domestic business sector than before the Asian Financial Crisis. Indeed, one analysis argues that the market reforms and liberalization of the post-1997 period are best viewed as ‘a form of state intervention’ (Kalinowski and Cho 2009: 241). Moreover, the Financial Supervisory Service, which was formed in the wake of the Asian Financial Crisis, acts as a quasi-pilot agency in that it directs credit to various parts of the economy and regulates and supervises corporate practices. In Southeast Asia the developmental states similarly adapted to the changing global environment. In Malaysia the political system, with a coalition government led by the United Malay Nationalist Organisation (UMNO), remains in control of a government apparatus that continues to guide the economy in important ways. The powerful National Economic Action Council, headed by the prime minister and originally set up in 1997 to find a way out of the Asian Financial Crisis, and the Economic Planning Unit within the Prime Minister’s Department, continue to 96

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plan and manage Malaysia’s economic development. As Pepinsky notes, this is ‘evidence of more political centralization of economic policy formation than before the [Asian Financial] Crisis’ (Pepinsky 2008: 246). In Singapore the government has been determined to increase both its institutional state capacity and its political legitimacy in order to deal with the pressures of globalization. For example, Yeung points out that in the wake of the Asian Financial Crisis the Singapore state has not retreated in the face of globalization but continues to follow a ‘significant developmental trajectory charted by the state’ (Yeung 2003: 29). Thailand in the aftermath of the Asian Financial Crisis has proved to be rather more complicated. Thaksin Shinawatra, when he became prime minister, introduced a set of reforms that centralized authority and gave additional powers to the office of the prime minister. He also identified ‘small and medium sized enterprises, agribusiness, automobiles, the rural sector and tourism to spearhead Thailand’s longer term growth’ (Thitinan 2003: 288). His strong domesticoriented economic growth strategy was reminiscent of past developmental strategies employed decades earlier. Thaksin’s political reforms in particular threatened the traditional political and economic elites and when Thaksin was ousted from office by a coup in 2006 a number of his reforms were rescinded and Thailand reverted back to a more fragmented political system. Overall, then, although marked changes have occurred in the nature of the original developmental state, enough of its distinctive features have survived over the last decade or so to ensure that key non-communist members of the APT have a similar approach to economic development and to managing the forces of globalization. However, what is also of interest here is the extent to which China, and to a lesser extent Vietnam, have also exhibited some of the features of a developmental state and, as a consequence, reinforced a significant common element to be found among APT members. Although China was obviously on the other side in the Cold War, its experiences mirrored many of those of the East Asian societies that had spawned developmental states. In the wake of the defeat of the Kuomintang nationalists in 1949 the Chinese Communist Party (CCP) was able to build – at least in terms of China’s recent history – a relatively strong central government. The fighting and widespread devastation caused by both the war against the Japanese and then by the Civil War meant that the new CCP government faced a relatively weak, fragmented society. The Korean War and encirclement by the West, most especially the US, created a military threat that justified the development of a strong central administration with the powers to regulate society and guide the economy. The Soviet Union, which provided aid to the new CCP government, was prepared to countenance a strong, centralized administration that was able to gain full social and economic control of the country (White 1988). Slowly, and despite a number of false starts, under Mao Zedong and the administratively skilful Zhou Enlai the Chinese economy developed an import-substitution industrializing strategy. From 1978 onwards China gradually opened up its economy. Emphasis was placed on problem-solving policies, increased agricultural productivity, lower direct and indirect taxes and high savings rates. During the 1980s special economic zones were opened up along China’s coast in Guangdong and Fujian provinces and ports were opened up to foreign direct investment. The control of economic development was in many cases exercised primarily at the local, city or regional level with an emphasis placed on township and village enterprises (TVEs). For example, some county-level governments were heavily involved in planning and administering the economic environment in which state enterprises, cooperative firms and TVEs were allowed to operate and compete (Blesher 1989: 103). Similarly, city governments, such as the municipal government of Tianjin, became what one analyst termed ‘entrepreneurial states’ (Duckett 1996). However, in the early 1990s a series of reforms were put in place that started to take effect in the second half of the 1990s and which gave increasing power to the central government. First, the 97

Richard Stubbs

introduction of a value-added tax on all enterprises generated a wider tax base and meant that government revenues climbed steadily from just over 10 per cent of GDP in the mid-1990s to closer to 20 per cent by midway through the first decade of the twenty-first century (Naughton 2009). With greater resources at its disposal, the Beijing government was able to invest heavily in economic infrastructure projects, including many that were meant to aid transportation and energy development, as well as in expanding the education sector. Second, a large number of smaller state-owned enterprises (SOEs) were either closed or privatized and the government began to invest in larger SOEs under the banner of ‘grab the large, let go the small’ (Eaton 2011). This meant both that the many smaller, loss-making SOEs were greatly reduced in number and were no longer a major drain on the government’s resources and that up to 50 of the largest SOEs were designated national champions. Third, China’s banks, which were considered weak and vulnerable during the 1990s, were forced to write off the debts of the many small and mediumsized SOEs that closed down and were reformed so that they functioned more along commercial lines. Finally, over the last 15 years or so, China has maintained its currency at a level that has ensured its exports are competitive, its imports are not too expensive and that its foreign exchange reserves have grown at a steady rate giving it a buffer against any instability that might be created by an economic crisis. The result of these and other reforms, then, has been to make China increasingly like a number of the East Asian societies that owed so much to their formative years as developmental states. And like the non-communist members of the APT, China, too, was grappling with the question of how to retain a measure of state intervention in managing its economy when confronted with the pressures from the outside world to liberalize. Indeed, just as the APT was getting off the ground in the late 1990s, so China was facing the conundrum of instituting reforms that brought about a greater liberalization of its economy so that it could gain entry to the World Trade Organization (WTO) while at the same time advancing the role of the Chinese state in order to promote aspects of the country’s industrial development. Even after China became a member of the WTO in December 2001, there was a need to comply with the Organization’s liberalizing rules within the context of the state’s direction of certain aspects of the Chinese economy. Vietnam may also be thought of as having some of the elements of a developmental state. Vietnam has a similar history to that of China in terms of the impact of external threats and the development of a central governing capacity. More recently the Vietnamese government has attempted to emulate the prosperity of its economically successful regional neighbours and has looked especially to South Korea as a model of development (Masina 2006: 45). Certainly, the developmental state is a useful model for the Vietnamese government for as Vu (2005, 2010) has argued ‘Hanoi desires economic growth, but only to the extent that the ruling party can control it’ (Vu 2005: 26). Importantly, the challenges faced by both the Chinese and Vietnamese governments in balancing increasing economic liberalization on the one hand, and continued state direction of the economy on the other, have been very similar to the dilemma with regard to liberalizing while retaining a state capacity to intervene in their economies – which other members of the APT have been forced to confront. Generally, the APT members have sought very similar solutions. All have moved to self-insurance at the national and regional levels. At the national level this has entailed building up large foreign exchange reserves as a buffer against a repeat of the Asian Financial Crisis. Indeed, it is not just that China (US$2.85 trillion) and Japan (US$1.1 trillion) have the largest foreign exchange reserves in the world but that South Korea (US$293 billion), Singapore (US$218 billion) and Thailand (US$168 billion) have larger reserves than the US (US$132 billion) (China Daily 2011; IMF 2011). At the regional level, self-insurance has resulted in the slow development of the Chiang Mai Initiative Multilateralization, which is a US 98

The developmental state and Asian regionalism

$120 billion fund accessible by the central banks of APT members to fight currency speculation. Moreover, in most APT members the state has either sought to increase its administrative capacity in order to bring about better regulation in the wake of the pre-Asian Financial Crisis liberalization or has maintained its strong infrastructural and guidance roles in promoting the economy (Stubbs 2011). And some APT members have begun to develop embryonic social programmes as a possible social safety net in any future crises (Ramesh 2009). The overall consequences for regionalization in East Asia of the continuing commitment among the APT members to a revised form of the developmental state – what Hayashi (2010a) terms a new generation of developmental state – is that in a very general sense the members must confront a common set of policy challenges that are tied to the need to manage globalization so as to ensure a continued ability to control their own economies and societies. Most importantly, most members of the APT have a common framework, which comes out of their experiences as developmental states reformed to some degree by the forces of neo-liberalism as their starting point. And so, for example, while there are a number of other factors at work in keeping the APT from expanding its membership, say to include Australia and New Zealand, the fact that other possible members do not have the economic successes driven by the developmental state in their recent history suggests that they may not be able to appreciate the aspirations and requirements of the current APT members. This may work against an opening up of the APT membership in the foreseeable future.

Conclusion The argument of this chapter is that the nature of East Asian regionalism cannot be fully understood without an appreciation of the role that the developmental state has played in its emergence. While the common developmental state experience of a substantial number of East Asia’s core member states should not be considered a determining factor in the growth of East Asian regionalism, it has certainly shaped the nature of regional organizations and their evolution. Of the current APT membership, Japan, South Korea, Singapore, Malaysia, Thailand as well as China and Vietnam – and some would argue Indonesia – have all experienced some of the characteristics of the developmental state with strong state guidance of an essentially market-oriented, export-led economy. Importantly, these are the largest and most successful economies of the region and so have a disproportionate impact on the region’s development. It is not just the developmental state background of East Asia’s major economies that has influenced regional organizations but the fact that each has faced the same problems of managing the forces of globalization. Each of the developmental states of the region faced external pressures to open up their economy through privatization and deregulation while at the same time dealing with domestic interests that pressed for the continuation of developmental state’s structures and practices. Exchanging ideas through regional organizations helped to develop strategies to deal with these issues. In particular, in the wake of the Asian Financial Crisis, the APT was especially helpful in managing the forces of globalization in a way that might help to avoid another crisis. Hence, the shared background of the developmental state experience and the collective problem of adapting the developmental state to changing global realities have been significant factors in the way in which East Asian regionalism has emerged.

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8 What is driving the internationalization of Asia’s business groups? Michael Carney

Introduction Diversified business groups (BGs) played a central role in early phases of Asia’s industrial growth by organizing export-oriented firms and industries. Protected from foreign competition, BGs acquired and assimilated Japanese and Western technology in order to establish high-volume and high-quality manufacturing capacity. The stronger BGs stabilized their financial resources and were able to enter into a wider range of domestic product markets such as property development, financial services, and media and communications. The export-oriented phase of development is now passing with the growing liberalization of the international investment regime. BGs are now facing pressures to restructure and refocus their business portfolios under growing competition from new arrivals, including both Western multinational enterprises and enterprises from other emerging economies that are targeting their increasingly prosperous markets and investing directly in them. However, liberalized investment policies in the region also provide Asia’s BGs with the opportunities to expand the scope of their international activities by investing in other countries. Outward foreign direct investment (ODI) has a positive development effect on a country’s industrial capacity for the three distinct reasons. First, efficiency-seeking ODI is undertaken to secure low-cost inputs, such as cheaper rents and manufacturing costs, available in other countries. This allows firms to refocus their business on higher-value activities. Second, there is asset-seeking ODI designed to acquire highly productive assets such as technologies or marketing skills, which can then be incorporated into the firm’s activities to improve a firm’s competitive capabilities. Third, market-seeking ODI generates revenues in foreign markets by transferring a firm’s specific competitive assets (FSAs), which provide it with an advantage over local firms in foreign markets. Because ODI improves a home-country firm’s performance by lowering costs, increasing its competitiveness or providing additional revenues, it is generally viewed as a healthy and competitive progression from export-based to investment-based internationalization. In past decades, Japan’s keiretsu and Republic of Korea’s chaebol seized the opportunity for international expansion and built several competitive global enterprises. Today, similar opportunities confront BGs across Asia. But to what extent will other BGs in the region emulate the international performance of Japanese and Korean business groups? 100

Internationalization of Asia‘s business groups

BGs thrive in countries where factor markets and legal institutions are absent or underdeveloped: this is because they can provide a soft market infrastructure that facilitates exchange and resource sharing among affiliated firms. For instance, when commercial law is weak or inefficient, BGs can underwrite transactions and enforce property rights. In the absence of fully functioning capital markets, BGs provide internal capital markets to fund new ventures and provide capital for large-scale development. If high-quality managerial talent is scarce, BGs can develop and share their expertise and come to the aid of troubled affiliates. For this reason BGs are generally perceived to be ‘development friendly’ because of their capacity to span institutional voids and promote economic growth. However, Asia’s BGs differ in their ownership and the kinds of corporate governance they are subject to. For example, China’s qiye jituan (Keister 1998) and the so-called ‘Red Chips’ that are listed on the Hong Kong stock market are both largely state owned and controlled. Across Southeast Asia, BGs owned and controlled by ethnically Chinese entrepreneurs and their families are typically the largest and the most prevalent enterprises (Carney and Gedajlovic 2002). Japan’s keiretsu are linked through equity cross-holdings that are centred upon a main bank or an anchor firm such as Toyota. Singapore hosts a mixture of family-owned BGs and government-led groups (Tsui-Auch and Lee 2003). Asia’s BGs also differ in terms of organizational structure, allowing them to develop different kinds of competitive advantages relative to other types of organizations. In this chapter, I adopt a firm-level analysis to demonstrate how differences in BG corporate governance and organization interact with country-specific factors to produce differences with respect to the international competitiveness of BGs. First, we begin by considering contrasting perspectives on the capacity of BGs for effective and profitable international growth. Second, we review statistical data on the foreign direct investment record of 11 East and Southeast Asian countries. Third, I explain the main regional factors driving international investment. I conclude by considering how these factors are playing out in China, India, Hong Kong and the Southeast and East Asian economies.

Business groups and internationalization Scholars are divided about whether BGs from emerging markets can benefit or effectively engage in successful outward foreign direct investment (ODI). A rent-seeking perspective suggests BGs’ growth is due to their founders’ political connections that offer access to domestic monopolies (Yoshihara 1988; Morck and Yeung 2004). A common view is that these politically connected groups do not possess high-level technological competence that offer a competitive advantage beyond their home markets. BGs’ domestic orientation was reinforced following the liberalization of foreign investment rules because groups were targeted by Western multinational enterprises seeking to enter their markets. New foreign entrants set up alliances and partnerships with local entrepreneurs as a means of establishing themselves. BGs sated by the plentiful business opportunities provided by their foreign partners meant that some groups were often complacent and have shown little interest in market expansion. Another variant of this view suggests that firms from emerging markets suffer a liability of origin. Due to home-country institutional voids, such as the absence of country-specific factors – including high-quality universities and institutions of advanced technology, and scarcity of experienced managerial talent – firms were deprived of the resources they need to compete efficiently on the global stage. Moreover, the absence of antitrust legislation allows firms to develop comfortable monopolies leading to a lack of stimulus to develop competitive skills (Mahmood and Mitchell 2004). Similarly, state-owned BGs operating under soft budget constraints, and charged with social as well as economic responsibilities, have few incentives to 101

Michael Carney

develop internationally competitive capabilities (Yiu et al. 2005). For example, China’s national team have close ties with government and have been engineered to dominate domestic markets (Keister 1998). Moreover, family-controlled firms are notoriously risk-averse and are often unwilling to dilute their control to outside influences. For these reasons, family firms often deprive themselves of the advantages of public equity and talented professional managers, and have been unable to attain the financial scale and organizational sophistication necessary for success in international competition. Their apparent successful development in export-oriented industries often obscures the fact that exporting requires relatively few firm-specific organizational capabilities beyond efficient manufacturing. Instead, successful exporting depends primarily upon the existence of country-specific factors such as the availability of low-cost and compliant labour combined with an efficient physical infrastructure. As labour and infrastructure costs have increased in newly industrialized economies, BGs transferred production to other low-cost countries to access their country-specific assets (Rugman 2010). In so doing BGs have become more international, but far from upgrading their firm-specific capabilities they continue to rely on country-specific assets. A more favourable opinion of BGs is to be found in the late industrialization perspective. In this view, emerging market firms needed catch-up in terms of basic organizational skills before they could begin to develop their own firm-specific advantages. While Western enterprises honed and perfected their capabilities for many years before engaging in multinational expansion, emerging market multinationals have in fact followed a path of accelerated internationalization (Mathews 2006). In this view, many Asian enterprises have engaged in a process of linking, leveraging and learning (LLL) from their international partners (Mathews 2006). In the first instance, exportoriented firms learned basic skills such as manufacturing quality control, through subcontracting original equipment manufacturing for Western firms (Hobday 2000). In contrast to Western multinationals, which were concerned to protect their internally generated advantages, Asian firms developed a far greater external orientation and network-based learning and sought to maximize the number of linkages with partners across a wide range of activities. This process put them in contact with multiple opportunities and resources in both advanced and less developed economies. For instance, Korean and Taiwanese firms serving European and North American retailers sourced components and manufacturing expertise in third Asian countries. This kind of international orientation often took the form of activities that did not require much financial investment but instead relied upon various types of agreements and relational contracts. As a consequence, firms gained a much greater international orientation than their international investments would suggest. Western technology and management practice often proved more valuable in the hands of local firms because they possessed superior knowledge of circumstances and how to modify and adapt Western technology and skills to suit local conditions. As we discuss below, linking and learning were leveraged to create new types of innovative low-cost and mid-range competitive advantages that differentiated local firms from their Western counterparts. Asian BGs proved to be particularly effective in learning and linking. The reputation of leading BGs facilitated the establishment of multiple linkages with international partners and affiliates. In addition, BGs have an advantage over independent firms because they are able to diffuse and leverage technology across many different business areas. BGs can become learning and teaching labs where they develop project management skills to repeatedly assemble resources and routines so as to enter new markets. As a consequence, and in contrast to rentseeking theories, BGs may best be viewed as mechanisms for acquiring and integrating new knowledge into a country’s industrial base. By synchronizing investments and planning 102

Internationalization of Asia‘s business groups

priorities in line with state macroeconomic and political goals, close cooperation among a selected number of powerful BGs and the state allows countries to orchestrate a big push for economic growth.

Business group internationalization in the last decade Whereas export-oriented development and LLL are essentially catch-up strategies, BGs in the newly industrializing economies have now caught up and arrived at the technology frontier, while firms in China, India and developing Southeast Asian economies are rapidly progressing towards it. As they do so, they become less reliant on linking and learning-based network strategies – and have begun to exert greater control over assets they require to fuel their international growth by internalizing and owning them. This development is evident in a surge of outward foreign direct investment (ODI) over last the ten years. In this section we outline two core developments in Asia BGs. The first is the growth of South-South internationalization in which BGs transfer their recently developed skills by investing in regional markets in Asia and further afield to Africa and beyond. The second development is the growth of South-North internationalization in which BGs are engaging aggressive merger and acquisition strategies to acquire the assets of multinational enterprises located in North America and Europe. Table 8.1 provides ODI volumes for eleven major East Asian and Southeast Asian countries for the years 1970, 1980, 1990 and annually from 1999 to 2009. Table 8.1 demonstrates a surge in ODI for the region as a whole in the decade since 1999 when volumes increased by some 265 per cent from US$62 billion in 1999 to US$227 billion in 2009. From the 1970s to the 1990s Japan was the major source of ODI. As late as 1990, Japan accounted for more than 80 per cent of ODI, with the four newly industrializing economies (NIEs) (Hong Kong, Republic of Korea, Singapore and Taiwan) providing much of the rest. However, the composition of originating countries has changed significantly in the last decade. While Japan continues to be an important ODI source, its relative share has declined to some 33 per cent of the regional total. In 2009 China and Hong Kong together account for 44 per cent of aggregate regional ODI, investing some US$48 and US$52 billion respectively. India, too, has become an important source of ODI. As late as 1993 there was no recorded ODI by Indian firms. Starting in 2003 Indian ODI began to grow rapidly and by 2008 Indian firms invested some US$18 billion in overseas ventures, accounting for about 8 per cent of the region’s total ODI. Table 8.1 also confirms that East Asian countries (Japan, China, Hong Kong, Taiwan and South Korea) have accounted for the lion’s share of ODI. Among Southeast Asian countries only Singapore is a consistently significant foreign investor, but this pattern too may be changing with the current ODI surge. In recent years, foreign investment from Malaysia has substantially increased peaking at some $15 billion in 2008. Firms in Indonesia and Thailand are also becoming significant foreign direct investors. Table 8.2 provides details of inward direct investment (IDI) and indicates the contrasts among Asian states in terms of their openness to inward investment from foreign firms. Table 8.2 suggests that East Asian states (Japan, Republic of Korea and Taiwan), along with India and Indonesia, have been relatively unfriendly to inward foreign directed investment (IDI). For example, in 1980 the aggregate IDI into Japan, Republic of Korea and Taiwan was approximately US$460 million. In contrast, Singapore received more than US$1.2 billion (or three times as much as the three East Asian economies put together). Similarly, in 1990 Singapore received US$5.5 billion, while Japan, Republic of Korea and Taiwan received less than US$4 billion collectively. It is only after the 1997 financial crisis that these three countries began to receive significant amounts of IDI. However, at this point China has become the preferred destination for IDI. For example, 103

2,385 .. 82 42 26

98 – 201 86 3 4 2,927

.. – .. .. .. .. 356

1980

355 .. .. 1 ..

1970

2,034 – 129 22 154 6 62,693

50,775 830 2,448 5,243 1,052

1990

8,002 – 1,422 133 349 80 62,492

22,745 1,774 19,369 4,420 4,198

1999

5,915 – 2,026 125 (20) 514 112,107

31,557 916 59,374 6,701 4,999

2000

19,965 – 267 (140) 427 1,397 86,379

38,333 6,885 11,345 5,480 2,420

2001

2,329 – 1,905 65 171 1,678 65,913

32,281 2,518 17,463 4,886 2,617

2002

2,695 213 1,369 303 615 1,876 53,347

28,799 2,855 5,514 5,682 3,426

2003

10,802 3,408 2,061 579 72 2,175 113,174

30,949 5,498 45,726 7,145 4,759

2004

11,218 3,065 2,972 189 529 2,985 116,522

45,781 12,261 27,196 6,028 4,298

2005

18,811 2,726 6,084 103 970 14,285 174,908

50,264 21,160 44,979 7,399 8,127

2006

Source: United Nations conference on trade and development. FDI statistics (http://www.unctad.org/Templates/Page.asp?intItemID=1584&lang=1).

East Asia Japan China Hong Kong SAR Taiwan Korea, Republic of Southeast Asia Singapore Indonesia Malaysia Philippines Thailand India Total regional 11

YEAR

Table 8.1 Outward direct investment in 11 Asian economies (FDI Outward or ODI)

27,645 4,675 11,280 3,536 2,850 17,233 251,044

73,548 22,469 61,081 11,107 15,620

2007

(8,478) 5,900 14,988 259 2,560 18,499 293,708

128,019 52,150 50,581 10,287 18,943

2008

5,979 2,949 8,038 359 3,818 14,897 227,448

74,699 48,000 52,269 5,868 10,572

2009

94 (1) 43 45 546

93

50 62 66

94

1970

1,236 – 934 114 189 79 3,780

278 57 710 166 17

1980

5,575 – 2,611 550 2,575 237 22,205

1,806 3,487 3,275 1,330 759

1990

16,578 – 3,895 1,247 6,091 2,168 120,427

12,742 40,319 24,578 2,926 9,883

1999

16,484 – 3,788 2,240 3,410 3,588 154,418

8,323 40,715 61,938 4,928 9,004

2000

15,087 – 554 195 5,073 5,478 111,479

6,243 46,878 23,776 4,109 4,086

2001

6,402 – 3,203 1,542 3,355 5,630 96,641

9,240 52,743 9,682 1,445 3,399

2002

11,941 (507) 2,473 491 5,222 4,321 102,260

6,324 53,505 13,653 453 4,384

2003

21,026 1,896 4,624 688 5,859 5,778 153,248

7,816 60,630 34,036 1,898 8,997

2004

15,460 8,336 4,064 1,854 8,067 7,622 162,889

2,775 72,406 33,625 1,625 7,055

2005

29,056 4,914 6,060 2,921 9,517 20,328 196,369

(6,507) 72,715 45,060 7,424 4,881

2006

Source: United Nations conference on trade and development. FDI statistics (http://www.unctad.org/Templates/Page.asp?intItemID=1584&lang=1).

East Asia Japan China Hong Kong SAR Taiwan Korea, Republic of Southeast Asia Singapore Indonesia Malaysia Philippines Thailand India Total regional 11

YEAR

Table 8.2 Inward direct investment in 11 Asian economies (FDI Inward or IDI)

35,778 6,928 8,538 2,916 11,355 25,001 261,325

22,550 83,521 54,341 7,769 2,628

2007

10,912 9,318 7,318 1,544 8,544 40,418 284,254

24,426 108,312 59,621 5,432 8,409

2008

16,809 4,877 1,381 1,948 5,949 34,613 229,612

11,939 95,000 48,449 2,803 5,844

2009

Michael Carney

over the last decade China and Hong Kong together have received more than 60 per cent of all IDI into the region. For the most part, Southeast Asian states along with China and Hong Kong have embraced IDI as part of their industrial development. But many states have been more circumspect in regards to ODI by domestic firms due to concerns about capital flight, tax evasion and the fear that ODI ‘hollows out’ domestic industry by exporting employment. Other states have changed their perspective on ODI and have come to see the value in of having their own domestic multinationals. China, Singapore and Malaysia are actively encouraging domestic firms to increase their international activities by providing them with a growing package of state support for ODI. The composition of Asia’s ODI surge consists of two broad patterns, South-South and SouthNorth ODI. Much South-South ODI is focused upon securing long-term access to natural resources, such as oil and minerals, which are viewed as essential to ensuring continued industrial growth. However, much ODI is market-seeking and based upon firm-specific capabilities. One set of capabilities is the capacity to manage the challenging institutional environments. CuervoCazzura and Genc (2008) argue that emerging market multinational enterprises are more prevalent in countries with the worst regulatory quality and with more corruption. Western enterprises rely more heavily upon formal contracts and demand greater property-rights protection, which create difficulties for them in these markets. In contrast, BGs have developed greater skill in relational contracting and are less restricted than many Western multinationals in their ability to engage in activities that are proscribed, such as giving and accepting bribes. A second set of capabilities is tied to the fact that Asian business groups have developed highly efficient low-cost manufacturing skills and are now developing new competences in ‘frugal innovation’, which entails stripping down high-end technology products to basic functional models that are affordable to less affluent customers. Whereas Western multinationals often focus upon affluent market segments in emerging markets, Asian multinationals focus on the less affluent but rapidly growing ‘middle of the pyramid’ markets with products based on frugal innovation. In contrast, the surge in South-North ODI is based on a different set of considerations. First, a series of financial crises in North America and Europe has depressed stock prices in a wide range of firms. Sovereign wealth funds have become active in purchasing bargain basement-priced stakes in Western firms. The continuing restructuring of underperforming and declining enterprises produced a large market in unwanted business units. In the past decade Asian firms have become far more aggressive in acquiring foreign resources through investments such as mergers and acquisitions. There is a growing consensus that many Asian firms have acquired these assets to build up their firm-specific skills (Child and Rodrigues 2005; Luo and Tung 2007). Moreover, the acquisition of foreign assets helps consolidate existing exports sales and promotes entry into new markets. ODI also helps firms to develop international networks and relationships through which they can initiate activities rather than serving as dependent subcontractors at the periphery of international value chains. However, there are important differences in the relative emphasis upon these patterns of internationalization across the region. In the following section we consider these differences. Table 8.3 lists the most highly internationalized enterprises from each country, ranked by their foreign assets.

Internationalization of Chinese business groups Over the past 20 years BGs have become China’s predominant corporate form (Keister 1998). Beginning in the mid-1980s, these groups were assembled from existing state-owned enterprises and line ministries. These groups are now among China’s largest enterprises. A set consisting of some 100 groups were designated as China’s ‘national team’ (Nolan 2001). They were charged 106

97

84

78

75

67

37

27

China 2 7

Global rank

China Minmetals Corp.

CITIC Group China Ocean Shipping (Group) Company China National Petroleum Corporation China State Construction Engineering Corporation China Communications Construct ion Co. Beijing Enterprises Holdings Ltd China Railway Construction Corporation Lenovo Group Electrical & electronic equipment Metal and metal products

Construction

Diversified Transport and storage Petroleum exp1./ ref./distr. Construction and real estate Construction and real estate Diversified

Motor vehicles Motor vehicles Wholesale trade Electrical & electronic equipment Motor vehicles

Toyota Motor Corporation Honda Motor Co. Ltd Mitsubishi Corporation Sony Corp oration

Nissan Motor Co Ltd

Industry

Corporation

57% 74% 53% 47%

4%

13,484

6,308

$ 2,732 43%

6,670

31,911

29,873

264,016

238,725 36,253

104,379

32,204

$ 2,269 17%

Foreign

Sales

22%

12%

3%

24% 66%

72%

64% 81% 11% 76%

%

$ 4,318

$ 8,467

$ 2,475

16%

57%

8%

Foreign

$ 26,668

$ 14,901

$ 31,571

$2,530

$ 25,740

$ 29,080

$ 165,224

$ 22,230 $ 27,431

$ 83,819

2%

23%

10%

76%

2%

14%

2%

20% 7%

51%

44,425

22,511

190,545

37,000

93,019

113,251

1,086,966

90,650 69,648

160,422

320,808 181,876 60,095 171,300

Total

(continued in the next page)

798

5,201

18,613

28,260

1,703

15,765

20,489

18,305 4,581

81,249

38% 61% 30% 63%

%

Employment Foreign Employment

$ 203,955 121,755 $ 99,458 111,581 $ 61,063 18,027 $ 76,795 107,900

Total

Foreign Revenues

$ 2,524 100%

$ 5,599

$ 3,619

$ 4,384

$ 5,427 $ 18,041

$ 60,693

296,249 $129,724 120,478 $ 80,861 111,295 $ 6,634 122,462 $ 58,185

$ 3,146 10%

$ 3,662 55%

$ 4,010 13%

$ 7,015 23%

$ 9,409

$ 43,750 18% $ 28,066 77%

$ 57,080 55%

$ 169,569 $ 89,204 $ 59,160 $ 57,116

%

Foreign

Total

Foreign Assets

Assets

Table 8.3 The largest multinational enterprises from 11 Asian economies

Corporation

Industry

Hong Kong 1 Hutchison Whampoa Limited Diversified 12 Jardine Matheson Holdings Ltd Diversified 34 China Resources Enterprises Petroleum expl./ref./ distr. 35 China Merchants Holdings Diversified International 39 First Pacific Company Limited Electrical & electronic equipment 60 Li& Fung Limited Wholesale trade 65 Noble Group Limited Wholesale trade 69 Swire Pacific Limited Business services India 15 Tata Steel Ltd Metal and metal products 20 Oil And Natural Gas Petroleum exp1./ Corporation ref./distr. 29 Hindalco Industries Limited Diversified 40 Tata Motors Ltd Automobile 54 Suzlon Energy Limited Diversified Korea 4 Samsung Electronics Co. Ltd Electrical & electronic equipment 6 Hyundai Motor Company Motor vehicles

Global rank

Table 8.3 (Continued)

%

Foreign 87,745 22,098 9,013 7,388 7,199

4,839 8,153 25,552 23,868 30,456 12,653 14,359 7,370 83,738

82,072

$ 70,762 81% $ 17,544 79% $ 7,371 82% $ 7,154 97% $ 6,998 97%

$ 4 ,761 98% $ 4,346 53% $ 3 ,903 15% $ 16,826 70% $ 13,477 44% $ 8 ,564 68% $ 6,767 47% $ 5 ,310 72% $ 28,765 34%

$ 28,359 35%

Total

Foreign Assets

Assets

95%

83% 75% 90%

%

$ 33,874

$ 88,892

$ 11,371 $ 9,869 $ 4,714

$ 4,238

$ 26,426

$ 13,873 $ 11,404 $ 1,879

47%

81%

79% 63% 83%

15%

82%

98% 32% 59%

Foreign

$ 72,523

$ 110,321

$ 14,338 $ 15,635 $5,685

$ 27,684

$ 32,168

$ 14,218 $ 36,090 $3,168

$4,105

$ 595

22,066

77,236

13,447 17,998 10,087

3,921

45,864

10,839 2,006 27,000

66,416

4,988

28%

48%

68% 36% 72%

12%

57%

75% 42% 39%

100%

99%

83% 53% 95%

%

78,270

161,700

19,867 49,473 14,000

33,035

80,782

14,438 4,800 70,000

66,452

5,055

220,000 150,000 144,000

Total

Employment Foreign Employment

$ 30,236 182,148 $ 22,362 79,276 $8,299 136,800

Total

Foreign Revenues

$4,105 100%

$564

$ 25,006 $ 16,831 $ 7,483

Foreign

Sales

Sime Darby Berhad

San Miguel Corporation

Singtel Ltd Capitaland Limited

Wilmar International Limited

Flextronics International Ltd

Fraser & Neave Limited

Keppel Corporation Limited

66 Philipines 85

Singapore 13 26

33

52

61

71

Telecommunications Construction and real estate Food, beverages and tobacco Electrical & electronic equipment Food, beverages and tobacco Diversified

Food, beverages and tobacco

Genting Berhad

56

31 38

Petroleum expl./ref./ distr. Telecommunications Utilities: Elec, gas, Water Other consumer services Diversified

Posco

53

Electrical & electronic equipment Other equipments goods Metal and metal products

Petronas - Petroliam Nasional Bhd Axiata Group Bhd YTL Corp. Berhad

STX Corporation

30

Malaysia 5

LG Corp

22

$ 3,820 33%

$ 4,717 50%

$ 5,338 47%

$ 7,812 44%

$ 17,326 79% $ 9,852 57%

$ 2,655 37%

$ 4,307 43%

$ 5,139 58%

$ 8,184 76% $ 7,014 63%

$ 28,447 27%

$ 5 ,335 14%

$ 8,308 45%

$ 13,256 26%

11,636

9,444

11,317

17,869

21,887 17,429

7,117

10,061

8,790

10,783 11,102

106,416

37,345

18,338

51,517

$ 2,562

$ 2,222

$ 15,728

$ 22,144

$ 6,745 $ 1,355

$458

$6,065

$ 667

$ 1,746 $968

$ 32,477

$ 13,512

$ 1,668

$ 44,439

31%

63%

51%

76%

65% 70%

12%

69%

24%

51% 49%

42%

36%

13%

54%

12,906

9,058 5,935

2,383

25,432

16,631

18,975 1,931

7,847

2,386

246

32,962

$8,346

$3,519

52%

51%

98%

55%

45% 57%

16%

25%

61%

76% 31%

20%

14%

45%

52%

35,621

15,134

160,000

23,313

20,000 10,500

15,344

100,000

27,296

25,000 6,232

39,236

16,707

544

64,000

(continued in the next page)

18,352

7,724

$ 30,948 156,273

$ 29,145

$ 10,374 $1,946

$3,774

$8,827

$2,726

$3,406 $1,966

$ 77,094

$ 37,966

$ 12,914

$ 82,060

Quanta Computer Inc

Pou Chen Corp.

Acer Inc.

Taiwan Semiconductor Manufacturing

Chi MEI Optoelectronics

United Microelectronics Corporation

43

62

63

72

80

82

Petroleum exp1./ ref./distr.

Chemicals Electrical & electronic equipment Electrical & electronic equipment Electrical & electronic equipment Other consumer goods Electrical & electronic equipment Electrical & electronic equipment Electrical & electronic equipment Electrical & electronic equipment

Industry %

Foreign

9,250

$ 6,711 73%

25,252

6,594

$ 2,901 44%

$ 2,525 10%

18,099

17,030

$ 3 ,813 22%

$ 3 ,070 17%

7,418

$ 4 ,455 60%

6,929

10,998

$ 6 ,746 61%

$ 4 ,553 66%

76,587 26,771

$ 16,937 22% $ 14,664 55%

Total

Foreign Assets

Assets

$ 5,993

$ 2,153

$ 187

$ 6,139

$ 16,495

$ 5,518

$ 4,930

$ 9,522

$ 17,078 $ 21,727

Foreign

Sales

10%

70%

2%

58%

95%

83%

19%

45%

26% 35%

%

$ 59,931

$3,068

$ 10,081

$ 10,558

$ 17,311

$6,622

$ 25,946

$ 21,157

$ 66,259 $ 61,810

Total

Foreign Revenues

798

5481

6325

2708

5677

226782

20297

63974

70519 515626

Foreign

10%

44%

17%

12%

84%

66%

33%

61%

75% 84%

%

7,989

12,458

37,623

22,843

6,727

345,185

60,900

104,294

94,268 611,000

Total

Employment Foreign Employment

Source: Compiled from World Investment Report Annex Table 27. The top 100 non-financial transnational corporations (TNCs) from developing and transition economies, ranked by foreign assets, 2008.

PTT Public Company Limited

Asustek Computer Inc

41

Thailand 89

Formosa Plastics Group Hon Hai Precision Industries

Corporation

Taiwan 14 17

Global rank

Table 8.3 (Continued)

Internationalization of Asia‘s business groups

with the dual task of promoting specified industries to become technological leaders and global in scale. At the same time, many groups were expected to absorb a number of underperforming enterprises in return for favourable access to capital and protection from competition (Carney et al. 2009). China’s BGs have proved to be an important part of China’s international thrust. One estimate suggests that 36 of the top 40 multinational firms were responsible for 74 per cent of China’s ODI in 2003 (Yiu 2011). Table 8.3 shows that many of the largest groups are concentrated in capital-intensive heavy industries such as chemicals, petroleum, metals and shipping. These firms have been internationalized to secure resources considered vital to China’s continued industrial growth but they have also established production plants in a range of emerging markets. Many of China’s leading multinationals are actually registered as located in Hong Kong, which will be discussed below. Other international groups, which are focused in electronics, telecommunications and consumer manufacturing, eventually go on to acquire foreign manufacturing and marketing assets. A wellknown example of this approach includes Lenovo’s acquisition of IBM’s PC business and TCL’s acquisition of Thomson’s consumer electronics division. Some of these firms developed propriety firm-specific assets. For instance, Hauwei telecommunications is striving to challenge Cisco’s dominance of the Internet switching technology business, and the Haier Group is becoming established as a world brand in refrigerators and air conditioners (Bonaglia et al. 2007). Affiliates of Chinese business groups have rapidly increased their productivity, managerial and organizational skills, intensive learning, and technology absorption through joint ventures with Western and Japanese firms (Guthrie 2005). By rapidly moving to the technology and efficiency frontiers, firms are going beyond exporting to internationalize on the basis of self-created, firm-specific advantages. These firms have become particularly adept at innovation around their cost advantages and, in one view, they are creating a global ‘value for money revolution’ that allows them to offer customers high-end products at very low cost (Williamson 2007).

Internationalization of Indian business groups Indian groups have recently become significant foreign direct investors. As is the case with China, India’s largest multinational enterprises are concentrated in capital-intensive steel and energy industries. However, India’s most dominant BGs are private and family controlled. The largest group, Tata, recently reorganized into three separately and publicly listed independent companies – steel, automobiles and information/consultancy services. This kind of reorganization facilitates access to capital markets. With access to public equity, Indian firms have been heavily involved in crossborder mergers and acquisitions, some of them quite substantial, such as Tata Steel’s US$12.3 billion acquisition of the British and Dutch steel company Corus, and Tata Motors’ US$2.3 acquisition of Jaguar Motors. Moreover, despite some high-profile and expensive acquisitions, Indian firms have also acquired smaller, high-tech companies from North America and Europe. Between 2000 and 2009, Indian firms concluded more than 800 foreign acquisitions in industries such as pharmaceuticals, chemicals and information technology. For example, Indian pharmaceutical company Dr Reddy paid US$570 million to acquire Germany’s Betapharm, and Matrix laboratories acquired Belgium’s DocPhrama for US$263 million. These predominantly South– North acquisitions are motivated by the search for strategic assets in high-tech industries and are focused on leveraging India’s low-cost innovation and intellectual property assets into first-mover positions (Ramamurti and Singh 2010). A potential problem with the internationalization of Indian technology-oriented firms is their reliance upon Western firms for access to foreign markets. With access to a large population of English-speaking engineers, India’s high-technology firms initially began their international 111

Michael Carney

expansion by subcontracting for Western clients. These firms must now develop firm-specific skills in marketing and international coordination across the value chain in order to upgrade to stronger international positions. This will not be easy. Many of these entrepreneur-founded companies are not part of large BGs and do not enjoy preferred access to financial capital and managerial talent that is available to technology-based companies linked to large BGs such as Tata consultancy services, which is part of the Tata Group. Moreover, independent entrepreneurial firms can be readily acquired by foreign multinationals. For instance, Japanese Daiichi Sankyo recently acquired India’s largest pharmaceutical innovator, Ranbaxy . With the opening of the Indian economy to foreign investment, India’s domestic technology companies no longer have a monopoly on India’s engineering talent. Western multinationals have begun to invest heavily in the country in order to tap this talent pool. In fact, by 2010 India’s largest high-technology employer, IBM, which in 2004 employed 9,000, employed more than 100,000.

Hong Kong-based business groups Table 8.3 shows that a large number of multinational BGs are headquartered in Hong Kong. The ownership and corporate organization of Hong Kong-based BGs are quite diverse. One set of BGs is the colonial era Hongs, such as Jardine Matheson and Swire Group, which were founded in the middle of the nineteenth century and later became major owners and operators of Hong Kong’s trading infrastructure establishing warehouses, harbours, airlines, and electrical and telecommunications utilities within the territory and throughout Southeast Asia. A second group includes firms founded after 1948 by Hong Kong ethnic Chinese entrepreneurs, the most prominent of which is Li Ka Shing’s Hutcheson Whampoa and Chueng Kong Holdings. These firms have become important investors in China. A third category is the so-called red chips, such as China Merchants and China Resources. These BGs are owned and controlled by China’s government and have located in Hong Kong to gain access to its large liquid-capital markets. Another category of Hong Kong BGs are international companies owned by entrepreneurs from the ethnic Chinese diaspora located throughout Southeast Asia. These entrepreneurs have built up substantial enterprises in countries such as Indonesia and Thailand but have located independent corporations in Hong Kong to manage a portfolio of international assets. Examples include First Pacific and CPL. Some qualifications are in order regarding the international growth and identity of Hong Kong’s BGs, and BGs from Southeast Asia more generally. Official statistics on ODI may sometimes overestimate or underestimate the amount of foreign investment. One indication of overestimation is that a small number of emerging economies are responsible for a very high share of ODI outflows. For example, in 2005 just four countries (Hong Kong, British Virgin Islands, Russia and Singapore) accounted for 60 per cent of the stock of ODI from developing and transition economies (UNCTAD 2006). In 2004, 45 per cent of the total ODI from Hong Kong was directed to special-purpose entities located in the British Virgin Islands. The Caribbean has become a staging post for much of this ODI, which is invariably redirected into another economy or even returned to Hong Kong, where it is recorded as outflows from the British Virgin Islands. These capital flows inflate ODI statistics in a phenomenon known as round tripping. This refers to capital outflows channelled offshore into special-purpose entities that subsequently return the funds to the economy of origin, usually to take advantage of inward foreign investment incentives. Investment flows across Asian jurisdictions are often conducted through ethnic and family networks in a manner that blurs the origin and destination of capital flows. Family-owned BGs located in different national jurisdictions may ‘tunnel’ resources from one affiliate to another located in Hong Kong or Singapore through devices such as related party transactions. For 112

Internationalization of Asia‘s business groups

example, Indonesia has no multinational enterprises represented in Table 8.3 and, indeed, for many years Indonesia’s largest business group, Salim, owned more than 800 business in Indonesia but appeared to have few international interests based outside the country (Dieleman and Sachs 2008). Instead the Salim family founded First Pacific, an investment holding company registered in Hong Kong, to manage the family’s international interests. First Pacific’s designated home economy is Hong Kong, but Table 8.3 shows that while it has less than 50 employees based in Hong Kong, it employees 66,000 people around the world. Equally, some Asian entrepreneurs register or relocate their headquarters in the Western economy despite the fact that the majority of the assets and economic activities remain in another country. Such activities blur the identity of a firm’s country of origin and leads to an underestimation of the extent to which ODI originates in Asia. An extreme example of this is ArcelorMittal, a global consolidator of steel companies, which has its headquarters in Luxembourg and is listed on the New York and Paris stock exchanges. Laksmi Mittal, the CEO and founder of the company, lives in London but Mittal began his career in India in the family’s steelmaking business, assuming responsibility for establishing an international division. In the mid-1990s Mittal split up the international operations and began to direct them from his residence in London, culminating in the acquisition of French steel giant Arcelor. The phenomena of relocating, and especially listing on equity markets in New York and London, is becoming increasingly popular among emerging market firms as a means to access more liquid-capital markets.

Southeast Asian business groups Table 8.1 shows that, compared with East Asia, Southeast Asia generates relatively little ODI. This is in part due to the fact that some Southeast Asia BGs internationalize their activities using either Hong Kong or Singapore as a home base. However, other factors are at play. Because they are family owned, many Southeast Asian BGs are more reliant on self-financing and have less access to soft capital from state governments. Accordingly, these groups are likely to make less use of equitybased investment but instead coordinate international activities through interpersonal networks secured by contractual agreements. These organizations play a manufacturing role in global commodity chains, for example through subcontracting in the garment, automobiles parts and consumer electronics industries (Gereffi 1994). Moreover, UNCTAD (2010) documents the growing use of contractual governance in a wider array of industries in Southeast Asia, such as contract farming and agriculture, food processing as well as international franchising in retailing. In commercial property, telecommunications, electric power, water and infrastructure, BGs have used build, own, operate, transfer (BOOT) arrangements and international hotel chains have made extensive use of management contracts. Leading BGs, including YTL and Axiata of Malaysia, and Singapore’s SingTel, are especially active in these sectors. Singapore is also the home-base of Flextronics, the world’s largest contract manufacturer. Overall, this discussion suggests that internationalization in Asia takes the form of ethnic and relational communities that straddle geographic boundaries and are ‘neither here nor there’. Entrepreneurs and the firms they control are embedded in these communities. They have adopted a form of transnational organization in which foreign direct investment is difficult to account for because firms cannot easily be identified with a specific national home base (Yeung 2004). However, their capacity to create internationally competitive advantages will continue to be limited by families that are determined to retain close control of their enterprises. Familycontrolled BGs that limit participation in the senior management team to a small cadre of trusted 113

Michael Carney

insiders will have continuing problems effectively managing geographically dispersed operations. Moreover, the firm’s most important social and political networks are based on local connections, but such networks are unlikely to help when the firm ventures across international borders. A significant percentage of Southeast Asia’s ODI documented in Table 8.1 originates from state-owned enterprises concentrated in energy exploration and refining. Much of Singapore’s ODI is South-North. The stock of Singapore’s investment in developed countries amounted to some US$30 billion in 2005. The main source of this investment is sovereign wealth funds and government-led enterprises. UNCTAD (2006: 114) estimates that approximately 8 per cent of FDI from Singapore has been invested in services, most notably financial services. For example, following the US financial crisis of 2007, Singapore’s Temasek Holdings paid US$4.4 billion to acquire an 11 per cent stake in Merrill Lynch. These investments should be seen as simply financial plays made for profit rather than attempts to create firm-specific competitive advantages for Singapore-based companies.

East Asian business groups Japanese, Korean and Taiwanese BGs continue to be important originators of ODI in the region but they face some key problems. There are few new faces among the largest Japanese and Korean groups, with the leading BGs continuing to be those initially involved in the early stages of their industrialization. A growing criticism of East Asian BGs is their failure to diversify into more knowledge-intensive industries. A stream of research on Japanese keiretsu groups documents their ‘sticky ties’ to group members, which inhibits them from exiting obsolete relationships and forming new linkages with rising new-technology firms (Lincoln and Gerlach 2004; Ahmadjian 2006). Japanese multinationals have traditionally been highly centralized, with most decisions made in headquarters. Furthermore, their characteristic consensus-based decision-making could not be easily transferred to foreign affiliates as foreign managers lacked the linguistic ability and the cultural background to participate in Japanese management processes (Bartlett and Ghoshal 1989). In one view, the organizational structures of Japan’s manufacturing groups have ossified. Japanese multinationals have failed to fully transfer their best practice-product knowledge to their partners, due to concerns about loss of intellectual property. At the same time they have been unable to benefit from the knowledge and learning that is occurring in their subsidiaries located in countries such as China and Thailand (McNamara 2009). An inability to institute two-way knowledge and technology transfer now deprives them of the knowledge about cost-based innovation strategies that are taking root across Asia, and some scholars see their dominance is being challenged by Indian and Chinese rivals. The legacy of export-oriented development also restricts Korean and Taiwanese group activities to the manufacturing stages of international value chains. While manufacturing and production are important sources of national wealth, Michael Porter (1990) famously argues that countries and firms must continue to upgrade their skills to higher value-added activities. With continued globalization and the rise of outsourcing, the greatest value added is most often created by firms who are able to orchestrate the entire value chain, especially by adopting new business models and making investments in marketing and distribution assets (such as brand names and retail) as well as in proprietary technology-based assets (Teece 2001). With few exceptions, such as Samsung and Hyundai, Korean and Taiwanese firms remain in heavy industries and electronics manufacturing. They retain relatively centralized organizational structures and have not invested heavily in research, new product development and marketing assets. In addition, even BGs with substantial foreign sales and very large numbers of employees continue to be highly localized. For example, Hyundai Motor Company has substantial sales in North America and Europe but much 114

Internationalization of Asia‘s business groups

of its productive assets and its employment-base remain local. Indeed, 65 per cent of its sales are domestic and 90 per cent of its productive assets are based in Asia. Moreover, 72 per cent of Hyundai’s 78,000 employees are located in the Republic of Korea. These problems suggest that organizational structures created by BGs and the institutional arrangements that engender them can evolve along path-dependent trajectories. After working so well for so long these industrial patterns can become ‘locked in’, creating an administrative heritage in which highly skilled manufacturing firms become perpetual imitators of technological innovations created elsewhere (Carney and Gedajlovic 2003). BG strategies that were once efficiently aligned with the domestic challenges of early stage industrialization are now misaligned with the tasks of developing firm-specific capabilities that could fuel their internationalization. Many BGs have been unable or unwilling to abandon their deep-rooted business practices, such as undertaking unrelated diversification or relying on highly centralized family-controlled organization structures, and focus their resources on the tasks of restructure and learning the wider range of capabilities needed to succeed in global competition.

115

9 Trade integration in Asia Heribert Dieter

Introduction After decades of preoccupation with traditional security issues, the key areas of concern to policy makers in Asia – broadly defined to include South Asia, Southeast Asia and East Asia – are trade, finance and investment. Whereas in the past, governments in Asia applied a traditional understanding of security, today ‘economic security’ is part of a broadened concept of security applied by most countries in the region (Pempel 2010a: 213). Of course, international trade and the efforts to deepen intraregional trade integration are part of this process. In the midst of the global financial crisis in 2008 and 2009, international trade seemed to be collapsing. Economies that showed very high levels of integration into the global economy suffered especially badly, e.g. Singapore. In 2010, however, trade quickly began to recover,just 2 years after the crisis broke. Asian economies have, of course, not been hit as hard by the global financial crisis as the European and American economies; trade has led their recovery. Thus, the topic of trade integration is enjoying renewed attention in the region and beyond. In Asia, trade integration has been shaping the economic and political debate for decades. There has always been a distinction between market-led and policy-led trade integration. The former refers to the tendency of firms to obtain raw materials, intermediate products and end products across borders from the cheapest source. The second form is government-induced trade integration, in particular the creation of preferential trade agreements such as free trade areas and customs unions. Lines demarcating between the two types of integration are, however, hazy. Market-led integration is not occurring in an economic space free of government regulation, but relies primarily on the multilateral regulatory framework that has been created by governments. The multilateral regulation of trade has of course been suffering in the last decade, both because of the unwillingness of World Trade Organization (WTO) member countries to conclude the Doha Round of trade negotiations and due to the increasing competition from preferential trade agreements. Policymakers often perceive preferential trade agreements as a substitute for multilateral regulation. This can be observed in Asia and elsewhere. The creation of preferential bilateral or regional trade agreements in Asia and elsewhere occurs at a time of market-driven internationalization of production. Dicken has suggested that in the last 116

Trade integration in Asia

decades, the global economy has been affected by two distinct, but related, developments: the increasing transnationalization of production networks and the rapid emergence of regional trade agreements (Dicken 2005: 1). Both developments are important for developed and developing countries alike. Transnationalization of production networks results in the relocation of production to other countries, and these changes affect the economic prospects in many parts of the world. In this chapter, the evolution of trade integration in Asia in the past decade will be analysed. First, I will look at the actual development of trade in the region. Needless to say that much of the increase of trade is due to the phenomenal rise of China as a player in international economic relations. Second, I will examine the mushrooming of preferential trade agreements in Asia. Whilst their coverage and appeal varies, all of them contain the creation of a free trade area between the participating economies as a core element. Third, I discuss whether this is a wise approach and analyse the limited utility of preferential trade agreements in an era of growing economic integration, including the increasing use of intraregional productions networks. Finally, against this background, the prospects and efficacy of an Asian customs union are considered.

Market-led trade integration In the two decades since 1990, the deepening of trade integration has been primarily marketdriven, not state-led. As will be demonstrated in this chapter, government initiatives in Asia, primarily the creation of preferential trade agreements, has not been contributing significantly to the deepening of trade relations. Instead, transnational corporations were operating across national borders and have set up production networks in Asia, even though there has been little government support for the deepening of intraregional trade. The result has been a region-wide ‘factory Asia’, driven by markets rather than by governments (Pempel 2010a: 215). Of course, one of the main factors for the rise of trade integration, both market-led and policydriven, has been the rise of China, occurring at a time when the USA under George W. Bush implemented a policy of hostile unilateralism. China has utilized this opportunity to fill the void. As America put security issues at the centre of its foreign policy, China demilitarized its rhetoric and policies. In contrast to previous decades, in the twenty-first century China promises a common future in harmony and prosperity. China’s policy shift has resulted in a remarkable revision of perceptions in East Asia, as David Shambaugh has noted: ‘Today China is an exporter of goodwill and consumer durables instead of revolution and weapons’ (Shambaugh 2004: 65). In the early twenty-first century, the rise of China has been the most important development for all Southeast and East Asian countries and their economic cooperation endeavours (Ravenhill 2008: 48). In recent years, China’s clever diplomacy made a significant contribution to the rise of the country’s status in the region. China, for example, was the first non-ASEAN country to sign ASEAN’s Treaty of Amity and Cooperation in Southeast Asia (TAC). It signed the TAC at the ASEAN summit in Bali in 2003, and by signing this non-aggression treaty Beijing has contributed to relieving fears of China’s military intentions, at least temporarily (Narine 2007: 214). China’s current popularity among policymakers in Asia is also reflected by the numerous preferential agreements it has either been able to conclude or is negotiating. In the last three decades, China has developed into an economic hub. Both in trade and in production, other countries in the region increasingly benefit from intensive relations with China. Today, about 50 per cent of China’s trade is intraregional. Even for Japan, the world’s secondlargest economy, China is more important than ever. In 2009, China replaced the US as Japan’s largest export market, and China is the largest importer to Japan (IMF Directions of Trade 2009). Moreover, China does not generate a large deficit or surplus in trade with its neighbours. 117

Heribert Dieter

Table 9.1 China’s major trading partners and trade balance (countries and regions) (2009)*

ASEAN South Korea Japan Australia New Zealand United States EU Total Trade

Exports to

Imports from

Balance of trade (EX-IM)

106,389 53,638 98,044 20,663 2,086 221,384 236,511 1203,420

106,322 102,501 130,928 39,241 2,475 77,772 127,908 1003,910

67 48,863 32,884 18,578 389 143,612 108,603 199,510

* Scale: Millions; Unit: US dollars Source: International Monetary Fund, Direction of Trade Statistics, 2009.

Of course, the rise of China to the world’s largest exporter has been widely debated. However, the country has also overtaken Japan as the world’s third-largest importer (after the US and Germany). This makes China a sought-after partner worldwide. Furthermore, the muchdiscussed trade surpluses of China are solely generated in trade with countries that are part of the Organization for Economic Cooperation and Development (OECD). In 2009, the surplus in trade with the US was US$143.6 billion (with exports of US$221.3 billion) and the surplus with the EU US$108.6 billion (with exports of US$236.5 billion). By contrast, in 2009 China generated a deficit in trade with most of its Asian neighbours, including Japan and South Korea. Trade with ASEAN was virtually balanced (see Table 9.1). In many political systems, exports are considered more important than imports. This is particularly the case for those countries that have followed a strategy of export-led growth. Virtually all Asian countries fall into that category. The political survival of many governments in Asia, including of course China, depends on the delivery of economic growth (Pempel 2010a: 213). Across Asia, both policymakers and civil society have developed a conviction that economic growth and prosperity are tools to enhance a nation’s power and prestige (Pempel 2010b: 473). Thus, China’s trade relations may reflect a foreign policy strategy that aims at establishing China as an indispensable nation in Asia. Of course, this assessment requires further analysis. To start with, one has to ask how the government in Beijing has been able to steer the direction of Chinese exports and imports. Considering the high level of government planning in the formulation of economic strategies in China, it appears quite likely that the described outcome is the result of government strategy, rather than the result of market forces. In any case, Chinese foreign economic policy has been successful in anchoring the country as a key player in Asian economic affairs. Since 1990, Asian economies have significantly increased their share of global trade. In 2006, the emerging Asian economies (including India, without Japan) generated as much as one third of world trade, up sharply from 21 per cent in 1990 (IMF 2007).1 While trade with the rest of the world has also increased, the growth of trade within emerging Asia has been particularly spectacular. Intraregional trade between emerging Asian economies increased more than nine times between 1990 and 2009 to about US$1,224 billion (IMF DOT 2009). Both growth and volumes are remarkable even when contrasted with the European Union (EU-15). In Europe, intraregional trade reached US$3 trillion in 2009, an almost threefold increase from 1990 (IMF DOT 2009). In 2009, the share of intra-East and Southeast Asian exports reached close to 41 per cent of overall trade (UN ESCAP 2009: 9), not much lagging behind the North American Free Trade Agreement (NAFTA) (52.5 per cent) or the EU-15 (59.2 per cent). The number is even higher for 118

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imports, indicating closer integration. Intraregional import figures for this block reached 49 per cent in 2009 (UN ESCAP 2009: 9), not significantly lower than the EU’s intraregional imports (64 per cent) (IMFDOT 2009). As already noted, the main factor driving this impressive increase of intraregional trade and intraregional division of labour has been the rise of China. From 1997 to 2007 China’s share of intraregional trade has doubled. In 2009, the share of China in intra-East and Southeast Asian imports alone was close to 33 per cent (UN ESCAP 2009: 8) In general, it can be observed that China has become more important as a destination of exports at the expense of established OECD economies. Between 1990 and 2006, China as an export destination for the four most advanced newly industrialized countries of Asia (South Korea, Taiwan, Hong Kong and Singapore) grew from 7.9 to 25.4 per cent, whilst exports to the rest of the world, including OECD countries, shrank from 57.0 to 38.3 per cent. Even for ASEAN countries, which directly compete with China, trade with China grew dramatically. In 1990, only 2.2 per cent of exports from Indonesia, Malaysia, Thailand, the Philippines and Vietnam went to China, while in 2006 this figure had risen to 11.1 per cent (IMF 2007: 44). In effect, the growing economic ties have led to a rise of China-centred regionalism, if not de jure but de facto. This can not only be recognized in an increase of cross-border trade and investment but also in the intensification of formal integration projects, probably the most important one being the ASEAN-China Free Trade Area (ACFTA) agreement, in effect since 2010.2 However, China is of course not the only player pushing its preferential trade agreements in the region. This trend raises the question as to why Asian economies have departed from the multilateral regulation of trade and are increasingly opting for the discriminating preferential alternative.

Why has the support for multilateral regulation of trade disappeared? The traditional debate on this issue has been characterized by the ‘stepping-stone’ or ‘stumbling bloc’ arguments. Bilateral or plurilateral agreements were regarded as either contributing to improvements of the multilateral regime or undermining it. However, until today, the multilateral regime has received very little, if any, stimulus from bilateral agreements. Indeed, the lasting stalemate in the Doha Round can at least partly be attributed to the existence of alternative, bilateral regimes. Today, there are almost 400 free trade agreements (FTAs) and a few customs unions already notified to the WTO. More are currently being negotiated and all regions of the global economy are participating. This could not be said a few years ago, as the entire Asia-Pacific region, for example, largely avoided these agreements. Countries such as Japan and South Korea, and even Australia, were staunch supporters of the multilateral regime. Only ASEAN countries were advancing preferential trade within their ASEAN Free Trade Area (AFTA), which started in 1992. However, this pattern has changed dramatically. In recent years, no major economy has been willing to abstain from the current trend for preferential trade agreements. Both the US and the European Union have actively contributed to the weakening of the WTO’s position in economic governance. While both continue to rhetorically support the WTO, in practice neither is providing the leadership in trade governance that characterized earlier periods, in particular the 1970s, 1980s and 1990s. Immediately after 1945, the newly established American hegemony created the global economic order. In the aftermath of the Second World War, the US used its then unchallenged material and ideological power to set in place an international institutional framework for global economic governance. Although underwritten by US hegemony, the Bretton Woods system and the General Agreement on Tariffs and 119

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Trade (GATT) were multilateral in both tone and practice. Though many countries were excluded (or excluded themselves) from the Bretton Woods regime, such as most countries of the Warsaw Pact, the regime was open and inclusive by definition. The GATT in particular was a tremendous success. Starting with 23 countries in 1948, the list of contracting parties grew longer rapidly, reaching 128 in 1994. The GATT quickly became a central pillar of global economic governance. As such, the US saw the GATT as beneficial to its national interest and its view of world order. However, in the first decades after 1945, the US defined its interests broadly and in a sufficiently inclusive manner. Other countries felt able to sign on to a vision that stressed the importance of due process and the rule of law. Europe, an important player in trade policy after the completion of the customs union of the European Economic Community (EEC) in 1968, by and large was a constructive force in supporting the further development of the multilateral trade regime. Asian players, in particular Japan and subsequently the rapidly emerging economies of Southeast and East Asia, were loyal supporters of the GATT and later the WTO. This is best exemplified by the fact that there were hardly any preferential trade agreements in Asia prior to the year 2000. Nowadays, at the end of the first decade of the twenty-first century, the situation has changed significantly. Since the days of the administration of George Bush sen., the US has defined its national interest much more narrowly. Whilst the rhetoric of the Clinton administration may have been more benign and gentle, it nevertheless pushed primarily its own agenda in international affairs (Dieter and Higgott 2007: 151–174). This pattern continues in the first years of the Obama administration, although with a change in rhetoric as not all policy is overshadowed by security concerns. Whilst President Obama has so far refrained from implementing trade restrictions, the continuing weakness of the American economy, particularly high unemployment, may well result in a protectionist policy shift before the presidential elections in 2012. Moreover, resentment towards multilateral, rule-based regimes is still a prevalent sentiment within most US policy circles. Even more importantly, in recent years Asian economies have firmly embraced preferential trade agreements (Pempel 2006: 239–254), although these policies have been causing some friction in the transnational production networks in the region. Nevertheless, the changing policy choices of Asian governments have resulted in a further weakening of support for the multilateral trade regime. Of course, the multilateral trading system has always depended on the support of major players. The US had been the single most important supporter of the GATT in the first two decades after its implementation, nurturing a rules-based world trading system (Irwin 2002: 225). When the EEC completed the creation of a customs union in 1968, Europe became the second major player in the multilateral trading regime. Some of today’s important trading nations, China in particular, were not yet members at that time, while the countries under the influence of the USSR primarily traded with each other. As such, the US and the EU continued to shape and further the multilateral trading regime in the three decades after 1968. While the evolution of the trading regime was neither linear nor without contradictions, it is clear that the GATT can be considered a success, both with regard to the liberalization of trade and its continuously expanding membership. Furthermore, during the bipolar era, all GATT negotiation rounds eventually managed to be completed, though often after long negotiations. The most important development, however, has been the creation of the World Trade Organization (WTO) in 1995, which has been providing member countries with a substantially improved dispute settlement mechanism. Prior to the creation of the WTO, dispute settlement could be blocked by the party accused of an illegitimate policy. This has changed with the WTO; it is one of the few multilateral organizations through which any country can take the 120

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EU or the US to court and have a legitimate chance of rectifying the situation, though it may take some time. The implementation of the dispute settlement mechanism was not only a milestone for the creation of a rules-based system of international trade, but it can also be interpreted as one of the few building blocks of global governance.

The mushrooming of trade agreements in Asia While the EU and the US pioneered the use of FTAs3 as instruments of foreign (economic) policy, the use of FTAs has spread to other regions. Asian nations, which had avoided such agreements for a long time, have rapidly implemented numerous FTAs. Of course, this in part reflects the unresolved rivalry between China and Japan for leadership in Asia. China has become one of the most active players pushing bilateral agreements. According to the Asian Development Bank’s (ADB) Asia Regional Integration Center, as of July 2010, China is participating in a total of 25 FTA s (both bilateral and plurilateral, see Table 9.2). Fifteen of the agreements are across and within the Asia-Pacific region. Of this number, eight FTAs are proposed and three are under negotiation.4 In 2010, China and the ASEAN countries created the world’s largest free trade zone by number of inhabitants, the ASEAN-China Free Trade Area (ACFTA). Until the turn of the century, Asian economies by and large showed very little interest in trade regimes outside the WTO (Dieter 2006). This has changed dramatically. Ten years on, a myriad of initiatives can be observed (Aggarwal and Koo 2008: 6). Although the effects of these preferential agreements, most of them bilateral, may be negative both for the welfare of the participating countries and for the stability of the multilateral trade regime, the frenetic activities of policymakers reveal their concerns about the current regime of global economic governance. Table 9.2 Preferential trade agreements by status across Asia-Pacific as of July 2010 Under Negotiation

Concluded

Country

Proposed

Framework Agreement Signed/Under Negotiation

Under Negotiation

Signed

In Effect

Total

Brunei Darussalam Cambodia China Hong Kong India Indonesia Japan Korea, Republic of Lao PDR Malaysia Myanmar New Zealand Philippines Singapore Taipei Thailand Vietnam

4 2 8 1 11 7 6 10 2 3 2 4 4 4 1 6 3

1 0 3 1 4 1 0 2 0 1 1 1 0 1 2 4 1

1 1 3 0 7 1 5 8 1 5 1 3 1 9 1 3 2

0 0 1 1 0 1 0 1 0 2 0 2 0 3 0 0 0

8 6 10 1 11 7 11 6 8 8 6 7 7 18 4 11 7

14 9 25 4 33 17 22 27 11 19 10 17 12 35 8 24 13

Source: Asian Development Bank, Asia Regional Integration Centre Data (2010a).

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1. Proposed – parties are considering an FTA, establishing joint study groups or joint task force, and conducting feasibility studies to determine the desirability of entering into an FTA. 2a. Framework Agreement Signed/Under Negotiation – parties initially negotiate the contents of a framework agreement (FA), which serves as a framework for future negotiations. 2b. Under Negotiation – parties begin negotiations without a framework agreement (FA). 3a. Signed – parties sign the agreement after negotiations have been completed. Some FTAs would require legislative or executive ratification. 3b. In Effect – when the provisions of an FTA becomes effective, e.g. when tariff cuts begin. In previous eras, i.e. before the Asian crisis of 1997–8, countries in Asia were not closely tied together in the economic domain. In both Southeast and East Asia, the dominant model of development was characterized by a unilateral opening to the world market, primarily for exports, and virtually no regional cooperation with regard to joint macroeconomic or monetary policies. One expression of the dominance of unilateral economic policies is the fact that the finance ministers of ASEAN countries had never met in their official capacity prior to 1997. The linkage between economic instability and regional stability emerged during the Asian crisis, and policymakers have been accepting this new reality surprisingly quickly. For instance, since 1998, in trade alone there has been an 80 per cent rise in the number of bilateral FTAs and a 90 per cent increase in the number of plurilateral (arrangements with more than two parties) FTAs in Asia (ADB Asia Regional Integration Center, data for 2010). The reasons for these changes in priorities are manifold. First, traditional security issues are no longer as important as they used to be. Whilst some tensions persist (Webber 2007), there has been a remarkable reduction in armed conflict in the whole of the Asia-Pacific. The numerous conflicts that shaped foreign policy in the past – from the Korean and Vietnam wars to the conflicts in Southeast Asia in the 1970s and 1980s – have either been solved or are dealt with in a non-military manner. Second, the countries in the Asia-Pacific, in particular in Southeast and Northeast Asia, have learned that economic instability is a greater concern to them than traditional security risks. The Asian crisis of 1997–8 has demonstrated that the lives of millions of people can be severely affected by economic turbulence. Moreover, the stability of some political systems in the region depends on the provision of economic growth, and a period of no or limited growth may put the legitimacy of governments into question. Third, the economies in Asia are growing ever closer together. The deepening of transnational production networks, the growing share of intraregional trade and substantial investment flows provide the basis on which a process of regional political cooperation, resulting in regional governance of economic affairs, is gradually being built. Fourth, the political rivalry between China and Japan has been a major factor to providing a stimulus to Asian regionalism in general and preferential trade agreements in particular. The ties between Asian economies, both in trade and in investment, have significantly deepened over the last two decades, and this change in economic interdependence has fuelled a range of political activities to secure this cooperation. Initially, market processes have driven the deepening of ties, but in recent years, these de facto integration processes have been augmented by political initiatives, i.e. integration by agreements. Integration by markets forces and integration by agreements are certainly not excluding each other, but are related and complementary (Aminian et al. 2008: 3). In the early twenty-first century there is an increasing rivalry between a handful of major players who are competing for both political and economic influence. The new battlefields are preferential trade agreements. Leading powers such as the US, the EU and China are no longer 122

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emphasizing multilateralism, but are instead pushing for preferential agreements. This reflects both the inability to cooperatively advance the multilateral regime and the damaged position of the previous hegemon, the US. Since the start of the global war on terror, the US has lost popularity in many countries where it traditionally found support. Thus, the unilateral moment of US hegemony may have lasted shorter than some had predicted in the late 1990s (Zuckerman 1999). The financial crisis originating from the US has only contributed further to at least a temporary weakening of US popularity (Altmann 2009: 6). In the first decade of the twenty-first century, China successfully pushed preferential agreements in its immediate neighbourhood. Starting with the proposal for the ACFTA in 2001, Beijing has been setting the pace in the region and has forced Japan in particular to offer comparable agreements. Despite the fact that in July 2010 Japan had been able to have more preferential trade agreements (PTAs) in effect even than China, there is little doubt that Japan’s strategy is a defensive one. At the beginning of the second decade of the twenty-first century, these trends in trade policy have led to a messy situation. A web of overlapping PTAs has resulted in the creation of a ‘noodle bowl’ of regulations in Asia. Rather than enabling companies to trade more freely with each other, the wave of regional agreements has resulted in a less transparent, even opaque trading system. Companies are confronted with the choice to either trade on a most-favoured nation basis, which means to pay the appropriate tariff, or establish the origin of a product. Since most of the PTAs in Asia have only been in force for a few years, it is probably a bit early to establish a region-wide pattern of company’s willingness to engage in the process of establishing origin. Evidence from ASEAN’s internal PTA shows that most trade is not conducted using the tariff-free option requiring a certificate of origin, but instead more than 90 per cent of ASEAN-internal trade is conducted on the basis of most-favoured nation (Corning 2009: 647). There is no reason to believe that utilization rates in other PTAs in Asia will be any higher, because ASEAN uses relatively simple and thus manageable rules of origin, whilst the rules in other PTAs tend to be more complex and use, for example, higher value-added requirements than the 40 per cent threshold used in ASEAN. In particular, PTAs involving larger developed economies tend to have more complex rules (Corning 2009: 660).5 The proliferation of bilateral PTAs therefore represents the greatest divide between entrenched economic theory and short-term political practice in the global economy since the introduction of protectionist measures in the 1930s. Both economists and political scientists agree that bilateral trade deals are suboptimal and pose major threats to the multilateral trading system. When looking closely at some of the details, the disadvantages of bilateral deals become even more evident. One major drawback is that the important and useful dispute settlement mechanism of the WTO might be diluted because of the mushrooming of preferential agreements.6

The limited utility of preferential trade agreements A major disadvantage of FTAs is the administrative burden caused by rules of origin. In an entirely open world economy with no restrictions on the flow of goods, these rules of origin would not matter because it would be irrelevant where goods originate. Today, however, the origin of a product matters, in particular in preferential agreements. All FTAs, including bilaterals, require rules of origin to establish the ‘nationality’ of a product. The reason is that in FTAs, participating countries continue to have diverging external tariffs. One country might have a high tariff on, say, cars in order to protect domestic producers, whilst the other might have a low or no tariff on that product. Since only goods produced within the free trade area qualify for duty free trade, there have to be procedures that differentiate between goods produced within the FTA and goods from 123

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the rest of the world. Thus, the preferential system becomes complicated and expensive. On average, the cost of issuing and administering certificates of origin is estimated to be 5 per cent of the value of a product (Roberts and Wehrheim 2001: 317; Dieter 2004: 281). Since the 1970s, the use of rules of origin has changed significantly. After decolonization, many developing countries used rules of origin as instruments to enhance their economic development. Rules of origin were used to increase the local content of manufactured products and to protect the infant industries in those economies against competition from imports. This function of rules of origin is of relatively minor importance today. Rather, developed countries use strict rules of origin to protect their ageing domestic industries (Dieter 2009). First, it is important to understand that there are two categories of certificates of origin: nonpreferential and preferential. The former are used to differentiate between foreign and domestic products: for instance for statistical purposes, for anti-dumping or countervailing duties or for the application of labelling or marketing requirements. The second type is the one that can distort trade because it provides preferential access to a market. There are four methods to establish the ‘nationality’ of a product, to establish origin. There is natural origin and origin due to substantial transformation, this category being subdivided into three other forms: a change in the tariff heading, a minimum percentage of value added and specific production processes (Estevadeordal and Suominen 2003). Natural origin (wholly produced or obtained) is the least complicated approach. This applies to raw materials and non-processed agricultural products, i.e. to a relatively small part of international trade. A change of tariff heading is already much more complicated. The Harmonized System (HS) is a set of regulations that has been agreed upon in the World Customs Organization (WCO). It consists of 1,241 categories on the four-digit level and more than 5,000 categories on the six-digit level. If a product receives a different tariff heading after the production process, this can be used to qualify for origin. This method has considerable advantages. It is both transparent and easily established. Using HS is simple, easy to implement and causing relatively little cost; the necessary documentation is undemanding. The trouble is that a change of tariff heading does not necessarily constitute a significant step in the production process, as minor changes to a product can lead to a change of tariff heading. Therefore, merely requiring a change of tariff heading to establish origin is the exception in PTAs in Asia and elsewhere. The minimum value-added rule is probably the most complicated method to establish origin. Incidentally, it is also the most widely used scheme in Asia. A certain percentage of the value of the product has to be produced within the FTA to qualify for duty free trade. Finally, specific production processes can be identified and agreed upon in order to establish origin. The trouble is that this method both requires complex negotiations on agreed production processes and continuous updating. Due to the changing patterns of production, new forms of production emerge that would constitute substantial transformation, but unless they are listed in the catalogue of agreed production processes, they would not qualify for duty free trade. There is a caveat when criticizing the negative consequences of rules of origin. By paying the appropriate tariff, they can be easily overcome. Since peak tariffs continue to cause difficulties in some sectors, the protectionist effect of rules of origin should nevertheless not be underestimated. The combination of tariffs and stringent rules of origin can be an efficient instrument for the protection of a market. One example for that approach is the textile market in NAFTA, where rules of origin require the yarn to be spun in NAFTA (the yarn-forward rule) or even the fibre to be produced in NAFTA (the fibre-forward rule), which is used for many textiles containing cotton. The consequence is that Canadian or Mexican textile producers cannot source their cotton from, for example, African cotton producers, but instead have to buy cotton from US 124

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producers. Rules of origin are opaque protectionist instruments. They often render PTAs a useless endeavour, at least from an economic point of view. Not surprisingly, the economic utility of PTAs in Asia continues to be limited. Corning suggests that the ASEAN-Japan Comprehensive Economic Partnership (AJCEP) agreement, praised by its supporters as more wide-ranging than WTO agreements, has produced convincing results (Corning 2009: 640). Other observers have sharply criticized preferential trade integration. Ross Garnaut and David Vines have argued that the trend towards discriminatory bilateral agreements is ‘… an ill-thought-out early-twenty-first century response, and it is deeply disturbing’ (Garnaut and Vines 2007). Richard Baldwin has also characterized the situation of East Asian regionalism harshly: ‘[w]hen it comes to East Asian regionalism, the state of play is easily summarised – it is a mess. Dozens if not hundreds of trade deals are under discussions, under negotiation, or already signed’ (Baldwin 2006: 3). Baldwin has been coining the term ‘noodle bowl’ for Asian trade relations.7 The consequence of the noodle bowl is an increasing fragility of production in East and Southeast Asia. The variation of rules between the various bilateral agreements is causing significant problems for the private sector. Richard Baldwin has identified three factors that contribute to this fragility. First, each nation’s industrial development and the competitive position of companies in these countries depend on the smooth functioning of intra-industry trade flows. Second, the tariff-cutting that created ‘Factory Asia’ was done unilaterally by most Asian countries; these cuts were not ‘bound’ in the WTO, and consequently they are not subject to WTO discipline. This so-called bindingsoverhang means that tariffs in Asia could go up overnight without violating WTO rules. Third, and most important, there is no political regulation in the region that could substitute WTO discipline. By contrast, European regulation has both top-level management, i.e. the European Commission, and WTO discipline, because European countries have bound their tariffs at very low levels (Baldwin 2006: 1f). Thus, the private sector in Europe has a better, more transparent political and trade environment than the private sector in Asia, at least when considering the conditions for transnational production.

Which way forward? Should Asian economies consider a customsunion? Ever since East Asian countries have been evaluating options for further integration, there has been debate on which form the economic integration should take. In 1994, the APEC member countries agreed to create an open trading regime in the Asia-Pacific by 2010 for the more advanced economies and by 2020 for less developed economies. It was, however, unclear what precisely was meant by the ‘open regionalism’ advocated. Would the participating economies liberalize unilaterally and offer the reductions of their levels of protection on a most-favoured nation basis to all member countries of the WTO, including, say, the European Union? Or would ‘open regionalism’ permit other economies to join a scheme that would only provide the benefits to its member countries? Since the 1994 Bogor declaration, the discussion has moved on and there is now much less ambiguity about the avenues open to policymakers. In essence, the creation of a discriminating preferential trade agreement is one option that is evaluated by policymakers. For example, the East Asia Study Group (EASG), formed as an advisory body in the year 2000, suggested the creation of an East Asian Free Trade Area in its report presented to the ASEAN Plus Three summit in November 2002 in Cambodia (EASG 2002). Of course, the wave of PTAs that already have been created in the region, and the abovenamed proposal, raise the question as to whether there aren’t any more convincing alternatives, 125

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both from an economic and from a political perspective. The current system of PTAs, with their divergent rules of origin and little economic utility, are the third-best option. Bilateral PTAs do not contribute to the creation of a unified economic space, but instead create an administratively complex trade regime. Moreover, from a political perspective they are even counterproductive since PTAs contribute to the deepening of the rivalry between the two most important players in Asia rather than offering a possible cooperative solution.8 From both an economic and a political standpoint an Asia-wide FTA would constitute an improvement. From an economic point of view, a region-wide PTA would at least reduce the complexity of the administration of trade. There would be one set of rules of origin instead of dozens, and companies would potentially benefit from the creation of the world’s largest PTA. At the same time, even a region-wide PTA would offer suboptimal results. Whilst the need for certificates of origin would be reduced, it would still be necessary to establish the origin of any product traded duty-free in the region. Participating economies would continue to implement their own, country-specific trade policy and would be free to engage in other PTAs with third economies, e.g. the US or the EU. Given the complex nature of today’s international production networks, the origin of inputs sourced from outside the PTA would still have to be subject to complicated administrative processes. Politically, an Asia-wide PTA would eliminate the current competition between China and Japan with regard to trade policy. Since there would be only one PTA, neither country could engage in a beauty contest with the aim of demonstrating the attractiveness of its own scheme. However, an Asian PTA would still be suboptimal when compared with a customs union in the region, which would both reduce transactions costs due to the lower requirements for rules of origin and streamline the region’s foreign economic relations. A customs union constitutes a higher level of integration than an FTA and creates an economic space with a unified trade policy vis-à-vis the rest of the world. Thus, it is more difficult to agree on than an FTA, but also offers greater benefits. By definition, a customs union contributes to the elimination of trade barriers, tariffs and quantitative restrictions on trade amongst partners and imposes a harmonized external tariff on trade with third countries. This is the key difference with a free trade area; however technically different, in notion and purpose a customs union is akin to a free trade area as they are both said to increase specialization and trade with welfare benefits for the parties involved. An important benefit of a customs union is that it contributes directly to trade creation, i.e. more expensive domestic products are replaced by cheaper imports from member countries. In this context, it should be remembered that the EEC never aimed at the creation of a free trade area, but from 1957 aimed at the establishment of a customs union, which was achieved in 1968. Ever since, there is only one trade policy, and Europe’s weight in international trade has risen greatly since 1968. The economic utility is probably greater still: once a product from a third country has entered the economic space and the duty is paid, the product can be used in production without requiring additional documentation processes. The creation of a customs union in Asia, however defined, would certainly not be an easy task. The key stumbling bloc is the creation of a joint external tariff, which would have to consider the diverging political preferences of all member countries. In essence, most participating economies would have to liberalize trade in sectors they previously considered too problematic for liberalization (Japanese agriculture is a case in point). Even if the more advanced economies could politically accept the opening of their hitherto protected agricultural sectors, the effects of a common external tariff on the less developed member countries of an Asian customs union are to be considered. For these less developed economies, the creation of a customs union would result in a dramatic increase in competition, and most probably many industries would not survive such a shock. 126

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Nevertheless, given the disadvantages of the current mess in Asian trade – characterized by overlapping and inefficient preferential trade agreements on the one side and lukewarm support for the multilateral system on the other – exploring the potential of an Asian customs union is a worthwhile endeavour. One potential avenue for solving the obstacles outlined above would be the structured introduction of a customs union, with developed economies, including China, taking the lead and the poorer economies following five or ten years later. In the 2000s, dynamic processes have emerged that may lead to the creation of an integrated economic space in Asia. Of course, it is highly speculative to engage in a debate on the potential shape of such a regime, its membership and its relationship with non-participating economies. Nevertheless, given the high level of economic interdependence that can be observed already, the interest in a formalized, de jure integration project in Asia seems to be quite high. A potential venue for this pan-Asian project could be the ACFTA, which came into effect in 2010. This large group, comprising more than 1.7 billion people, can over time alter the nature of economic relations in Asia and may possibly also change political and security relations in the entire region (Narine 2007: 205). Whilst there are numerous bilateral preferential trade agreements either in force or currently negotiated in Asia, ACFTA has the economic potential to serve as the nucleus of an Asian integration project. China has not only made sure that the FTA offers sufficient rewards to the less-developed members of ASEAN (Vietnam, Cambodia, Laos, Burma), but has also succeeded in attracting support of the more advanced economies, e.g. by providing so-called early harvest programmes for agricultural exports from Thailand. Given the importance of China in Asian trade, the expansion of the existing PTA into a region-wide customs union would, from an economic perspective, be a sensible step forward. However, from a political perspective it appears naive to expect both Japan and South Korea as well as ASEAN to agree to such a proposal. Suspicions regarding Beijing’s long-term goals continue to exist in the region, and given the recent assertiveness of Chinese policymakers in international affairs this suspicion may even have grown. Rather than continuing to successfully portray its rise as an opportunity to Asian and other countries, China appears to be perceived more critically than, say, before 2010. Whilst it is difficult to name a single incident that may have contributed to the change in perception, the cumulative effect of the continuing production of current account surpluses, the buying of agricultural land and other natural resources in Africa and elsewhere, the unwillingness to consider a more robust appreciation of the exchange rate of the yuan vis-à-vis the US dollar and the sabotaging of the Copenhagen climate summit have all contributed to a deteriorating image of China abroad. Considering the increasing bullishness of Chinese foreign economic policy, the creation of an Asia-wide customs union appears to be a rather distant prospect.

Conclusion Following the departure from a security-driven agenda in international relations after the Asian crisis, countries in the region continue to search for an improvement of both their trade and other economic policies. Pempel has suggested that this process constitutes what he terms ‘institutional Darwinism’, a process of institutional competition and selection (Pempel 2010a: 233). Some forms of cooperation will flourish, others will probably languish and become irrelevant. Preferential trade agreements most probably belong to the latter category. The arguments and evidence in this chapter show that, taken together, PTAs have very few advantages for Asia. They are inferior to regulating trade in the WTO, and they are not as useful as large regional agreements can be. Bilateral FTAs are a third-best solution for regulating international trade. They violate established conditions for economic efficiency and they are imbalanced, 127

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because they disadvantage the poorer players and systemically strengthen the more developed players. The trend towards bilateralism is often justified with the notion that simply relying on the WTO is like doing nothing. This is not the case. Multilateralism continues to function and to represent a superior form of regulation compared to PTAs. In trade policy, pushing preferential agreements is a second-best solution, if that. Furthermore, bilateral trade agreements contain an element of discrimination that is causing concern. In the 1930s, discriminatory preferential regimes were dominating the organization of international trade. Today, economies are returning to a regime where goods originating from befriended countries have easier access than others to a national market. There is discrimination between friends and foes. The postwar trading regime had the explicit goal of non-discrimination, and today’s policymakers are sacrificing this philosophy for quick, but uneven and unsustainable, economic gains. The irony is that Asian economies, which have been major beneficiaries of today’s open trade regime, have firmly embraced the trend towards PTAs. This may be due to the perception that the WTO has, in essence, been a transatlantic organization. Whilst it is true that the GATT and subsequently the WTO have been shaped by the transatlantic powers, PTAs are not a sound alternative to the WTO. They cause high administrative costs, do not support the creation of intraregional production networks and ultimately do not lead to a sustainable trade regime. For Asian and other economies, including the EU, the current trend towards PTAs is a policy error of massive dimensions. Beyond the everlasting rhetoric, major players, in particular China, the EU, Japan and the US, should abandon PTAs and return to the WTO as the main platform for regulating international trade. For Asia in particular, the current spaghetti bowl of trade agreements is neither efficient economics nor providing the participating economies with enhanced political influence. The only PTA in the region that I consider to be sensible from an economic perspective is an Asia-wide customs union, which would reduce transactions costs significantly and stimulate intraregional trade beyond the existing levels. At the same time, the increasing distrust of other countries in Asia, vis-à-vis China and its long-term goals, will probably impede the creation of such an economically sound, but politically naive measure.

Notes 1 Emerging Asia, following IMF definitions, includes China, India, Hong Kong, South Korea, Singapore, Taiwan, Indonesia, Malaysia, the Philippines, Thailand and Vietnam (IMF 2007: vi). 2 One of the key foreign policy questions in the coming two decades will be the modernization of the current regime of global economic governance. John Ikenberry has pointed out that while the rise of China is a challenge, so far the Chinese have operated within the existing order and refrained from staging a full-fledged confrontation (Ikenberry 2008: 37). However, the effects of the rise of China for global economic governance are not a key question of this chapter. 3 The free trade agreements and Preferential trade agreements are used interchangeably throughout this chapter. 4 Asia Regional Integration Center (2010), Asian Development Bank (ADB), http://www.aric.adb.org/10. php/http://www.aric.adb.org/FTAbyCountryAll.php ( accessed 9 August 2010). 5 It should be noted that in PTAs there is a bias against smaller companies. Whilst transnational corporations tend to have large, competent administrations that are able to handle the complexities of rules of origin, smaller companies are often less well placed to master the administrative requirements. 6 Whilst parties to PTAs can continue to use the WTO’s dispute resolution mechanism, many prefer not to use this option but to implement dispute settlement mechanisms within the PTA. 7 Alternatively, the term ‘spaghetti bowl’ is used. Both mean the same thing – a system of unconnected preferential trade agreements. 8 Of course, there are other arenas in Asia where China and Japan do cooperate meaningfully, e.g. monetary regionalism in the context of the Chiang Mai initiative. Cf. Saori Katada on financial cooperation (Chapter 10 in this handbook). 128

10 Regional financial cooperation Saori N. Katada

Introduction In a region often characterized as full of nationalistic rivalries and averse to institutional commitment, integration optimists argue that East Asia’s regional financial cooperation provides a shining beacon of hope. In the context of ASEAN Plus Three since 1997, the countries have not only established a formal arrangement in the region to provide emergency liquidity to countries in financial distress, but they have also proceeded to nurture the region’s bond market and even discussed regional currency arrangements. Furthermore, these financial cooperation efforts have developed largely excluding the United States, and have had slow but sure impact on the global financial governance. Pessimists would disagree and point to the continuing reliance on IMF emergency funding, the region’s heavy reliance on the US dollar, and the difficulty for the region to agree on an appropriate financial surveillance mechanism. Hence, this implicitly splits the literature on East Asia’s financial cooperation into two normative camps. Moreover, scholars are analyzing a moving target as regional and global financial governance becomes defined and redefined during the last two decades, affected by the two major financial crises. In short, the task of understanding the nature of regional financial cooperation is quite complex. Nonetheless, this chapter examines East Asian financial cooperation in the following steps. The first section summarizes the nascent efforts in the region against the backdrop of expanding regional economic networks in the late 1980s and the 1990s. The second section examines the way in which the Asian Financial Crisis (AFC) gave a visible rise to regional financial cooperation, and goes on to describe four important pillars of such cooperation: an emergency liquidity mechanism, regional bond initiatives, currency arrangement and a regional surveillance mechanism. The third and fourth sections each discuss important forces that have motivated regional efforts in this area. One is the challenge of managing financial cooperation in the context of regional power politics and global financial governance structures, and the other is the emerging identity of East Asia as a regional unit. Finally, the last section examines how to couch regional financial cooperation in larger pictures of regional economic integration, as well as the recent rethinking of the global financial architecture in the aftermath of the Global Financial Crisis (2008–9).

Pre-crisis financial cooperation in East Asia In East Asia, where any region-wide cooperation efforts were previously limited (Wang 2004), the AFC of 1997–8 marked a watershed. Prior to the AFC, very few and only nascent financial 129

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cooperation efforts existed, many of which were initiated by Japan (Hayashi 2006, Chapter 2). A visible exception is the Asian Development Bank (ADB), a regional development financial institution, which has supported economic development of a broader Asia since 1966 (Yasutomo 1983; Wan 1995–6). On the monetary side, the power of the Japanese yen, thanks to its appreciation against the US dollar after the 1985 Plaza Accord, along with a rapid increase in Japanese direct investment in Southeast Asia, triggered concerns over the possible formation of a regional yen bloc (Dornbusch 1989). Such concerns heightened, despite fairly weak statistical evidence (Frankel 1993) and clear lack of willingness on the part of the Japanese financial authorities to promote internationalization of the yen. By the early 1990s, the regional networks among businesses expanded throughout Southeast Asia (Hatch and Yamamura 1996; Katzenstein and Shiraishi 1997; Peng 2002) enhancing informal regional economic integration or regionalization (Katzenstein 2000). This was also a time when financial globalization reached the Asian shore with abundant foreign capital inflows, putting pressure on the governments to liberalize capital accounts (Cohen 1996; Kohsaka 2004). Globalized financial pressures had already caused severe balance-of-payments crises among emerging market economies, such as those in Latin America in the 1980s, causing the lost decade in the hemisphere. Crucial to the stability of the increasingly integrated region was to control massive inflow of foreign capital, but it was made difficult by premature financial liberalization promoted by globalization pressures (Helleiner 2000; Hamilton-Hart 2003a). Despite occasional discussion that the regional framework would be useful to secure financial stability, formal financial cooperation was slow to develop. With the aim of strengthening economic surveillance, the central bankers in the region established Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) in 1991 (Hamanaka 2009)1 but the institution has limited influence on regional cooperation due to the secrecy of the meetings and lack of institutional commitment to coordinate supervisory influence (Yokoi-Arai 2006: 55). Other formal set-ups such as ASEAN or APEC Finance Ministers’ Meetings (both since 1994) were formed in the context of broader regional diplomatic efforts.

Asian financial crisis and the rise of financial regionalism in East Asia The AFC, which broke out in July 1997 as Thailand floated its baht after experiencing massive currency attacks, devastated the region’s economies with the collapse of foreign exchange rates, massive exit of foreign capital, credit crunch and severe recession. Although with hindsight it is clear that the recovery was quite swift and robust, the shock of the crisis was profound for the region. In many ways, this shock gave rise to immediate and unequivocal commitment to regional financial and monetary cooperation. The AFC shocks manifested in several forms, but all underscore the sense in East Asia of vulnerability and injustice in the way global financial governance occurs. Obviously, the first shock was the rapid deterioration of the regional economies as they experienced financial reversal (Goldstein 1998), and regional financial contagion – be it through financial channels (Kaminsky and Reinhart 2000; van Rijckeghem and Weder 2001) or through the dynamics of trade and competitive devaluation (Glick and Rose 1999). The region’s analysts also emphasized the distinct nature of the AFC as the ‘capital account crisis’ in contrast to conventional current account crisis (Yoshitomi and Ohno 1999).2 For smaller economies such as Thailand, the premature financial liberalization that invited massive movement of cross-border capital was deemed as the source of the problem (Kaminsky and Reinhart 1999). Meanwhile, the concerns regarding the vulnerability of the region’s general dependence on foreign capital have led to the so-called ‘double mismatch’ 130

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discussion of debt denomination currency and the length of loan maturity. The mismatch of dollar dependence discussed below, as well as the overdependence of bank financing (Wade and Veneroso 1998) and underdevelopment of local bond market (McCauley 2003), led to rethinking of domestic and regional financial architecture. Additionally, the region’s leaders felt strongly about the need to insulate regional economies from global forces through financial cooperation and regional currency arrangement (Helleiner 2000; Grimes 2003). The second shock came through the strong ideological undertone of the debates regarding the causes of and appropriate prescriptions for the AFC, as the interests of mobile financial assets and Washington Consensus values are heavily represented in the IMF-led solution to the crisis (Jomo 2001; Beeson 2003). Granted that the IMF came under critical fire for its misguided prescriptions to those crisis-ridden Asian countries, but the countries that endured the IMF austerity measures, including Thailand, Indonesia and South Korea, found it convenient to blame the IMF for their economic hardship – a practice described as the ‘politics of resentment’ (Higgott 1998). Finally, East Asia was shocked to find how little regional recourse it had at the time of the financial crisis. ASEAN was not strong enough, APEC was too diverse to generate solutions to the crisis (Webber 2001), and the ADB responded only timidly and inconsistently to serve as the regional lender of last resort (Wsley 1999). The international financial institutions, prominently the IMF, therefore, played the central role. Consequently, with the concerns of the detrimental impacts of the IMF prescriptions on the fragile economies of the region, a new regional framework of ASEAN Plus Three quickly occupied the centre stage of regional financial cooperation in the immediate aftermath of the AFC (Stubbs 2002). The ASEAN Plus Three, which included the three economically powerful Northeast Asian countries (China, Japan and South Korea), is a reincarnation of the East Asian Economic Caucus (EAEC) proposed by then Malaysian Prime Minister Mahathir in response to the rise of APEC in the early 1990s. The EAEC idea did not fly due to the vehement opposition by the United States against its exclusion and reluctance on the part of several Asian members (Leong 2001), but in the aftermath of the AFC, the ASEAN Plus Three framework has persisted. Set broadly in the institutional context of ASEAN Plus Three, East Asia embarked on institutionalizing regional financial cooperation from the late 1990s with four related but distinguishable forms of cooperation: the Chiang Mai Initiative (CMI) of emergency liquidity mechanism against balance of payments crises, the regional bond initiatives, a regional currency arrangement, and a regional financial monitoring and surveillance function. Arguably, the CMI, established during the 2000 ASEAN Plus Three meeting in Thailand, is the most advanced and institutionalized of all (Henning 2002; Grimes 2009, Chapter 3; Rajan 2008). Until March 2010, this emergency liquidity mechanism was a compilation of bilateral currency swap arrangements between ASEAN members and the monetary authorities of the ‘ Plus Three’ nations, which with their large current account surpluses and foreign exchange reserves are in position to provide emergency funding in dollars.3 In addition, ASEAN members have had their own regional swap arrangements (ASA) of US$2 billion. The Asian policymakers, particularly those from Japan who originally proposed the Asian Monetary Fund (AMF), have long strived to pool the CMI swap lines to create a multilateral emergency funding institution in the region (Kuroda and Kawai 2004; Henning 2009). After the 2007 official agreement at the Kyoto meeting, the pooled Chiang Mai Initiative Multilateralization (CMIM) was finally established in 2010 with the total of US$120 billion in available funding.4 Despite the progress of the last ten years, however, there are critiques of and sceptics about this mechanism (Henning 2002, Chapter 4; Eichengreen 2004). Most notably, from the set-up, the CMI has a so-called IMF-link as condition for its swap activation where only 20 per cent (increased from 10 per cent in 2005) of CMI swap resources can be activated without the crisis country’s agreement with the IMF. This link does not only 131

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demonstrate the nested nature of the CMI within the global financial regime that uses the IMF to avoid moral hazard and to borrow credibility (Grimes 2006). Due to ruminants of IMF aversion, the IMF-link has made the CMI swap unusable in the eyes of the Asian borrowers. Such concern was heightened when, at the time of the 2008 global financial crisis, both the Korean and Singaporean governments resorted to currency swaps with the US Federal Reserve instead of turning to the CMI. The AFC also highlighted the weakness of the region’s financial market, which had heavily relied on bank lending (Goldstein 1998; Wade 1998a). The need for increased facility in direct financing in the Asian economies led to the pursuit of both domestic and regional bond market development (Rajan 2008; Grimes 2009, Chapter 5). The Asian Bond Fund (ABF) and Asian Bond Market Initiative (ABMI) were proposed in the early 2000s addressing respectively the funding and issuing sides of the bond market development (Amyx 2004). On the funding side, two relatively small funds (ABF-1 and ABF-2) were launched through the EMEAP members’ investment in order to help fund regional bond markets in 2003 and 2005 respectively (Jung 2010). On the issuing side, ABMI launched several working groups in the ASEAN Plus Three context to foster capacity and infrastructure (credit guarantee, credit rating and settlement system etc.) to facilitate development of the regional bond market. Although the direct impact of those efforts are debatable, it is clear that the local-currency bond markets in emerging East Asia (excluding Japan) has rapidly expanded from US$537 billion in 1996 to US$4.4 trillion by the end of 2009, according to the Asian Bonds Online (Asian Development Bank 2010b). The regional currency arrangement is the third and arguably the most important component of regional financial cooperation in East Asia that could have the most lasting long-term effects (Grimes 2009, Chapter 4). There is an abundance of discussion regarding the desirability of regional currency arrangement (Williamson 1999; Kwan 2001) and the surprisingly high levels of progress towards Optimum Currency Area conditions that East Asia has already achieved (Eichengreen and Bayoumi 1998; Watanabe and Ogura 2006). Nonetheless, there has been no actual progress in shaping regional currency arrangement. After the first step in the form of post-AFC Japanese initiative to increase the use of the yen in the region did not bear fruit (Grimes 2003), the push for common currency unit – Asian currency unit (ACU) – emerged from the ADB in 2005 and the issue was passed on to the ASEAN Plus Three forum to be discussed further. As discussed below, the dollar standard in East Asia is both economically and politically entrenched, and many are sceptical about the feasibility of regional currency (Eichengreen 2007, for example). Be it the activation of emergency liquidity funding or the establishment of regional currency unit, the monitoring and surveillance of the region’s financial stability and macroeconomic prudence is critical. The last component of regional financial cooperation addresses that challenge of regional financial and monetary surveillance. The establishment of Economic Review and Policy Dialogue (ERPD) within ASEAN Plus Three since 2000 has sought to provide such a regional mechanism, but the process thus far remains a semi-annual discussion over countryspecific macroeconomic data, and not any surveillance (Grimes 2009: 87–88). The new CMIM with its headquarters in Singapore is set to install a much more independent and rigorous surveillance mechanism than the ERPD through ASEAN Plus Three Macroeconomic Research Office (AMRO). The jury is still out, however, on the effectiveness of the new mechanism. The last ten years has seen institutional innovations in the region with the aim to enhance cooperation. Scholars point out, however, that such arrangements meet various domestic challenges. First, some ASEAN governments, in their financial regulatory capacity, fail to participate in regional financial cooperation effectively (Hamilton-Hart 2003b). Second, the variation in 132

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member countries’ financial systems feature of balance-of-payments positions has thus far led to eclectic preferences towards regional financial cooperation (Hiwatari 2003). Finally, even though many East Asian countries that underwent the crisis have gone through fundamental financial reforms, the compliance with the prudential regulatory standards in the emerging East Asia has been uneven (Walter 2008). The assessment of effectiveness and progress of these efforts thus far is divided. The regional financial cooperation has, nonetheless, become a staple in East Asian economic governance discussion.

Regional financial architecture in global context The rise of interest in East Asian financial cooperation has its roots in the way the region is embedded in the global economic and financial structure, and how its governance influences the region. Notwithstanding domestic difficulties, as discussed above, or the often cited rivalry between China and Japan, discussed below, the attraction of regional financial and monetary arrangements endures as a way to enhance power, secure the regional financial stability and increase the voice of East Asia in global governance. The first strand of work done to explain the slow but sure rise of regional financial cooperation examines major power politics. One of the most frequently cited challenges against smooth regional financial cooperation in East Asia in recent years is the rivalry and tension between two major powers in Asia: China and Japan (Dieter 2008). Some also note that the shortage of combined leadership between Japan and China constitutes a major weakness of East Asian regionalism (Kwack 2004). Not only has the historical legacy of Japan’s failed attempt to establish its empire in the 1940s cast a dark shadow over Japan’s efforts to take the leading role, but the rise of China and its increased interests in engaging the region as a benevolent leader (Shambaugh 2004) also makes regional cooperation in many issue areas complex. In terms of leadership competition in the region, the AFC once again was a watershed. Despite intense interest on the part of the Japanese financial authority to engage actively in containing the regional financial crisis in the autumn of 1997, the country’s domestic financial implosion prevented the Japanese government from moving aggressively (Amyx 2000). Meanwhile, the Chinese authorities, which at the time were shifting their strategic thinking and foreign policy stance to increase the prospect of China’s peaceful rise (Deng and Moore 2004), managed to gain high marks for resisting the pressure to devalue its currency and compete against the Southeast Asian strategies of ‘exporting their way out of crisis’ with their own massively devalued currencies (de Santis 2005). After the immediate crisis passed, the Chinese support of the CMI, unlike its opposition to the AMF, allowed regional financial cooperation to flourish (Chey 2009).5 The role of the United States is another important feature of power dynamics in East Asian regionalism, as Asian players try to either exclude or minimize the American influence in pursuit of a higher level of regional autonomy (Bowles 2002). The US initially mishandled the Thai crisis by not contributing any financial help. Furthermore, the apparent American support of a neo-liberal approach to financial liberalization in the region, that preceded the crisis, as well as to the stringent (and inappropriate) IMF conditionality in the aftermath of the crisis, heightened the aversion to the US involvement in regional financial matters. As the US, China and Japan have distinct interests in the regional financial configuration and priorities in regional financial cooperation (Grimes 2009), major power politics tend to produce uneven development depending on the aspects of the regional financial architecture.6 The tension between the region’s financial policy priorities and the politics of international financial architecture constitutes a second explanation about how interests in regional cooperation have persisted. The AFC kicked off another round of policy debate regarding international financial 133

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architecture (Eichengreen 1999) and the role of the IMF and the World Bank in financial crises.7 Within East Asia, the shock of IMF austerity measures imposed on the crisis-ridden countries triggered vocal criticism against the IMF, the institution that lacks political legitimacy in East Asia particularly because the region’s voices are (considered) to be inadequately represented in the institution (Sohn 2005). One of the main purposes of regional financial cooperation excluding the United States is, therefore, so that East Asia can work as a collective group and enhance the region’s bargaining power to counterweight the influence of the US and the IMF (Katada 2004). East Asia is highly dependent on global economy, including its prominent dependence on the US dollar, one of the two sources of double mismatch. Much of the foreign economic transactions in East Asia go through the US dollar, and there was no regional coordination of the foreign exchange regimes (Cohen 2008). In order to buffer the economies from the uncertainty and to maintain a competitive foreign exchange rate in the global market, China and Japan have accumulated the total of US$3.7 trillion in dollar-denominated foreign exchange reserves as of September 2010, thus creating a strong symbiotic relationship with the currency. This obviously makes it difficult for the region to turn against the dollar and towards a regional currency arrangement. For some countries, such as Japan, high dependence on the US dollar is evidence of US structural power (Katada 2008), while for others, such as China, high export dependence and pursuit of macroeconomic policy autonomy makes the government prefer the use of the US dollar (Bowles and Wang 2008). Influential economists argue that underdeveloped financial markets in East Asia perpetuate the region’s US dollar standard, as governments seek to stabilize the countries’ external balance (McKinnon and Schnabl 2004). Dooley et al (2003) argue that current global monetary structure (so-called ‘Revived Bretton Woods’) is likely to continue because East Asian countries opt in favour of accumulating large US dollar reserves, even at high and increasing cost (e.g. foregone returns on these investments and capital losses resulting from US dollar depreciation). This is due to the much higher political priority that those countries place on compiling an internationally competitive capital stock to expand industrial production and absorb excess labour. These regional interests are complementary to those of the US, according to this perspective, which can live beyond its means by incurring substantive current account deficit financed by Asian reserves. In sum, such global financial complementarities do not help East Asia in establishing a regional solution, especially when it comes to currency issues. Finally, diffusion through emulation and learning plays a role in East Asia’s interest in financial arrangements, particularly in its relations with Europe. Despite widespread scepticism over the possibility of replicating the European historical experience in East Asia or the region’s particular culture (Angresano 2004; Baldwin 2008a), the euro, newly born in 1999 on the heels of the AFC, became East Asia’s inspiration and model to emulate as the countries struggle to find an alternative to their US dollar dependence. Even prior to the AFC, East Asia began in 1996 to interact with Europe as a region through the Asia-Europe Meeting (ASEM), which became the first official arrangement that excludes the United States (Bobrow 1999). It is in the context of the ASEM where one of the first studies of East Asian regional currency was conducted, as they formed a research group deriving lessons from European experience (Nicolas 2008).

Ideas, identity and learning to cooperate The rise of interest in regional financial cooperation in East Asia is closely associated with the emergence of regional identity and development of a policy network in the area of finance after both Southeast and Northeast Asia experienced the AFC. Along with the economic devastation, the AFC had (at least temporarily) dethroned the East Asian economic model (Wade 1998b), 134

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which only a few years prior was hailed as the secret of the miraculous economic growth in Asia (World Bank 1993). As the crisis put these economies into a tailspin, there was a massive ‘discursive’ attack by the ‘Washington Consensus’ establishment against the way the region’s economy was managed (Hall 2003). The very nature of the IMF solution to the crisis-ridden countries firmly confirmed the neo-liberal bias. The government’s role in the economy (despite a relatively balanced central budget) was drastically reduced, leading to misery and hardship among the people of the countries that lacked a social safety net (Haggard 2000).8 In this context, the first sign of regional solution to the crisis came from Japan, as its finance minister proposed the AMF in September 1997. The idea of a regional rescue fund was fundamentally embedded in Japan’s developmental thinking (Lee 2006), based on which Japan engaged from the late 1980s in challenging the Washington Consensus (Lee 2008). Protection of the developmental state model, according to some Asian observers, has become one of the important objectives of ‘insulation’ that the regional financial cooperation would provide (Bowles 2000; Hatch 2002). The premature proposal was, however, shot down quickly by the US and others, as it invoked concerns over moral hazard and its challenge to the IMF authority. Such challenge resonated in East Asia as the AFC provided a common sense of history for East Asians, their leaders and policymakers (Stubbs 2002). The shock wave from the AFC went beyond economics, and has provided the basis for a common identity that constitutes the social basis for the ASEAN Plus Three (Terada 2003). The humiliation of having national sovereignty compromised also struck a sensitive chord among Asians, as they saw the picture of Suharto, the former President of Indonesia, signing a (degrading) IMF agreement with Michel Camdessus, the managing director of the IMF, who was standing tall with arms crossed seemingly looking down at Suharto. This image acted as a haunting reminder reminiscent of the colonial era (Budianta 2000). Finally, the expanding networks among Asian financial and monetary policymakers, and socialization that takes place within the community, holds the key to the current and future course of East Asian regional financial cooperation. The AFC installed the regional efforts to create the policy networks that allow contacts and communications to flow freely in East Asia, and which have changed the course of financial institutional development in the region (Calder and Ye 2004). Through these networks, and with the active discussions in the region, social learning has become the centrepiece in diffusing the value of financial cooperation among experts and policymakers, particularly in China (Sohn 2008).

Regional economic integration, global financial crisis and the way(s) forward Where is financial cooperation in East Asia going from here? One way to address this question is to place the last ten years of financial cooperation efforts in two distinct contexts. One is how cooperation related to the region’s overall economic integration and region-wide securitybuilding efforts; the other is to examine how cooperation efforts have been affected by the Global Financial Crisis of 2008–9. The mushrooming of free trade agreements that crisscross the Pacific are another feature of regional economic integration surrounding post-AFC East Asia (Katada and Solís 2008). This chapter leaves the analysis of the motivation behind regional trade cooperation to others (see Dieter, Chapter 9 of this volume), and will only discuss those developments in relation to regional financial cooperation. In terms of sequencing, East Asia exhibits simultaneous regional integration efforts, in contrast to the step-by-step European experience and the ‘logical roadmap’ posed by Balassa (1961b). This raises the possibility of a unique path towards regional integration, where the sequence starts with financial cooperation (Dieter and Higgott 2003). Nonetheless, 135

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uneven development and eclectic membership prominent in the two issue areas suggest lost efficiency from regional economic integration. For example, proponents of a positive impact of the common currency on increased trade (Rose and Stanley 2005) have little to say at this stage on the prospects of deepening East Asian economic integration. This is because the prospects for a common regional currency are still quite remote (Pomfret 2005). More optimistically, we might be able to derive some security benefits from regional financial cooperation, which has fostered regularized meetings and relatively clear membership in the region. Those regular interactions in the area of non-security issues, nevertheless, increase the opportunity costs of disruption, such as war, and allow frequent information exchange (Bearce 2003) and socialization (Cohen n.d.). The Global Financial Crisis, triggered by the collapse of Lehman Brothers in September 2008, turned a new page in East Asian financial cooperation (Beeson 2011; Grimes 2010). On the one hand, a year prior to the onset of the immense crisis, some economists in the region found comfort in the discussion of ‘decoupling’ East Asian economies from that of the US economy (and to some extent that of Europe), which was rattled by the subprime mortgage crisis since 2007 (Kawai and Motonishi 2005; Mahbubani 2008). On the other hand, many economists began to argue that the continued export success and abundant savings among the East Asian countries, the so-called ‘savings glut’, had contributed to the global imbalance (Bernanke 2005). The Global Financial Crisis, however, did not spare East Asia, at least in the immediate aftermath of the Lehman shock. Curiously, though, and due to relatively careful and timid liberalization of the financial sector in East Asia, the immense crisis wave reached the Western Pacific shore mostly through trade channels rather than financial ones (Goldstein and Xie 2009). As the demand for finished goods from Asia came to a screeching halt, the dramatic collapse of trade in the region affected all the exporting East Asian countries alike. The issue of rebalancing and shifting the basis of development from external to internal demand (Asian Development Bank 2009), and the strengthening and multilateralization of the CMIM, were seen as urgent in order to place another layer of financial safety across East Asia. The Global Financial Crisis has had a systemic impact on global financial governance and, thus, regional financial cooperation in East Asia. On the one hand, the crisis shifted the centre of financial governance discussion among the financial ministers and the heads of state from the old G7 to the G20, a forum established in 1999 that includes important Asian members such as China, India, Indonesia and South Korea as well as the long-time G7 member Japan. Within this context, the G20 and the reform of the IMF – with emphasis on more prominent representation of emerging market economies, particularly those in East Asia – is seriously discussed. In addition, each East Asian government has engaged in domestic stimulus to obtain relatively fast economic recovery. All these trends have led to weaker, not stronger, emphasis on regional financial cooperation (Emmers and Ravenhill 2010) as the need for a coherent regional voice has diminished. In this crisis, intense uncertainty associated with the global economy and the status of the US dollar as the key currency, accompanied by ‘financial deglobalization’ (Eichengreen 2009), led the East Asian financial authorities to consider seriously shifting their currency dependence away from the US dollar. At the height of the crisis, the Chinese government, with its interests in gradually internationalizing Chinese currency, began to demonstrate its changing calculation (Park 2010).9 Concomitantly, the struggling European economies have cast doubt on the desirability of regional monetary arrangements – as the region’s common currency, the euro, has become an obstacle to swift macroeconomic adjustment among many of the heavily indebted European governments. In sum, despite positive externalities that regional financial cooperation could produce for East Asia, the region’s ‘logical roadmap’ has never been clearly laid out. Moreover, unlike the AFC, the 2008–9 Global Financial Crisis with its multitude of impacts did not reinforce the regional cooperation needs as strongly as regional integrationists have hoped. 136

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Conclusion There are politically charged debates over the future of regional cooperation in East Asia, and financial cooperation is not an exception. This chapter has demonstrated that there has been visible progress in the development of a cooperation framework in the aftermath of the AFC as compared to the pre-crisis. The motivation of such cooperation, though, has more to do with the region’s defence against a precarious global financial environment and its desire to project its voice in global financial governance than common aspiration towards coherent regional economic integration. The major powers involved – China, Japan and the United States – have distinctive interests in the way financial cooperation should proceed, and there is a structural barrier such as the region’s high US dollar dependence that makes autonomous efforts difficult. The reaction to new economic challenges after the Global Financial Crisis has also been mixed, which raises the question regarding consistent regional commitments among Asian leaders. Optimists might be right in pointing to the changed mindset among Asian leaders in looking at regional financial cooperation as a viable option to foster regional identity and to influence the regional and global financial governance debates. At the same time, pessimists and sceptics are correct in pointing out that no visible, costly commitment has yet been made on behalf of regional financial cooperation. With the challenges that Europeans are facing in maintaining the euro under the current crisis, East Asian governments are extremely cautious in advancing regional options at the cost of a global one. The future of East Asian economic cooperation, including that of financial cooperation, is clearly embedded in the global economic context.

Notes 1 The participating members of EMEAP are: Reserve Bank of Australia, People’s Bank of China, Hong Kong Monetary Authority, Bank Indonesia, Bank of Japan, Bank of Korea, Bank Negara Malaysia, Reserve Bank of New Zealand, Bangko Sentral ng Pilipinas, Monetary Authority of Singapore, and Bank of Thailand. 2 A similar discussion on the cause of the AFC proceeded among the economists in the United States. The controversy is best summarized with Radelet and Sachs (1998) emphasizing the panic-stricken behaviour of domestic and international investors and the failure of the IMF response on the one hand, and Roubini emphasizing the economic distortions among the countries in Asia and the problems of fundamentals (Corsettti, Pesenti and Roubini 1999) on the other. 3 Exceptions are the swap lines among the Plus Three countries, which are denominated in yen, RMB and won. 4 The voting power of the member nations are distributed in the following manner: China with Hong Kong (32 per cent), Japan (32 per cent), Korea (18 per cent). 5 The original AMF proposal by Japan’s Ministry of Finance was put together hastily in the summer of 1997 as the region faced the massive financial crisis. It is noted that the Japanese government first went to the Hong Kong monetary authority, not the People’s Bank of China, to discuss the AMF idea, a move that was considered a ‘non-starter’ by the Chinese leadership (Amyx 2005). 6 Grimes (2009, 30) summarizes the contrasting preferences among the three major powers where (a) the US and Japan prefer financial liberalization and rule-based financial market development; (b) China and Japan will engage to insulate the regional economies from global volatility influenced by unilateral US macroeconomic policies; and (c) Japan has a harder time moving away from the US dollar standard than China. 7 The so-called Meltzer Commission (International Financial Institutions Advisory Commission) was established by the US Congress in 1998, and it published a report in March 2000 outlining the problems of the international financial institutions and their report agendas. 8 The economic downturn at the time of the Asian Financial Crisis in Korea was widely remembered as the ‘IMF crisis.’ 9 Zhou Xiochuan (2009), the governor of the People’s Bank of China, for example, surprised the world by publicly discussing the need for creating a neutral currency, such as the Special Drawing Rights (SDRs), to sustain the liquidity needed for global economic transactions. For more discussion, see Chin and Wang (2010).

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11 China–ASEAN relations The core of Asian regionalism Nicholas Thomas

Introduction The China–ASEAN relationship is the key nexus for wider moves towards Asian integration. At the heart of that relationship are the economic and trade ties between China and the ten economies of Southeast Asia. Although often described in modern terms, these ties stretch back to antiquity. Later, the Tang, Song and Yuan dynasties all encouraged trade with surrounding nations and tributary states. The Ming and Qing also relied on foreign trade, of which the fifteenth-century travels of Ming admiral Zheng He are the most famous. In more recent times, while the exigencies of the Cold War and the later Sino-Soviet split restricted China’s ability to engage in international trade relations with its traditional regional partners, the 1970s heralded a return to a pragmatic – rather than ideological – foreign economic policy. Throughout this decade China (re)established diplomatic relations with most of Southeast Asia. These political acts had a positive impact on economic relations, with a sustained renewal of Chinese-Southeast Asian trade relations. Importantly, these relations were not restricted to central-level engagements but also drew upon the geographic trade benefits afforded by China’s southern provinces, especially Guangxi and Yunnan. Both provinces established land-ports with their Southeast Asian neighbours, ensuring that China–ASEAN economic relations would not only be multilevel but would also draw upon local-level business and their overseas counterparts.1 Since ASEAN’s formation in 1967, China–ASEAN economic relations have expanded and deepened. In January 2010 the long-awaited China–ASEAN Free Trade Agreement (CAFTA) was launched. In the year since, trade ties between the 11 economies have only intensified. But to what end? The initiation of CAFTA provides an appropriate moment to review China–ASEAN economic and trade linkages. In doing so, this chapter will first review the broader China–ASEAN relationship. This review provides a context for then understanding the expansion of economic and trade linkages – both in policy and practice. This chapter will then consider two case studies, both of which have an important place in China’s regional economic ties: (1) the formation of the Chiang Mai Initiative (CMI) and the subsequent Chiang Mai Initiative Multilateralization; and (2) the creation and impact of CAFTA. Some of the implications arising from the case studies for both the present and future state of economic relations will also be explored. In particular, it will be argued that although these relations are (in the near-term) weighted in favour of China-centric 138

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regional economic order, they also hold the (longer-term) potential to transform the region away from its Westphalian preoccupation towards a more integrated region with supranational characteristics.

China’s relations with Southeast Asia The opening up of China throughout the 1980s highlighted its economic potential. This potential gradually served to construct a very different image of China, one of economic promise rather than strategic threat. By the end of the Cold War, both images coexisted uneasily in regional perceptions of China. In some countries (the Philippines or Indonesia, for example), the threat perception was stronger. In other countries (such as Malaysia or Singapore), there was a greater willingness to see China’s promise. However, despite these differences, with the ending of the Cold War, there was a perceived need to address the ‘China question’, so that the threat aspect could be diminished and the promise could be realized. At the same time, China was also interested in reviving ties with Southeast Asia. During a visit to Thailand in 1988, the then Chinese Premier Li Peng announced that China saw no impediment to the establishment of diplomatic ties with all ASEAN states (Xinhua 1988). At that time, the ASEAN states – which had been working with China to settle the problem of Vietnam’s intervention in Cambodia – were generally positive to upgrading formal relations. As a consequence, over the next two years, China established diplomatic relations with all ASEAN states. This was the basis for an invitation to the Chinese foreign minister Qian Qichen to attend the opening session of the twenty-fourth ASEAN Ministerial Meeting (AMM), as a guest of Malaysia, in 1991. Over the next five years the relationship gradually developed across a range of functional areas, including economic and trade cooperation and collaboration in scientific and technological projects (ASEAN 1993). China also continued to attend the AMM and became a consultative partner of the ASEAN Regional Forum (ARF) in 1994. The political and security relationship reached a high point in 1996, when China’s status within the AMM was upgraded to that of a full ‘dialogue partner’, with a similar status begin acquired within the ARF. While the involvement of China in the ARF could be seen as an example of its commitment to multilateralism with peripheral states, at least in the beginning, Mack suggests, the ARF was rather ‘an ASEAN initiative whose creation the Chinese were powerless to prevent. China joined the ARF not least so it could put a brake on initiatives that the Chinese saw as inimical to their interests and to try to keep other issues off the agenda’ (Mack 1996: 56–57). Hence, although China’s involvement in the ARF did represent the involvement of the People’s Republic of China (PRC) in an emerging regional institution, its commitment to the associated institutional norms is questionable (Johnston 2007). In 1996, China further expanded the basis for its Southeast Asian – and regional – ties when it joined with the then seven members of ASEAN as well as Japan and South Korea in representing Asia for the Asia-Europe Meeting (ASEM) talks. This was the first time that all the countries had been grouped together in a regional bloc. While the focus since the first meeting mainly has been on socio-economic and trade issues between Europe and Asia, it has also provided a useful meeting for the heads of government from the Asian region as well as their respective senior representatives (Deutsche Presse-Agentur 1996). In particular, it gave China an opportunity to build on its Southeast Asian relations while also beginning to identify its place in wider regional processes. A watershed for China–ASEAN relations came in 1997, with significant improvements in the economic as well as political fields. The 1997 Asian Financial Crisis, while devastating for Southeast Asian economies, significantly advanced China’s position in regional politics. China’s decision not to revalue the yuan was welcomed by Southeast Asian states, not only for the 139

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economic benefits that the decision was perceived to provide but also because it was interpreted as a significant statement of affinity with the regional states. This affinity was in stark contrast to perceptions of Western countries and international organizations (such as the IMF) during the crisis. It also stood despite China aligning itself with the United States to oppose the Japanese proposal for an Asian Monetary Fund, which had the support of several Southeast Asian states. Indeed, from this point onwards, China has steadily cemented its place as ASEAN’s key partner in East Asia, much to the dismay of Japan. Towards the end of 1997 China also joined in the first informal meeting of ASEAN Plus Three.2 This new grouping linked the ASEAN states with the three key Northeast Asian states of China, Japan and South Korea. The formation of this group was due to ASEAN’s recognition that Southeast Asia’s future was irrevocably tied to that of Northeast Asia – a point reinforced by the financial crisis. Of the three sets of bilateral talks ASEAN held with its northern neighbours, the China–ASEAN meeting was the only one that based itself on both ASEAN and Chinese norms. Neither the Japanese nor Korean bilateral discussions made any reference to such issues.3 Paragraph two of the Joint Statement of the Meeting of Heads of State/Government of the Member States of ASEAN and the President of the People’s Republic of China (1997) mentioned, in part, that both sides: affirmed that the Charter of the United Nations, the Treaty of Amity and Cooperation in Southeast Asia, the Five principles of Peaceful Coexistence and universally recognized international law should serve as basic norms governing their relations. They reaffirmed in particular their respect for each other’s independence, sovereignty and territorial integrity and the principle of non-interference in the internal affairs of other states. (ASEAN 1997a) This norm agreement served as a far stronger basis for the development of China–ASEAN relations than was the case with either the Japan-ASEAN or Korean-ASEAN relationship. In 1999 the ASEAN Plus Three group was further solidified with the first ever meeting of all 13 states: the 3 Northeast Asian states as well as all 10 Southeast Asian states. Although this meeting is noteworthy for the decision to create the East Asian Vision Group, it is equally important to note that the Joint Statement on East Asia Cooperation (issued at the end of the meeting) included the ‘Five Principles of Peaceful Coexistence’ as one of the key norms guiding the development of mutual relations (ASEAN 1999).4 However, even as the ASEAN Plus Three group has expanded cooperation into a wide range of areas (see Table 11.1), it has been the China–ASEAN relationship that has remained the key axis for regional development. In the past five years this bilateral relationship has developed faster and further than either the Japan-ASEAN or Korean-ASEAN relationship. This rapid development of ties has also meant that the structures and norms developed in the China–ASEAN meetings have often become the basis for Japan and South Korea’s institutional ties.5 As China has steadily taken the lead over Japan and South Korea, it has expanded cooperation with ASEAN in the political and strategic, economic and financial as well as social and cultural areas. In terms of political and strategic cooperation, the two sides have signed a joint declaration on cooperation in non-traditional security issues as well as a code of conduct on matters relating to the disputed areas in the South China Sea. In 2002 China became the first non-Southeast Asian state to reach an agreement with ASEAN on a framework agreement to further bilateral economic cooperation towards the realization of a phased free trade agreement, which became a reality in July 2005 (see below). This agreement is in addition to accords on transport, agricultural and ICT cooperation that have also been signed since the turn of the century. At the Bali Summit in 2003, 140

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Table 11.1 Indicative scope of ASEAN Plus Three cooperation Area

Year of Establishment

Political and Security Economic, Trade and Investment Finance and Monetary Agriculture, Fishery and Forestry Labour Environment Tourism Culture and Arts Energy Health Information Technology and Communications Social Welfare and Development Transnational Crime and Counter terrorism Science and Technology (SOM only) Youth (SOM only)

2000 2000 2000 2001 2001 2002 2002 2003 2004 2004 2004 2004 2004 2001 2004

Source: Tanaka (2009): 66.

China became the first non-Southeast Asian state to sign ASEAN’s Treaty of Amity and Cooperation. In social and cultural areas in mid-2005 the two sides agreed on an ASEAN–China Memorandum of Understanding on Cultural Cooperation, which will ‘promote culture cooperation through artistic collaboration and exchange, joint research and study, exchange of information and people-topeople exchange and interaction’ (ASEAN 2005a). China and ASEAN senior officials and ministers for youth affairs have also been meeting since mid-2004 (ASEAN 2001). While these agreements could be dismissed as simply political statements with relatively little impact on practical integration, it is necessary to consider the nature of some of the more recent agreements. During 2005 China and ASEAN sought to upgrade their relationship with the convening of a bilateral Eminent Persons Group (EPG) to develop a blueprint for advancing the relationship over the following 15 years. Beyond the usual commitments to political, economic and security concerns, the EPG report placed significant emphasis on developing multilevel institutional ties between sub-national, municipal, civil society organizations, especially in the sociocultural and functional-cooperation fields. In terms of guiding norms, the EPG clearly placed the relationship within the ‘purposes and principles of the UN Charter, the Treaty of Amity and Cooperation in Southeast Asia, the Five Principles of Peaceful Coexistence, and the Ten Principles of the Bandung Asian-African Conference’ (ASEAN 2005b). The work of the EPG was further developed in 2006 during the ASEAN-China Commemorative Summit, when ten priority areas were identified for deeper and broader functional cooperation. These areas encompassed: ‘agriculture, information and communication technology (ICT), human resource development (HRD), two-way investment, Mekong River Basin development, transportation, energy, culture, tourism and public health, as well as the signing of several Memoranda of Understanding (MOUs)’ (ASEAN 2006b). Cooperation on the environment was added to the list of priority areas the following year (ASEAN 2007a). The outcomes from the 2006 summit can be seen throughout 2007 when the number of meetings in the priority areas increased along with a concomitant rise in the number of agreements signed. Meetings on ports development, agreements on food safety and consumer rights, a Memoranda of Understanding (MOU) on inspection and quarantine cooperation, as well as a new Centre for 141

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Promoting Trade, Investment and Tourism all signified the acceleration of the relationship.6 At the bilateral summit in November 2007, both sides identified a further 14 projects for formulation or implementation (ASEAN 2007a). This acceleration of policy initiatives reached a new peak in October 2010 with the signing of the ‘Plan of Action to Implement the Joint Declaration on ASEAN-China Strategic Partnership for Peace and Prosperity (2011–15). The scope of this plan showed the extent to which the bilateral relationship had developed and the plans for future growth. In political and strategic areas, issues of human rights, legal and judicial training and cooperation, and expanded non-traditional security ties were all covered. Economically, the five-year plan supported national and sub-national economic, trade and business fora as well as deeper forms of financial and sectoral cooperation; while socially and culturally issues ranging from gender equality, media exchanges, environmental cooperation and education were all identified for future growth. Although many of the items included in the plan were already under development and many were issues of which the parameters for discussion were already limited (such as the South China Sea), the scope of the activities listed reflects both the expansion of China–ASEAN ties as well as the confidence – which both sides find in the relationship – to list so many areas previously considered contentious or difficult.

The economic heart While Sino-ASEAN economic and trade ties had been gradually developing since the late 1970s, the 1997 financial crisis provided a window of opportunity for realizing their potential. In the two decades since, two-way trade has increased from US$22.6 billion in 1997 to in excess of $223 billion by 2008 (Tang and Wang 2006; Tong and Chong 2010). Although the impact of the global financial crisis had a negative impact on bilateral trade volumes, by 2010 it had again resumed its upward growth trajectory (see below) (Vietnamese Business News 2010), suggesting that China–ASEAN trade continued to grow even as the developed economies struggled with the financial crisis. This expansion of ties reflects the economically complementary nature of the relationship, in which Southeast Asia generally takes the role of supplying primary resources and machinery parts and China provides these as well as more developed products in return (HKTDC 2010). This is, of course, not always the case. Singapore, for example, is a supplier of hightechnology goods to China, and the Philippines is increasingly supplying labour in the form of foreign domestic workers to a China keen to develop English-language skills in the home. Although the 1997 crisis provided an opportunity for the development of Sino-ASEAN economic ties, the complementary nature of the economies as well as the fact that this was the least contentious aspect of the bilateral relationship meant that it was always a logical area for joint policy development. An earlier initiative – the Greater Mekong Subregion (GMS) – that was started in 1995 was, in part, in recognition of the complementarity between the Chinese and Southeast Asian economies, in this instance Yunnan province and the five states of mainland Southeast Asia. Working with the Asian Development Bank (ADB) and the United Nations Development Programme (UNDP), the countries in the project identify areas of cooperation across seven areas – transport, energy, telecommunications, environmental, human resource development, trade and investment, and tourism.7 Although there is no GMS secretariat, the number of ministerial summits, senior official meetings and related fora encourages a high degree of policy cooperation between participating states. Hence, the integration between the GMS members represents a compressed form of what is occurring in the wider China–ASEAN relationship. As Harayati (2001) has noted, subregional cooperative efforts form strong bases for wider regional integration, as they encourage small-scale transnational development to take place that would not otherwise occur. In many respects, the challenges faced by these projects mirror 142

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broader bilateral issues. First, given wide social, economic and political disparities the benefits may be unequally distributed between participating countries. Second, states have to provide longterm commitment to the project’s objectives (Tan, et al. 1995: 238). This means that participating states have to willingly accept constraints on their ability to allocate resources – a key aspect of state sovereignty. In addition, the activities in the GMS are heavily dependent on private sector investment. This raises issues of government transparency and accountability in providing accurate information to investors. In some cases regional governments are not accustomed to providing timely economic and financial data, and may even regard such information as secret. Although this data is usually considered sensitive by host governments – and its provision an encroachment on state sovereignty – the added value of the GMS initiatives encourages governments to change management practices and adopt new governance policies; for example, in the case of the harmonization and standardization of customs procedures to facilitate subregional trade and investment.8 Since 1997 China and ASEAN have been actively developing multilateral and bilateral initiatives. As the immediate crisis began to recede, both sides started to consider ways to both enhance their economic relationship as well as to protect themselves from future financial shocks. In 2000, two new endeavours commenced: the multilateral Chiang Mai Initiative (CMI) and the bilateral China–ASEAN Free Trade Agreement (CAFTA) negotiations. Taken together, these two efforts helped to shape the regional post-crisis economic landscape and placed China–ASEAN relations at the heart of the emerging economic order.

The Chiang Mai initiative and beyond The CMI had its genesis in the 1997 crisis discussions concerning the need to protect and prevent regional economies from future financial shocks. Although it was initially linked to the idea of an Asian Monetary Fund (AMF), the contentious nature of the latter proposal meant that its development was stalled while the CMI continued to attract interest. It is worth noting that the original proposal for an AMF was, in part, supported by such a currency-swap arrangement. Taken together these were seen as building blocks for an Asian economic order, although what shape that order would take remained unstated. As the (then) Malaysian Finance Minister Mustapa Mohamed said, ‘[i]t can evolve into something. But there was not discussion of what it was going to be’ (Cheeseman 2000: 14). However, despite the pre-existing ASEAN agreement there remained opposition from China in these initial efforts – concerned about issues of financial sovereignty – as well as from other Southeast Asian countries wary of the expansion of Japanese economic power. As Chey noted, ‘China did not support the proposal, out of worries about an increase in Japanese regional influence. China perceived the AMF proposal as an attempt by Japan to assume regional leadership and to establish hegemony of the yen in the region, and Beijing did not wish to see that happen’ (Chey 2009: 459). Despite its contentious precursors, in May 2000 the ASEAN Plus Three finance ministers agreed to extend an existing currency-swap arrangement between the 5 more economically advanced ASEAN states to all 13 countries in ASEAN Plus Three.9 The CMI envisaged a ‘network of bilateral swap and currency repurchase agreement facilities among the ASEAN countries, China, Japan, and the Republic of Korea’ (ASEAN 2000). In this respect the CMI built upon the 1977 ASEAN Swap Arrangement (ASA) and the currency-swap agreements that Japan had already undertaken as part of the New Miyazawa Initiative (Ngiam 2003). The importance of the CMI, especially in terms of broader Sino-ASEAN confidence-building efforts, should not be underestimated. As Hiwatari observed, ‘[m]ost notably, the initiative was the only proposed post-crisis regional financial arrangement actually realized’ (Hiwatari 2003: 350). 143

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As part of broader post-crisis efforts in East Asia, the CMI was designed to: (1) expand and deepen the bilateral swap arrangements so as to provide a ready source of funds with which to support economies in the event of another crisis; (2) to share information on capital flows; (3) establish a regional financial facility to supplement existing efforts; and (4) to develop surveillance and warning systems for regional economies at risk of instability (Rana 2002). The CMI had greater support from China than from the AMF because it injected a multilateral element into the regional financial power structure behind the bilateral swaps, providing China with a greater policy space and diluting Japanese influence in the process. As part of the CMI, the ASA was expanded from US$200 million to US$1 billion in 2000, and in 2005 further doubled to US$2 billion. However, the main focus of the CMI was on the support provided by Japan, China and South Korea. By 2002, the total amount available was US$20 billion, which had increased to US$33.5 billion by 2003 (Park and Wang 2003: 93). By 2009, the total funds available under bilateral swap arrangements (BSAs) had expanded to US$90 billion under the CMI, not including the US$2 billion still available under the ASA (see Figure 11.1 below). However, even as regional states became more comfortable with providing BSAs, regional finance ministers began to consider other ways to evolve the CMI. In April 2004, ASEAN finance ministers announced plans to launch an upgraded version of the CMI, which brings the currency-swap arrangement even closer to the concept of an Asian Monetary Fund (AMF). Under this proposed arrangement, regional states would create a common fund of US$100 billion that could be drawn upon by any state in the event of a liquidity crisis. In terms of burden-sharing, Japan (which proposed this new arrangement) contributed 40 per cent, with the remainder shared between South Korea, China, Thailand, Malaysia, the

Network of Bilateral Swap Arrangements (BSAs) under the Chiang Mai Initiative (CMI) of Apr. 2009 ASEAN Swap Arrangement (ASA)

Total : US$ 90.0 bil5/

US $ 9 bil

Japan fl Thailand $ 6bil (Thailand fl Japan $ 3bil )

Japan

US$ 2 bill Thailand

US$ 1 bil

(Japan fl Malaysia $ 1bil)

eq. US$ 6 bil

Brunei

1/

fl China eq. $ 3 bil ( Japan China flJapan eq. $ 3 bil )

US$ 6.5 bil

Japan fl Philippines $ 6bil (Philippines fl Japan $ 0.5bil)

US$ 2 bil

(China flThailand $ 2bil)

US$ 2 bil

Cambodia

Korea flThailand $ 1bil (Thailand flKorea $ 1bil )

US$ 1.5 bil

(China fl Malaysia $ 1.5bil)

China

Malaysia

Philippines

eq. US$ 2bil2/

(China fl Philippines eq. $ 2bil)

US$ 12 bil

US$ 4 bil

(Japan fl Indonesia $ 12bil)

(China fl Indonesia $ 4bil)

eq. US$ 8 bil 3/

China fl Korea eq. $ 4 bil ( Korea fl China eq. $ 4 bil )

(

US$ 3 bil

eq. US$ 21 bil 1 2

Japan fl Korea fl Japan fl Korea fl

Republic of Korea

Figure 11.1

fl Malaysia $ 1.5bil (Korea Malaysia fl Korea $ 1.5bil )

)

Korea $ 10 bil Japan $ 5 bil Korea eq.$3 bil Japan eq.$3 bil

Lao PDR Myanmar

US$ 4 bil

Korea fl Philippines $ 2bil (Philippines US$ 4 bil flKorea $ 2bil ) fl Singapore $ 3bil (Japan Singapore flJapan $ 1bil )

Indonesia Vietnam

US$ 4 bil

Singapore

fl Indonesia $ 2bil (Korea Indonesia fl Korea $ 2bil ) 1/ 2/ 3/ 4/ 5/

Local currency swap between Japanese YEN and Chinese YUAN. Local currency swap between Chinese YUAN and Philippine PESO. Local currency swap between Chinese YUAN and Korean WON. Local currency swap between Japanese YEN and Korean WON. The madmum amount is increased to US$ 20 billion equivalent until the end of October 2009. 6/ The sum of US$ 90.0 bil does not include the ASEAN Swap Arrangement(ASA).

Network of bilateral swaps under the CMI (as of April 2009)

Source: Ministry of Finance, Japan. Available at: http://www.mof.go.jp/english/if/CMI_0904.pdf

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Philippines, Indonesia and Singapore. As an initial proposal, this concept represents a midway point between the CMI and the AMF; one that is more acceptable to China as well as to external actors such as the United States. While this new proposal deepened the region’s financial architecture, it was limited at the time by how preoccupied regional states were with ‘sovereignty, state building, and security’, which affects the ability of regional economic systems to prevent future financial shocks (Narine 2002a:187). Nonetheless, the ASEAN Plus Three financial ministers were committed to explore options for evolving the CMI into something more institutionalized. As their 2006 meeting observed, the ministers wanted ‘to set up a “new task force” to further study various possible options towards an advanced framework of the regional liquidity support arrangement (CMI multilateralization [CMIM] or Post-CMI)’ (ASEAN 2006a). Over the next three years, the CMIM framework took shape. At the 2009 ASEAN Plus Three financial ministers’ meeting – against the backdrop of the global financial crisis – ministers announced the CMIM, which was operationalized in March 2010 to a value of US$120 billion (Bank of Japan 2010). One important outcome of the CMIM process can be seen in the levels of contributions made by China and Japan. Whereas Japan had been the main source of support for the first two stages of the CMI, by 2009 Chinese economic capacity had grown sufficiently to allow it to occupy a co-equal place with Japan in regional economic affairs. For the CMIM both states pledged to each contribute 38.4 per cent of the total fund pool (see Table 11.2 below). As Rathus observed: [t]his agreement is a symbol of how far China has come since the beginning of its charm offensive a decade ago. The phenomenon of China’s rise, and the consequent eclipsing of Japanese power, is also on display. Compared to the other regional institutions it had joined earlier such as the Asian Development Bank, China’s presence (and potentially its formal voting weight) as a ratio of that of Japan’s has increased from under a half to near parity. (Rathus 2009)

Table 11.2 CMIM contributions and borrowing multiplier Country

Contribution (USD Billion)

Borrowing Multiplier

Brunei Cambodia China

0.03 0.12 38.4 China (exclude Hong Kong, China) 34.2 Hong Kong, China 4.2 4.77 38.4 19.2 0.03 4.77 0.06 3.68 4.77 4.77 1.00

5 5 0.5 2.5* 2.5 0.5 1 5 2.5 5 2.5 2.5 2.5 5

Indonesia Japan Korea Lao PDR Malaysia Myanmar Philippines Singapore Thailand Vietnam Source: ASEAN (2009b).

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A second important outcome is the decision to create a formal secretariat for the CMIM to provide independent surveillance. The bilateral nature of the CMI meant that individual states could monitor and decide to release funds as needed. Indeed an earlier proposal by Japan for a surveillance mechanism for the CMI was opposed by China as being too intrusive into its sovereign affairs. For the CMIM, however, China has shifted its position and now supports the creation of such a unit, signalling not only a confidence with regional economic processes but also a willingness to engage more deeply in areas earlier considered intrusive to its sovereignty. Unlike other regional-coordination bodies, this unit – to be known as the ASEAN Plus Three Macroeconomic Research Office (AMRO) – will be based in Singapore not Jakarta. It will commence operations in mid-2011 (Chalongphob 2010). As Chey concludes, ‘[t]his rising Chinese support for East Asian financial cooperation appears to stem partly from its foreign policy objective of taking leadership in the region… it now puts higher priority on reducing U.S. influence than on limiting Japan’s role in East Asia’ (Chey 2009: 459), which can be seen as a reflection of China’s belief that it is superseding Japan in regional affairs and, consequently, needs to focus on global rather than regional competitors. ‘This change in China’s view of regional financial cooperation is [also] partly attributable to the positive outcomes its earlier participation in regional multilateral arrangements such as the ASEAN Regional Forum have produced’ (Chey 2009: 462). Beyond multilateral fora such as the CMI and CMIM, China has also identified parallel benefits to participating in other bilateral groupings such as the China–ASEAN Closer Economic Cooperation Agreement and, later, the China–ASEAN Free Trade Agreement. These two agreements build on the knowledge and capacities acquired during the CMI and CMIM developments (as well as China’s (re)joining of the WTO and its other ASEAN Plus One and ASEAN Plus Three activities) to form the centrepiece of China’s economic relationship with Southeast Asia.

Sino-ASEAN economic cooperation While the economic ties between China and Southeast Asia are long-standing, they have always lacked a singular focus: an aspect of the relationship that could act as a foundation for maximizing immediate benefits whilst providing a basis for future bilateral economic activities. As both sides began to develop close ties in the early 1990s, the China–ASEAN Joint Committee on Economic and Trade Cooperation (CAJCETC) was established in 1994 (Ministry of Foreign Affairs 2002). Although CAJCTEC was tasked with discussing regional and international economic issues as well as matters pertaining to the bilateral trading relationship, its infrequent meetings meant that it was unable to provide the necessary basis for the economic relationship to advance. In 2000, during the ASEAN Plus One meeting, then Chinese Premier Zhu Rongji suggested that China and the ten ASEAN states should formalize and deepen their relationship by developing closer economic cooperation through the setting up of ‘an expert group for China–ASEAN economic integration under the framework of the China–ASEAN Joint Committee of Economic and Trade Cooperation to discuss how to strengthen economic relations, facilitate trade and investment and other issue of mutual interest’ (Zhu 2000).10 Although the suggestion took ASEAN (as well as Japan and South Korea) by surprise, both sides agreed to set up an expert study group to identify ways to advance the economic partnership. The expert group’s report was tabled at the following ASEAN Plus One summit in Brunei. Not surprisingly the group advocated the establishment of a Closer Economic Cooperation Agreement (CECA) as a first stage towards developing a bilateral free trade agreement. The report noted that the ‘strong dependence of the ASEAN as well as China on the U.S. market is a source of instability for the region. Promoting the ASEAN-China intraregional market through 146

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the free trade arrangement is a means toward the promotion of regional self-reliance and stability’ (ASEAN-China Expert Group on Economic Cooperation 2001). Following the expert group’s report, China also announced that it would unilaterally remove tariffs on products from the ASEAN economies as part of an early harvest programme (EHP) (ASEAN 2001). This decision was of particular benefit to the four lesser-developed Southeast Asian economies of Cambodia, Laos, Myanmar and Vietnam as well as to their developed counterparts. However, Indonesia and the Philippines resisted joining the EHP as they were worried about the eventual economic impact of Chinese goods in their domestic markets. Although the Philippines was the last regional state to sign on to the EHP, Indonesia has since indicated that it would like to renegotiate tariff reductions with China in order to give it more time to mitigate against the impact of cheaper Chinese goods in the local market. The findings of the expert group led to the signing of the Framework Agreement on Closer Economic Cooperation between ASEAN and the People’s Republic of China at the Phnom Penh summit in 2002. The Framework Agreement also began the process of developing economic cooperation in a range of other priority sectors: agriculture, information and communications technology, human resource development, investment and the Mekong River basin development. Beyond these five sectors, the Framework Agreement also contained a list of other areas for economic development, including ‘banking, finance, tourism, industrial co-operation, transport, telecommunications, intellectual property rights, small and medium enterprises (SMEs), environment, bio-technology, fishery, forestry and forestry products, mining, energy and sub-regional development’ (ASEAN 2002a). In other words, with the basic economic cooperation agreement established, most other key areas of economic, trade or investment activity were to be brought under the Framework Agreement’s principles. The signing of the Framework Agreement for the CECA was followed by the decision in 2004 on the Dispute Settlement Mechanism. In contrast to earlier agreements, where interpretation was dependent upon a mutual understanding, the Framework Agreement has a later associated agreement for the establishment of a dispute resolution mechanism. When a dispute arises between any of the states covered under this agreement, an arbitration tribunal can be appointed to decide the issue. In two key departures from the mode of earlier agreements, not only is the decision of the tribunal binding but, in the event of a dispute over the composition of the tribunal, the director-general of the WTO or their deputy acts as referee. This represents a significant step forward in the development of regional economic governance, as both sides will have to abide by the decision of a supranational institution. To do so will require the partial abdication of sovereignty in order to gain greater economic benefits. Although the significance of the dispute resolution mechanism will only be known fully when it is tested (successfully or otherwise), its presence with the Framework Agreement does suggest that even as both sides publicly uphold the norms of state sovereignty and non-interference they are prepared to modify these norms to fit in with the objectives of new regional institutions. Using the CECA as a foundation, in 2007 China and ASEAN also signed a bilateral Agreement on the Trade in Services (ASEAN 2007b). This was designed to complement the agreements covering the trade in goods and opened up more developed sectors for economic cooperation. Two years later, the two sides signed the ASEAN-China Investment Agreement. In addition to this agreement, China also announced that it would establish a ‘US$10 billion China–ASEAN Investment Cooperation Fund to finance major ASEAN-China investment cooperation projects in infrastructure, energy and resources, information and communication technology and other fields’ (ASEAN 2009a). In January 2010 the China–ASEAN Free Trade Agreement was formally launched. Covering 1.9 billion people and with a combined GDP of US$6 trillion, CAFTA is the largest market under 147

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such an agreement. The timing of this agreement was auspicious, coming at the same time as the world’s major economies were still recovering from the global financial crisis. For the first nine months of 2010, trade between China and Southeast Asia rose 44 per cent from the previous year, to US$211 billion. This trend was supported by investment figures that showed ‘aggregate bilateral investment reached 69.4 billion U.S. dollars’ by the first half of 2010 (Xinhua 2010a, b). Although ASEAN still lagged behind the European Union, the United States and Japan as China’s fourth largest trading partner, the impact on the ASEAN economies was significant with China cementing its position as ASEAN’s largest trading partner. As Qiu et al. (2007) noted, in the period between Zhu Rongji’s proposal and the start of CAFTA ‘the economic welfare of ASEAN countries [increased] by approximately US$1,624m, and China’s economic welfare [increased] by approximately US$517m’ (Qiu et al. 2007: 89).11 With all the major pieces now in place, the China–ASEAN economic relationship has the infrastructure to continue to support and deepen economic, trade and investment ties between the two sides. The increase in bilateral flows in these three areas over the last decade is testimony to the value of the relationship, and the importance both sides attribute to it. At the 2010 Hanoi summit, China announced a number of key intentions for economic relationship with ASEAN, in particular its plan to increase bilateral trade to US$500 billion and new direct investment from China to reach US$10 billion (ASEAN 2010a). If, as former ASEAN secretary-generals’ have stated, the China–ASEAN relationship is the key nexus around which other regional integration initiatives take place, then these flows hold the potential to act as a foundation for the wider economic integration of East Asia. Beyond the economic benefits from such closer cooperation, however, is the strategic reality that the flag follows – or is, at least, heavily influenced by – trade. As Vatikiotis and Hiebert observed, ‘China’s approach has been subtle, using economic diplomacy to build a benign multilateral framework in the shape of a free trade agreement with ASEAN’ but which (quoting Wang Yi) ‘ “will serve as a helpful trial and practice of China’s new security concept featuring comprehensive, cooperative and common security” ’ (Vatikiotis and Hiebert 2003: 31). This would suggest that China is using its economic relations in an attempt to forge ‘a close knit economic and security community with Beijing at its centre’ (Vatikiotis and Hiebert 2003: 33). Given the centrality of ASEAN to regional integration, this community would also pull Japan and South Korea into a normative orbit dominated by China. If, as the National Intelligence Council (2004) suggests, Asia is the global future, then China’s economic ties with Southeast Asia develop a broader strategic weight beyond raw trade and investment figures and beyond the East Asian region.

Issues arising Who leads? One of the key areas where China’s economic interests with Southeast Asia meet its security agenda is over the issue of regional leadership. In every other region, the impetus towards integration is generated by the largest economies. It is an interesting quirk of the East Asian process that it is the smaller economies that have driven the policy processes. However, a key challenge for the region will be whether or not to maintain this tension with small-states in the driver seats or to relinquish control to one of the bigger economies. According to Mattli (1999: 73–77), the existence of ‘leader states’ usually assumes a single state able to develop the regionalist cause; however, it has also been postulated that ‘a coalition of leading states may provide the requisite leadership for successful integration’ (Webber 2001: 345). The problem with the ‘leader 148

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state’ concept in the East Asian case is twofold. First, within the core ASEAN group, there is no such leader state. Indonesia is the largest state in terms of population and geographical spread. However, Indonesia lacks the resources to drive the regional processes forward. Singapore has the resources but lacks the size and has a troubled relationship with other neighbouring countries. Of all the ASEAN states, only Thailand has the potential to assume such a leadership role but its capacity is currently only that of a middle-sized ASEAN country and, in any case, is beset by ongoing political turmoil that looks set to continue unresolved for many more years to come. Second, all the ASEAN states are underqualified for a leadership role when compared with the Plus Three Northeast Asian countries. As ASEAN expands its cooperation and integration with these three countries, their scope to exert a leadership function will increase. The problem then becomes one of which of these countries should lead. Even though it is still going through a prolonged economic downturn, Japan still has the largest economy in the region and is well placed to contribute to regional growth. However, any overt leadership bid would trigger a response born of lingering resentment over Japanese actions during the Second World War; something that still detracts from Japan’s regional relations. Compared to its two neighbours, South Korea has neither the size nor the resources to drive regional processes. Instead, it is contributing to regional developments in certain niche areas, for example the East Asian Vision Group. China, however, is the biggest regional state in terms of economy and population. It is also now the largest trading partner with all East Asian states. With these ties have come additional economic and social prosperity for China’s Asian partners, which only encourages deeper ties to be formed in other areas. If the flag follows trade, then China is well positioned to assume the mantle of regional leader and, indeed, may well have already done so in a de facto manner. As former ASEAN Secretary-General Ong noted, the rapidity with which China has engaged with the ten ASEAN states in economic and finance matters as well as in a host of other areas (from agriculture to youth affairs)12 has required the Southeast Asian states to develop common positions on many areas where there was previously uncertainty or disagreement. In practical terms this meant that when Japan and South Korea later began to negotiate their economic and finance agreements with ASEAN a fixed position – one relevant to China’s needs – had already been formed. It was not possible to alter that position without first seeking the agreement of all ten states as well as China. Hence, it can be concluded that the regional order that is emerging is doing so along the China–ASEAN axis with Japan-ASEAN and South Korea-ASEAN fixed into subsidiary roles. A related issue, however, is the way in which China might assert its leadership, particularly when challenges emerge to its core interests. If CAFTA was an explicitly security-focused agreement then it would be possible to conceive of strategic responses to threats, yet as it is an economic agreement then issues of trade or investment-based responses by China to perceived threats need to be explored. One such issue occurred in September 2010 when China restricted the sale of rare earths to Japan. While it is debatable as to whether the minerals trade was suspended or simply placed under enhanced review, the outcome – the absence of rare earth shipments to Japan – was the same. This action was seen as linked to the arrest of a Chinese fishing captain who rammed a Japanese coastguard vessel off the Senkaku/Diaoyu islands. This was the first time that China had used an economic sanction to respond to a territorial challenge. As China holds the largest supply of rare earth minerals, its actions sparked international concern and calls for ‘an end to government “interference with commercial sale of rare earth elements, domestically or internationally, to advance industrial policy or political objectives” ’ (Richardson 2010). Given that China has become the largest trade partner with almost all other Asian economies, its ability to dictate terms has increased proportionately. Although China has long denied any ambition to become a regional (or global) hegemon, its actions in this instance suggest that as its economy 149

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grows and its external trade ties expand its ability to influence the outcomes of regional issues will deepen. Given the economic disparity between China and Southeast Asia, and the presence of similarly contentious territorial/security issues (such as the South China Sea), the question of ‘who leads?’ and ‘who follows?’ becomes more significant for the ten states of ASEAN. Given these issues, it is not currently feasible that Mattli’s leadership model can be applied in East Asia. Webber takes a broader approach, suggesting that ‘a coalition of leading states may provide the requisite leadership for successful integration’ (Webber 2001: 345). As the region still lacks a single state able to drive forward regional integration, it is more likely that Webber’s concept of a group of states will be the most likely scenario for East Asia. Here we see the importance of the ASEAN Plus One (China) relationship. However, a future key challenge will be for ASEAN to continue to maintain its central policy relevance as a trusted actor in regional economic (and other) affairs. If China’s economic strength begins to translate into political and strategic force – which ASEAN is unable to oppose because of its economic reliance on access to China’s markets – then it may well emerge as the leader state but, given tensions between China and Japan as well as South Korea, plus external states such as the United States, it is unclear whether or not this would be a positive outcome for the region.

Towards a new regional (Economic) architecture One development that may reduce possible political and strategic concerns to a stronger China is the creation of binding supranational rules of behaviour. Here, the agreement for an independent surveillance unit as part of the CMIM, as well as the dispute settlement mechanism (DSM) as an addition to the 2002 Framework Agreement, are important steps towards developing both a China– ASEAN economic order as well as a regional order that mitigates risk and provides transparency for all parties. In the case of AMRO, this is the first time that participating states have been willing to have their policies and actions scrutinized by an independent regional body. The 2004 decision to establish a dispute settlement mechanism is the only time that China has been willing to have its decisions policed by an external process. With both of these initiatives there is a clear modification away from the soft law environment characterized (in this context) by the ASEAN Way and China’s adherence to its non-interference doctrine towards the utilization of hard law able to enforce an outcome. As such, the limitations for regional integration imposed by sovereign concerns of member states have started to be eroded and a more flexible definition of non-interference emplaced. As noted above, even though the regional DSM has not yet been tested, its presence as part of the regional policy landscape encourages states (in a contrary way) to work more closely and to negotiate compromise solutions, so that the uncertainty of the legal process does not have to be faced. At present, this erosion is still limited to the economic sector. However, this was also the sector to lead bilateral and regional integration. If the logic of that process (starting with the least contentious area, building confidence and moving to other areas of cooperation) still holds, then this shift to hard law may – in future – be replicated in other sectors as well.

Conclusion Deng Xiaoping once wrote that China should ‘not raise its head’ and become a leader nor ‘should it allow its true abilities to become known’. Yet, when it comes to economics, China is increasingly lifting up its head and showing its strength. The foundation for this change has been China’s economic ties with Southeast Asia. Although this is not a recent development, in the past two decades it has become an important relationship for China, for ASEAN and for the wider region. 150

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The successful conclusion of the Chiang Mai Initiative and the subsequent CMIM highlighted the change in the regional economic order. Where Japan had once been the unchallenged economic leader, China was now its peer. Taken as part of a longer trend, there is no evidence to suggest that this situation will reverse. Indeed, with China having overtaken Japan as the world’s second largest economy in 2010, it can be concluded that China now leads Japan in the region. The reason for this change in economic leadership partly lies in the successful realization of the China–ASEAN Free Trade Agreement. This has brought measurable economic, trade and investment benefits to both parties. As a template, CAFTA also requires Japan and South Korea to modify their engagement with ASEAN – a development that has implications for the creation of a regional order in East Asia. Despite these benefits, questions remain as to where this shift in leadership will lead the region: towards a China-dominated regional order – where political or strategic challenges can be responded to with economic force – or to a more unified region where there are clear and binding rules on all actors. At present there are few incentives for China to encourage the spread of hard law principles in regional initiatives, which leaves it in ASEAN’s interest to attempt to balance China in conjunction with other regional and extra-regional actors. In the end, however, there are also no indications to suggest that the China–ASEAN economic relationship will be downgraded. If anything, its role as a successful example of China’s economic engagement with the regions on its periphery means that China has a strong incentive to continue to develop its ties with the Southeast Asian economies – seeking new opportunities for trade and investment, deepening other aspects of its ASEAN partnership, and forging a new economic order in East Asia.

Notes 1 Guangxi actually established a land-port with Vietnam in 1978, but tensions over Cambodia and the subsequent Sino-Vietnamese War soon shut it down. 2 This was actually the second informal meeting, albeit the first informal meeting of the ASEAN Plus Three group. The first informal meeting was held in 1996 between the (then) six member-states of ASEAN and the four non-ASEAN Southeast Asian states. For more information see: ASEAN 1996. 3 See, respectively, ASEAN 1997b and c. 4 For more information see paragraph 4 of the Joint Statement on East Asia Cooperation, Manila, 28 November 1999, (ASEAN 1999). 5 Comment made by a senior ASEAN official during a visit to Hong Kong. 1 November 2005. 6 See, respectively, ASEAN 2007c, d, e. 7 For a detailed overview on the GMS see www.adb.org/gms. 8 On this point, with reference to the GMS, see the proceedings of Ministerial, Forums and Working Groups meetings held at http://www.adb.org/GMS/gmsproc.asp 9 A currency-swap arrangement is where a number of countries agree to purchase each other’s currencies in order to reduce the impact of speculators as well as abrupt shortfalls in the value of a particular currency in the arrangement. 10 It was suggested by Zheng that ‘The central government’s decision to propose CAFTA in 2000 was strongly driven by the provincial government leaders in the southwest, mainly Guangxi, Yunnan, Chongqing and Sichuan’. If accurate, this links the origin of China–ASEAN economic ties back to the sub-national strategy of opening up of land ports between the 1970s and early 1990s, as discussed in the opening paragraph of this chapter. See Knowledge@Wharton 2010. 11 Text amended to reflect past tense. 12 For a good summary of the relationship see: ASEAN 2005b.

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Part III

Political issues

12 Asia, ASEAN and the question of sovereignty The persistence of non-intervention in the Asia-Pacific Shaun Narine

Since the end of the Second World War, the states of the developing world have jealously guarded their sovereignty. With the end of the Cold War, however, the definition and understanding of state sovereignty has become the subject of debate within the international community. The United Nations and Western countries have pushed for an interpretation of sovereignty that links the legitimacy of a state to its responsibilities to its people. International initiatives have tried to define the conditions under which the international community has an obligation to engage in humanitarian intervention. In addition, economic, political and environmental ‘globalization’ has led many observers to argue that sovereign states need to combine their powers and resources in order to manage their survival in an interconnected world. This chapter considers the question of how Asia has altered its approach to state sovereignty in light of these global forces and influences. It will be argued that most Asian states remain strongly committed to a traditional, Westphalian understanding of state sovereignty. This is certainly true in Northeast Asia, where China, Japan and the two Koreas have shown absolutely no inclination towards reconsidering their approach to sovereignty. Thus, the chapter focuses on Southeast Asia, where a more vigorous debate around sovereignty has taken hold, particularly within the context of the development of the Association of Southeast Asian Nations (ASEAN). From its creation in 1967, ASEAN has been dedicated to protecting the sovereignty of its member states and has practised non-intervention in members’ domestic affairs. ASEAN’s focus on sovereignty reflects its members’ historical experiences with Western and Japanese colonialism. The commitment to sovereignty and non-intervention also reflects the concerns of regional states that had interfered in each other’s affairs in the past – and understood that if their fragile efforts at state-building were to be effective they needed to cooperate with one another. For most of its history, ASEAN has held strong to its normative commitments to sovereignty and non-intervention, though there have been occasional exceptions to this rule. Since the end of the Cold War, ASEAN has been under internal and external pressure to alter its approach to state sovereignty. This pressure increased markedly after the Asian Financial Crisis of 1997–9. ASEAN’s inability to deal with the crisis, along with its ineffectiveness in managing a number of other important regional issues, led many ASEAN observers to conclude that the organization needed to reconsider its approach to non-intervention. Building a more effective ASEAN for the globalizing 155

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world, they argued, started with allowing the institution to directly address the domestic practises of member states that could have harmful region-wide effects (Simon 2010b). On the surface, it appears that ASEAN’s leaders took these criticisms to heart. ASEAN’s efforts to create an ASEAN Community and the associated ASEAN Charter indicate that the organization is seriously debating the limits of sovereignty and the merits of non-intervention. The ASEAN Charter calls for ASEAN’s members to promote democracy and to respect human rights. The Charter also allows for the creation of an ASEAN Human Rights Body, though this body has been criticized for lacking the authority to enforce penalties on recalcitrant member states. But how far can ASEAN really go in reforming its approach to sovereignty? Are the ideals of sovereignty and non-intervention less important to ASEAN today than they were in 1967? Is ASEAN in the process of redefining the meaning of ‘sovereignty’ and its associated values? Are ASEAN’s efforts to loosen its commitment to these ideals likely to be successful? This chapter argues that ASEAN’s commitment to sovereignty and non-intervention will remain almost as strong in the twenty-first century as it was when the institution was first created. A number of interrelated arguments will be put forward to support this point. First, though the proximate conditions have changed, many of the concerns that applied when ASEAN was first created are still relevant today. Most of the ASEAN states are not democracies, and those that are have only weakly entrenched democratic norms. ASEAN countries remain relatively fragile political entities. Second, Western pressure on ASEAN to reform its approach to sovereignty is likely to decline, for two reasons. One, in light of the ongoing ‘War on Terror’, the major Western countries, especially the United States, have lost the moral authority to condemn other countries for human rights abuses. Two, Asia is rapidly becoming the new centre of global power, as the Western world suffers a relative decline. Most of the major Asian states support the traditional Westphalian understanding of state sovereignty. Western – particularly American – efforts to maintain a meaningful presence in Asia means that the US must be far more accommodating to Asian countries. The recent US decision to offer more carrots than sticks in its approach towards Myanmar is indicative of the growing Western awareness of this shift in power, and Western efforts to forestall that shift. A related argument is the fact that ASEAN’s prominent position within the regional architecture of the Asia-Pacific is directly attributable to its ability to bridge gaps between the powerful states of Northeast Asia. This ability is connected to ASEAN’s rules and practices, foremost among them its support for Westphalian sovereignty. It is unlikely that the powerful states of East Asia, particularly China, will continue to support ASEAN’s regional role if it radically alters its position on this important question. A final argument responds to the observation that ASEAN is falling behind other developing world organizations in its approach to sovereignty. Over the past two decades, the Organization of American States (OAS), the African Union (AU) and the Economic Community of West African States (ECOWAS) have been willing to intervene in member states in support of democracy and human rights. However, the considerations that have made intervention more acceptable in these organizations do not apply in Southeast Asia. Moreover, the movement away from traditional sovereignty in these other regional organizations is not as profound as it might appear. In the end, ASEAN’s reasons for maintaining its historical commitment to sovereignty and non-intervention are much stronger than the pressures for change, as powerful as those may be. The risks to ASEAN of putting aside its principle of non-intervention are too great. Transformation of the fundamental norms governing ASEAN will only come about when the ASEAN countries either experience a catastrophic crisis that can only be dealt with through the 156

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pooling of sovereignty within the organization, or when most ASEAN countries become functioning liberal democracies. Even then, democracy is no panacea and could easily present new obstacles to intra-ASEAN cooperation. Some small amount of reform around sovereignty is possible, in order to accommodate Western pressure. But for the foreseeable future, Asia will remain a bastion of support for the traditional understanding of state sovereignty.

The importance of sovereignty as a governing principle in Asia and ASEAN Sovereignty is a complex and contested concept, with a number of different permutations. Robert Jackson emphasizes that sovereignty is about the right of a state to rule a political community and the international community’s recognition of that authority. Jackson distinguishes ‘authority’ and ‘autonomy’, pointing out that a state can choose to give up its autonomy as an exercise of sovereignty. Nonetheless, to the developing world, autonomy and sovereignty go together (Narine 2004). Southeast Asian states were willing to do whatever was necessary to create themselves as stable states. Sometimes this meant compromising on issues of autonomy if it served the larger goal of creating stability. Before focusing on the evolving role of sovereignty in ASEAN, we will consider how it fares in the rest of the Asia-Pacific. China continues to insist that the Westphalian understanding of state sovereignty is central to the modern state system. It jealously protects and defends its sovereign rights and has made respect for the sovereignty of other states a cornerstone – and a major selling point – of its foreign policy (though it has put pressure on Sudan to show more regard for human rights). Not surprisingly, North Korea is also adamantly attached to the idea of Westphalian sovereignty. Japan and South Korea have shown little desire to compromise on their sovereignty. China has been the driving force behind much of the regional institutional development that has occurred in the region since 1997. However, it supports regional institutions that are gatherings of sovereign states, which act together cooperatively but do not pool their sovereignty or subject themselves to the discipline of a transnational bureaucracy or binding, legalistic treaties. In this sense, China has accepted a model of Asian multilateralism propagated and defined by ASEAN (Narine 2010). The continuing rivalry for leadership between China and Japan blocks the emergence of a coherent and effective regional organization. This fact has meant that regionalism in the AsiaPacific has developed with ASEAN at its core. With the encouragement of China, ASEAN has reinforced its standing in the ASEAN Regional Forum (ARF) and become the foundation of new institutions such as the ASEAN Plus Three, the East Asia Summit (EAS) and the East Asian Community (EAC). ASEAN is the default organization, the one entity capable of bridging the gap between the big regional powers precisely because it is the creation of the smaller powers. Pressure from Northeast Asia is pushing ASEAN to favour the status quo in its approach to sovereignty (Narine 2010). For its entire history ASEAN has shown a strong commitment to the principles of sovereignty and non-intervention. When the organization was created in 1967, the Konfrontasi between Indonesia, Malaysia and Singapore had just come to an end. Konfrontasi was a strategy, initiated by Indonesian President Sukarno, designed to foment instability in Malaysia and Singapore, which he viewed as colonialist impositions on the region. The states of Southeast Asia were also preoccupied with the necessities of state-building. Every Southeast Asian state, with the exception of Thailand, had been colonized by a European power or the United States, and then Japan during the Second World War. These experiences made Southeast Asia, like the rest of the postcolonial world, extremely sensitive to issues of sovereignty. The state-building process involved state elites 157

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attempting to construct viable political entities out of disparate ethnic, cultural, linguistic, religious and geographically dispersed groups found within state borders. The regional preoccupation with sovereignty follows from this more fundamental preoccupation with state-building. ASEAN’s important documents and initiatives emphasize the concern with sovereignty, but in practice they also demonstrate the underlying concern with state-building. The Bangkok Declaration of 1967 emphasizes that the countries of Southeast Asia ‘are determined to ensure their stability and security from external interference in any form or manifestation’, but it also made allowance for the continued – if ‘temporary’ – presence of foreign bases in Southeast Asia (ASEAN 1967). This apparent contradiction reflected the fact that most ASEAN countries felt their security was enhanced by the presence of Western powers. Lee Jones argues that during the Cold War, there were many examples of ASEAN countries becoming involved in the affairs of other ASEAN or Southeast Asian states (Jones 2007). Jones argues that this demonstrates that the principle of non-intervention has never been fully adhered to within the organization. These are valid observations, which force ASEAN specialists to be more specific in what they mean by ‘non-intervention’. Nonetheless, these observations do not disprove the general principle that ASEAN has supported respect for sovereignty as its core value. As Jones points out, ASEAN is designed to further the objectives of its members’ ruling elites. Those elites were willing to cooperate in suppressing their respective opposition movements. Jones’s argument implies that most intra-ASEAN interventions happened with the implicit consent of the governments of the ASEAN states involved. In this sense, accepting these interventions can be an exercise of state sovereignty, in that they took place with the tacit permission of the state whose borders were being crossed. This willingness to cooperate in opposing regional insurgency is a further example of the importance Southeast Asian governments placed on state consolidation. With the end of the Cold War, ASEAN’s principle of non-intervention came under challenge. First, ASEAN found that its primacy as the foremost regional institution in the Asia-Pacific was challenged by other regional actors. During the Vietnam invasion of Cambodia, ASEAN had gained significant international prestige as the vanguard of the opposition to Vietnam’s occupation. ASEAN wished to continue exercising the same kind of political influence it had enjoyed during the Vietnam era, but to do so, it needed to appear united and effective in the eyes of the world. With the end of the Cold War, ASEAN expanded its activities. The ASEAN Regional Forum (ARF) was its response to pressure from outside actors for a security-wide regional institution. ASEAN made sure that it was given a major role to play in the Asia-Pacific Economic Cooperation (APEC) forum. But ASEAN also pushed back against Western efforts to force issues such as democratic reform and human rights concerns on to the regional agenda (Engle 2000; Chong 2004). The Asian Financial Crisis of 1997 had a devastating effect on ASEAN’s international standing. The crisis began in Thailand, and quickly spread to the rest of Southeast Asia and beyond. By the time the crisis came to an end in 1999, ASEAN was revealed to be completely incapable of managing the regional economic upheaval. To those who studied ASEAN, this was not a surprise. The organization lacked both the resources and the institutional structures to manage such a crisis (Narine 2002b). Nonetheless, the fact that every Asian institution – especially ASEAN and APEC – proved to be ineffectual during the worst economic crisis of the modern era shattered a great many illusions that the rest of the world had about the unity and effectiveness of the ASEAN bloc. This was particularly true of Western states, whose investments had fuelled the Asian economic boom. This negative impression was reinforced by other events that occurred around the time of crisis. ASEAN’s decision to admit Myanmar in 1997 caused considerable consternation among its Western allies (Manea 2008). At the time of Myanmar’s admission, 23 July 1997, the economic 158

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crisis was just beginning. ASEAN was flushed with the sense of its own importance – the economies of Southeast Asia were still viewed by outsiders as a safe investment. By 1999, this had changed, and ASEAN’s ability to defy its Western allies was seriously compromised. Myanmar became a major problem for ASEAN’s relations with the West (Emmerson 2008; McCarthy 2008). During the same period, deliberately set forest fires in Indonesia created a choking haze of smoke that enveloped the entire region. ASEAN was incapable of managing this environmental catastrophe, because its member states were unwilling to comment on the domestic conduct of Indonesia, ASEAN’s largest member. Cambodia’s admission to ASEAN had been delayed from 1997 to 1999 because of political instability. Cambodia rebuffed ASEAN’s efforts to mediate Cambodia’s domestic problems, arguing that ASEAN was violating its own rules by trying to get involved in the domestic affairs of a regional state. Perhaps most significantly, in 1999, Indonesianbacked militias and the Indonesia military launched punitive assaults against the people of East Timor, who had just voted in a national referendum to seek independence. The resulting humanitarian disaster evoked international outrage and eventually led to the intervention of a UN peacekeeping force (Simon 2010b). ASEAN could not deal directly with the situation in East Timor, partly because its commitment to non-intervention seemed to prevent any effective action. Later on, in an effort to prevent Australia from leading the intervention, Indonesia actually asked ASEAN to lead peacekeeping initiatives in East Timor. ASEAN was unable to comply. Member states were unprepared to take actions that might lead to ASEAN soldiers becoming involved in firefights with Indonesian forces. Ironically, many Southeast Asian states joined the UN peacekeeping mission, apparently more willing to participate in an intervention as members of a UN force than as part of ASEAN. By this time, however, Indonesia had fully accepted the UN intervention, and ASEAN states were not violating its sovereignty by taking part. The bottom line, however, was that ASEAN was unable to take any sort of leadership role in dealing with a major regional security threat. The ARF, the region’s overarching security dialogue, was similarly ineffectual. These various failures greatly embarrassed ASEAN on the international stage and undermined its standing in the world community. ASEAN had to rejuvenate itself and prove that it was a meaningful organization. The Asian Financial Crisis had demonstrated that, in a globalized economy, no state was insulated from the economic misfortunes of its neighbours. The problems of East Timor, and the deliberately set fires in Indonesia, had proven the region’s environmental and political interdependence. To many observers, a significant part of the problem facing ASEAN was its commitment to sovereignty and non-intervention (Dosch 2008; Tacconi, Jotzo and Grafton 2008). Adding to the pressure was the fact that regional organizations in other parts of the world were adopting measures that subjected state sovereignty to meaningful limitations. In Africa, ECOWAS launched a number of military interventions against member states and in defence of regional stability (Choong 2010). In 2002, the African Union (AU) was formally incorporated as the successor organization to the Organization of African Unity (OAU); its Constitutive Act committed the new AU to promoting democracy and human rights on the continent, if necessary through humanitarian intervention (Powell and Tieku 2005). In Latin America, the Organization of American States (OAS) adopted policies that required members to be democratic states, and took measures to penalize and delegitimize governments that came to power through military coup (Kuhonta 2006). Compared to these organizations, ASEAN appeared to be clinging to an anachronistic understanding of sovereignty. From the late 1990s through to the present, ASEAN undertook a number of initiatives and issued various declarations designed to address this decline in its standing. Among these were the 159

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ASEAN Vision 2020 (1997), the Hanoi Plan of Action (1998), which included accelerating the implementation of the ASEAN Free Trade Area (AFTA), the ASEAN Investment Area (AIA), and the reform and expansion of the ASEAN secretariat. These were measures meant to show the world that ASEAN was heading in the direction of becoming a more unified, coherent and effective regional organization. At the same time, ASEAN’s efforts to reconsider the nonintervention principle ran into considerable opposition. In 1998, the government of Thailand proposed the concept of ‘flexible engagement’ – the idea that ASEAN should discuss members’ domestic actions when those actions had cross-border consequences. The concept was rejected by all the ASEAN members except for the Philippines. Most ASEAN states argued that allowing member states to criticize each other would trigger a return to the intra-Southeast Asian conflict that ASEAN had been created to alleviate. ASEAN states compromised by accepting ‘enhanced interaction’, which permitted states to criticize a neighbour’s domestic policies if they had regional effects, but left ASEAN out of the interaction. The idea proved disruptive and was quickly dropped (Narine 2008). The newer members of ASEAN – Vietnam, Cambodia, Laos and Myanmar – had joined the organization with the understanding that non-intervention was one of its primary principles. None of these states were willing to allow the terms of their admission to be redefined (Emmers 2005). At the same time, continuing human rights abuses and political oppression in Myanmar elicited direct condemnation from some of the ASEAN states (Bellamy and Davies 2009). Even though these condemnations were ineffective, the fact that they occurred at all indicated internal tensions over ASEAN’s established norms. In 2003, ASEAN issued the Declaration of ASEAN Concord II, which laid the groundwork for an ‘ASEAN Community’ consisting of three pillars: an ASEAN Economic Community, an ASEAN Security Community (now ‘Political-Security Community’) and an ASEAN SocioCultural Community. The present goal is to achieve an ASEAN Community by 2015. In 2005, at the 11th ASEAN Summit, ASEAN’s leaders signed the Kuala Lumpur Declaration on the ASEAN Charter. The leaders turned the Charter-drafting process over to an Eminent Persons Group (EPG), which presented its recommendations to the 12th ASEAN Summit in January 2007, in the Philippines. The EPG called for the Charter to actively strengthen democratic values, to reject unconstitutional and undemocratic changes in government, and to institutionalize international law. It recommended that ASEAN create a formal dispute settlement mechanism, adopt decision-making by majority vote rather than consensus (in specific areas), and create monitoring mechanisms to ensure compliance with the Charter. The EPG also proposed sanctions against members in violation of ASEAN’s core principles. The report of the EPG was accepted by the ASEAN leaders, but its recommendations were watered down as the political process unfolded. The final ASEAN Charter was presented at the 13th ASEAN Summit, in November 2007, in Singapore. The final document tried to walk a line between moving ASEAN ahead and maintaining its established norms and values. The Charter returned to consensus decision-making and dropped talk of sanctions. It reiterated ASEAN’s support for sovereignty and independence. However, the Charter also made clear commitments to democracy and human rights, and established an ASEAN human rights body, albeit one without enforcement capability. By November 2008, the Charter was formally ratified by all of ASEAN’s members (CaballeroAnthony 2008a; Narine 2009). Today, ASEAN is in an awkward position. On the surface, its stated goals and aspirations seem to lead towards the creation of an effective regional organization that must be capable of exercising a certain level of influence over the domestic conduct of its member states. At the same time, it is evident that many, if not most, of the ASEAN states are not prepared to seriously compromise their sovereignty in order to strengthen the organization (Dosch 2008; Mccarthy 2009). 160

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ASEAN and non-intervention in the 21st century The efforts of external and internal actors to push ASEAN to reform its approach to sovereignty and non-intervention are, ultimately, doomed to fail. These principles remain as important to the survival of the institution today as they were when it was first created. In 1967, the states of ASEAN were engaged in domestic struggles to forge unified and coherent state structures out of many disparate ethnic, religious, linguistic and other identities. The people within the ASEAN states who were controlling this effort were the ruling elites who were, to varying degrees, undertaking the state-building process as part of their efforts to consolidate power. The logic of state-building and reverence for state sovereignty informs the calculations of Northeast Asia as well, especially China and North Korea. In the twenty-first century, democracy has made significant inroads in Southeast Asia. Nonetheless, most ASEAN states are not democracies. Indonesia and the Philippines are the only clear-cut democratic states in ASEAN (Beeson 2008a), yet democracy is undermined in both of these states by corruption, poverty, serious political divisions and the concentration of wealth in the hands of a relative few. Malaysia and Singapore are soft authoritarian states that are willing to use governmental powers to intimidate their opponents. Until relatively recently, Thailand stood as a shining example of democracy in the region and was one of the chief proponents of pushing the boundaries of ASEAN’s established norms. Today, it stands as a cautionary tale, an example of what can go wrong with democracy. To oversimplify the case, Thailand is a state where the democratic process risks exacerbating serious social, economic and geographical divisions within society (Kuhonta and Mutebi 2005; Simon 2010a). The remaining ASEAN states are, essentially, undemocratic. Moreover, democracy is not a panacea. If all of the ASEAN states became functioning democracies overnight, this would not magically solve their many problems. Indeed, it is very likely that democratic reform would make relations between the ASEAN states much more complicated and conflict-prone. During its early history, the fact that the ASEAN states were ruled by authoritarian and semi-authoritarian leaders smoothed diplomatic relations by strengthening the personal relationships between those leaders. The move to democracy and more fluid leadership within ASEAN has complicated relations between members, though it has had the positive effect of putting institutional development on a more solid footing. Even so, there is no meaningful sense of ‘ASEAN identity’ shared by the general public of the ASEAN states. The ASEAN identity only exists among the bureaucratic and academic elites who make up the ASEAN core (Emmerson 2005). In socioeconomic terms, ASEAN states remain ruled by relatively small elites. But this is not unusual in democracies. Most successful liberal democratic states in the Western world are ruled by and for elite interests. Successful Western polities are usually those that have created and distributed enough wealth to keep most of the population politically placated while power and resources are concentrated in the hands of a few. In Southeast Asia, the stability of ASEAN states has long-been understood to be based on ‘performance legitimacy’, i.e. the ability of ruling elites to deliver economic goods to their populations (Alagappa 1995). This is not much different from what goes on in the Western world. Economic and social progress has created and empowered middle classes across much of the Asia-Pacific region, which are now at the forefront of demands for political and economic change. But many ASEAN states are at different levels of development. Even if we could envision democratic reform bringing about substantial change in the original five ASEAN states (Indonesia, Malaysia, the Philippines, Singapore and Thailand), there are new ASEAN members that are at much lower levels of political, social and economic development. Accommodating 161

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these members without creating a multi-tiered version of ASEAN requires that the norms of intervention and sovereignty remain intact (Narine 2004; Emmerson 2005). Just as in 1967, most of the ASEAN countries remain deeply engaged in the state-building process. If contemporary Asia remains strongly attached to sovereignty, why have Africa and Latin America been willing to compromise on the principle? In Africa, since the 1990s, ECOWAS has staged military interventions in member states. The African Union (AU) requires the expulsion and penalization of member states that violate democratic norms. In Latin America, the Organization of American States (OAS) amended its Charter in 1992 to require the organization to condemn any government established through military force. In 2001, OAS adopted the InterAmerican Democratic Charter, which broadened the grounds for condemnation to include governments established through any undemocratic means (Hawkins 2008). In Latin America, the 1980s saw a wave of democratization sweep through the region. OAS’s decision to condemn military coups was a way for these new and fragile democracies to protect their political development. At the same time, OAS hesitates to evoke penalties against the more minor undemocratic practices of some of its members, possibly hurting democratic development in the long run by helping to preserve ‘bad’ democracies (Arceneaux and Pion-Berlin 2007). OAS, like Southeast Asia, remains relatively closed to the influence of civil society (Hawkins 2008; Hawkins and Shaw 2008). In Africa, a series of overlapping civil wars in the 1990s destabilized all of West Africa, created enormous human suffering and death, and spurred ECOWAS to action. Nonetheless, Ba notes that ECOWAS’s interventions in the 1990s were in violation of the organization’s own procedures and were partly motivated by the hegemonic power and interests of Nigeria; ECOWAS became more accepting of intervention in order to legitimate its earlier actions (Ba 2010). The AU succeeded the Organization of African Unity (OAU) in 2002. African leaders feared that globalization was creating a situation wherein weak African states could be at the mercy of powerful foreign forces. The AU attempted to unify Africa while addressing the factors that were keeping the continent weak. The AU Constitutive Act reiterates Africa’s traditional support for sovereignty, but it also empowers the organization to intervene directly in the affairs of a member state, without its consent, to counter egregious violations of human rights. The ‘AU’s constitutive act [stands] as the first international treaty to identify a right to intervene in a state for humanitarian objectives’ (Powell and Tieku 2005). Nonetheless, while the AU has suspended various members for violating its democracypromoting measures, it remains limited in what it is willing to do, and critics have argued that, in practice, relatively little has changed between the AU and its progenitor, the OAU (Makoa 2004; Makinda and Okumu 2008). For example, AU forces only entered Sudan on a peacekeeping mission after receiving the consent of the Sudanese government, despite the atrocious violations of human rights going on within that country. The apparent need for a serious crisis to facilitate significant regional institutional reform is demonstrated by the history of the European Union. In the aftermath of the Second World War, European states lacked the resources to provide their citizens the support that they needed in order to restore the legitimacy these states had lost due to the war. The European Community pooled sovereignty and resources in order to save the European nation state. Significantly, the European nation state had already been constructed as an abstract reality before the devastating events of the twentieth century. Indeed, rabid nationalism is one of the forces that pushed Europe towards war. The EC/EU reinvigorated a sense of national identity that had already been created (Milward, Brennan and Romero 1993). In the case of most ASEAN states, as in much of the developing world, creating a national identity is a work in progress.1 The circumstances that led Africa, Latin America and even Europe 162

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to re-examine their approaches to sovereignty do not apply in Southeast Asia. ASEAN has had to face difficult regional situations caused by the actions of its member states, but nothing on the scale of the humanitarian catastrophes that African states have had to deal with. Most of the crises that beset ASEAN in the late 1990s and early 2000s, were not so devastating to the stability of the member states that they needed to pool their sovereignty in order to survive. East Timor was a disaster for the people of that country, and an embarrassment to ASEAN, but it did not create destabilizing refugee outflows to the rest of Asia. The regional haze due to the forest fires in Indonesia was a major health risk, but it did not threaten the survival of states. The Asian Financial Crisis comes closest to being a seminal event that redefined Asian regionalism. The crisis caused enormous political, economic and social instability throughout the Asia-Pacific. Even if it did not directly result in huge numbers of deaths or refugee outflows, it had the potential to cause much greater regional upheaval than it actually did. Asia’s response to the crisis was the ASEAN Plus Three (APT) and its associated financial instruments, particularly the Chiang Mai Initiative Multilateralization (CMIM). The APT has become the most effective and consequential regional instrument in the Asia-Pacific (Stubbs 2002), yet even so, it remains in its formative stages and is still very far from becoming a regime that can override the sovereignty of its member states. Asia managed the Global Financial Crisis of 2008 (and beyond) far more effectively than any other region of the world. This success was largely due to the economic strategies of individual Asian states and the regional effects of a massive Chinese stimulus package, rather than concerted action or the operation of a regional organization (Choong 2010). The APT did not respond to the crisis, though it is still in the process of evolving into an effective regional instrument. Even so, the inaction of a well-resourced and strongly supported regional entity such as the APT during the current crisis underlines the limitations of ASEAN in this situation. ASEAN lacks the economic resources necessary to deal with any regional economic crisis on its own. Reforming ASEAN in response to the Asian Financial Crisis of 1997 would have been pointless (Narine 2002b). The limitations of the argument that ASEAN must be reformed to better deal with a globalizing world economy are evidenced by the fact that Asian economic integration has proceeded without the benefit of a substantial multilateral economic institution. Economic cooperation in East Asia is taking place without formal economic integration (Dieter 2008; Ravenhill 2008; Webber 2010); private business and bilateral trade agreements are facilitating this process. There may be (Webber 2010) no compelling economic need to change ASEAN’s approach to non-intervention in order to facilitate economic cooperation. A stronger argument may be made that the volatility of the world financial system requires greater, institutionalized state cooperation. Again, however, significant regional coordination was not necessary for Asia to successfully manage the Financial Crisis of 2008. A final major consideration is the direct and indirect role played by the West in pushing ASEAN to reform its approach to sovereignty. After 1997, ASEAN’s leaders understood that the organization’s international political influence was integrally connected to the global perception of ASEAN as a unified institution. Attracting Western investment back to the region required allaying international fears about Southeast Asia’s instability. Thus, ASEAN’s leaders offered various declarations and initiatives designed to restore ASEAN’s image in the eyes of the Western world. The move towards greater consideration of human rights and the corresponding controversy over the definition of sovereignty springs from these concerns. ASEAN’s move in this direction was not just pragmatic, however. Some ASEAN states genuinely desired to be regarded by the West as part of a more liberal global community (Katsumata 2009). Since 2001, however, various events have undermined Western economic and moral influence in the Asia-Pacific. One of those events is the ‘War on Terror’ initiated by the Bush administration in the aftermath of September 11 terrorist attacks on the United States. The War on Terror demonstrated that, 163

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when faced with indeterminate security threats, the states of the Western world are quite willing to resort to draconian police powers and, in the case of the United States, even engage in the use of torture and murder (Acharya 2007; Simon 2010b). Western states have proven themselves to be no different than any authoritarian Southeast Asian state fighting insurgency. In the US, under the Bush administration, state torture became government policy. According to Human Rights First, between 2002 and 2006, almost 100 prisoners of the American military in Iraq and Afghanistan died in custody. The military acknowledged that 34 of these deaths were murder; 8 were death by torture. The most severe penalty handed down by the US military for a death by torture was a sentence of 5 months in jail (Shamsi 2006).2 While some of the more egregious abuses of human rights ended under the Obama administration, the US continued to hold prisoners without trial and try people who confessed under torture in military courts of questionable legitimacy. Even the American judicial system has participated in the cover-up of human rights abuses. The Obama administration has done all that it can to shield Bush-era officials from accountability for their decisions (Savage 2010). 3 Other Western states have been complicit in these acts either through providing assistance to the US or through their silence. As a result, Western calls for Southeast Asian states to follow higher principles of human rights lack credibility (Narine 2005).4 Most significantly, the shift in power and economic gravity in the first decade of the twenty-first century is forcing the West to re-evaluate how it deals with Southeast Asia. The 2008 Global Financial Crisis was a failure of Anglo-American capitalism. This failure undermines the appeal and power of the Western economic model, a model that Asia was already resisting (Beeson and Islam 2005). China, India and Russia are all opposed to international efforts to redefine the meaning of Westphalian sovereignty. China and India, in particular, continue to grow in influence and economic presence in the region (Beeson and Gilson 2010). If these states are not pushing Southeast Asia to abandon its principles of sovereignty and non-intervention, then ASEAN will have little need to bow to outside pressure to reconsider these fundamental norms. Indeed, as we have seen, much of the Chinese support that keeps ASEAN as the central regional institution in the Asia-Pacific is predicated upon ASEAN’s rules and practices, which dovetail with China’s approach to multilateralism. The situation of Myanmar is instructive. After taking power, the Obama administration reconsidered the American approach to Myanmar. After many years of attempting to force Myanmar to change its domestic political conduct through the use of sanctions and international condemnation, the US concluded that its strategy was not working. It is presently re-evaluating its approach to Myanmar and seems to be moving towards engagement. The American about-face is directly attributable to the growing competition between the US and China for influence in the Asia-Pacific (Simon 2010b). China and India have influence in Myanmar; the United States does not. The US’s efforts to compete effectively with China require it to adopt a more pragmatic foreign policy. This means that the pressure on ASEAN to adopt Western human rights norms and ideas of democracy will only lessen with time as the West engages in a competition for influence with Asian powers that do not care about, or explicitly reject, these particular considerations. ASEAN is walking a tightrope in its relations with the West and China. ASEAN states remain tied into the economies of the Western world. This level of interdependence may decline over time as India and China rise ever higher on the world economic stage. However, ASEAN wants Western powers, i.e. the United States, to remain an active presence in the Asia-Pacific. The ASEAN countries believe that a strong balance of power between the major regional and Pacific states will help to ensure ASEAN’s relative independence and influence (Goh 2003; Ciorciari 2009). If any single power becomes hegemonic within the region then the freedom of movement of the smaller states is greatly curtailed. It is possible that unpalatable hegemonic actions from any regional power could push ASEAN towards greater unity and a redefinition of sovereignty. It is 164

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more likely, however, that aggressive action on the part of the major powers would tear ASEAN apart as individual states tried to decide if balancing against or bandwagoning with the assertive power was in their national interests. In the final analysis, pressure to reform ASEAN’s approach to sovereignty and nonintervention will need to come from within the ASEAN states themselves. Civil society in many ASEAN countries, including very important states such as Indonesia, has already influenced some of ASEAN’s stated aspirations (Severino 2006). But there remains a significant gap between the elites who run ASEAN and the states they represent, and the representatives of civil society. Moreover, civil society remains highly constrained within most ASEAN states.

Conclusion The scenario that is most likely to cause ASEAN to truly redefine its approach to sovereignty and non-intervention is a catastrophic event that has such dire consequences that the continued prosperity and even survival of ASEAN states depend upon them pooling sovereignty and resources in order to sustain themselves. If state-building is the underlying motivation of most ASEAN states, then events that threaten the survival of the state would force regional states to a radical reconsideration of sovereignty. Even here, however, it is not certain that these kinds of events would necessarily strengthen ASEAN. A future economic crisis, for example, would probably be managed by the APT – the one regional organization that has the (potential) resources needed to manage a crisis. If the APT could not overcome its own internal difficulties to act effectively, it is likely that the large powers of the region (assuming that they are not the cause of the crisis) will act. Which actors can respond to what crises depends on the nature of the crisis and who has the necessary wherewithal to act. If this chapter is correct in arguing that there is a minimal chance that ASEAN will implement significant reform in its approach to sovereignty, then the chances of Northeast Asian states altering their approach to sovereignty are far less. The inevitable conclusion is that the Westphalian approach to state sovereignty – with a few minor alterations – will remain dominant in Asia for the foreseeable future.

Notes 1 It is worth noting that even the EU, which is the gold standard for regional institutions, has run into problems in its efforts to increase the political and economic integration of Europe. Indeed, Europe’s inability to face the financial crisis of 2008 with a unified voice speaks to the continuing importance of national sovereignty within the EU. 2 Human Rights First believes that at least 45 people were murdered in US custody. In the 34 cases acknowledged as murder by the military, charges were brought in less than half. The CIA was implicated in a number of cases, but no CIA employee ever faced punishment. In the cases of torture, charges were brought in half the cases (Shamsi 2006: 1). 3 To make matters worse, even as American courts denied the victims of American torture the right to sue the US government in court, citing a fear that such trials would reveal state secrets, the US pressured the current government of Iraq to pay out $400 million in compensation to US citizens tortured by the previous Iraqi government of Saddam Hussein. This was a condition for the US to agree to lift UN sanctions on Iraq. See: (Arraf 2010; Savage 2010). 4 In addition, Western countries are among the most obstinate defenders of their sovereign rights. For example, the US only signed one covenant – the International Covenant on Civil and Political Rights – of the International Bill of Human Rights in 1992, and attached so many reservations that the covenant has no effect in the US. American resistance to such international human rights treaties reflected a desire to preserve various American practices, such as capital punishment, that ran afoul of international human rights norms.

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13 The ASEAN People’s Forum (APF) as authentic social forum Regional civil society networking for an alternative regionalism Helen E. S. Nesadurai

Regionalism in Southeast Asia is commonly understood as those processes of interstate interactions, dialogue and cooperation that take place under the purview of the Association of Southeast Asian Nations (ASEAN), a key site of governance through which its member states arrive at common understandings of shared problems and devise possible ways of addressing them. These processes are guided by the ‘ASEAN Way’ norms of sovereignty and non-interference and the ASEAN diplomatic culture of non-coercive, consultative and consensus-seeking interactions and decisionmaking. The ASEAN emphasis on consultation and consensus seeking applies largely to interactions between the ASEAN member states, with ASEAN cooperation on regional governance controlled and driven, however, by the region’s political and bureaucratic elite, with little room for civil society inputs or participation in regional governance processes. Although the regional scholars’ network, the ASEAN Institutes of Strategic and International Studies (ASEAN-ISIS) is often cited as an example of civil society participation in regional governance, it is, in reality, a network that is close to the region’s governing elite, dominated as it is by state-sanctioned or state-sponsored research institutes and think tanks (Acharya 2003: 383).1 Consequently, it has not always been able to advocate moving beyond the norms and functional priorities determined by ASEAN member governments, particularly the more conservative members (Acharya 2004; Dosch 2009). Where the network and other non-state actors have succeeded in influencing ASEAN to adopt progressive norms, such as human rights and democratization, these have been offset by ASEAN’s continued adherence to the sovereignty/ non-interference principle and intergovernmental, consensus-based decision-making.2 In many cases, new norms advanced by these actors have had to be reworked to ensure that they conform to the parameters set by official elites for regional governance (see Acharya 2004). ASEAN leaders, moreover, are averse to discussing at open forums ‘sensitive’ issues with domestic political implications, such as democratization, marginalization and exclusions, rights and social justice. However, the region’s elite-dominated, conservative agenda does not go unchallenged. Aside from challenges from more progressive members of the ASEAN-ISIS network,3 there is also a vibrant and expanding ‘alternative’ regional civil society space in Southeast Asia in which a variety of non-elite civil society groups participate to advance economic, political and social causes that are 166

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often at odds with official agendas and interests (Acharya 2003; Caballero-Anthony 2006; Nesadurai 2010).4 Regional civil society activism – networking, advocacy and collective action – represents a form of regionalism commonly termed ‘regionalism from below’ in academic literature, a phrase that aptly captures its roots in non-elites acting collaboratively to address especially the concerns of groups and people who are neglected, marginalized or adversely affected by prevailing national and regional policies, and to advance alternative conceptions of regionalism. Although networking amongst civil society is one core dimension of ‘regionalism from below’, bottom-up regionalism is also characterized by institutionalized ‘people’s forums’ that usually meet parallel to official meetings of international organizations. In these public spheres, civil society organizations (CSOs) come together to debate pressing issues, challenging officials to explain their policies and articulating alternative approaches to governance that these groups deem to be more inclusive and just as compared to the status quo.5 The World Social Forum and the European Social Forum are examples. Closer to home, people’s forums have been organized parallel to summits of Asia-Pacific Economic Cooperation (APEC) and especially the Asia-Europe Meeting (ASEM) (Acharya 2003; Gilson 2007). In Southeast Asia, the ASEAN People’s Assembly (APA, 2000–9) functioned as a social forum for close to a decade while the ASEAN People’s Forum (APF) emerged out of the annual ASEAN Civil Society Conferences (ACSC) first organized in 2005 (the 4th ACSC convened in February 2009 was formally designated the ASEAN People’s Forum). Otherwise known as track-3 mechanisms, civil society forums such as APA and APF have been tacitly accepted by the ASEAN states, even if somewhat reluctantly by some members, as avenues through which the ASEAN states can engage regional civil society and, consequently, enhance the Association’s links to the ordinary people of ASEAN and, through that, help build an ASEAN community.6 The first APA meeting in 2000, which was attended by civil society groups, business representatives and ASEAN officials (albeit in their private capacity; the ASEAN secretary-general attends in his official capacity) illustrates this shift in official sentiment towards regional civil society, leading Acharya to suggest that APA ‘could become a useful vehicle for a more participatory form of regionalism by providing an arena for debates and discussions between states and citizens about subjects over which governments have thus far exercised strict control’ (Acharya 2003: 386). An effective participatory regionalism also requires ASEAN governments and officials to be prepared to create space for these groups in ASEAN deliberations and decision-making processes. Yet, in practice ASEAN has not always been supportive of APA, which was an initiative of ASEAN-ISIS to bring ASEAN closer to the people (Caballero-Anthony 2006). Civil society groups have also been critical of APA for failing to create formal links between regional civil society and ASEAN officials, and for being too much under the control of ASEAN-ISIS, regarded by its detractors as being too close to the governing elite. To reclaim their independent voice, civil society groups used the annual ACSC (first organized in 2005) as the platform from which to launch the APF in February 2009 (Chandra 2009). In 2009, ASEAN-ISIS voted to end APA, leaving the APF as the sole people’s platform in Southeast Asia. Given the experience and limitations of the Assembly, what then are the prospects of the Forum taking up the mantle to enhance participatory regionalism in ASEAN, especially given continuing authoritarian tendencies in most ASEAN states and the sovereignty-centric ASEAN diplomatic culture that curbs debate and action on many issues championed by regional civil society? Even if the APF faces restrictions from governments and ASEAN officials, does the forum, and its associated civil society networks, hold any broader significance for Southeast Asian regional governance and Asian regionalism more broadly? The rest of this chapter addresses these issues in two parts. It will focus on how the contested dynamics of civil society regionalism in Southeast Asia between an elite and a non-elite civil society network led to the latter’s emergence as a significant ‘network actor’, one that exercised its organizational and intellectual leadership to build 167

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sufficient consensus between regional CSOs on an alternative project of regional governance that challenges core elements of the official regional project. The final part of the chapter considers the implications of this positive development in civil society networking and advocacy for participatory regionalism in ASEAN and for ‘regionalism from below’ in Asia.

From the assembly to the forum: civil society seeks meaningful interaction with ASEAN Despite the curbs placed on voluntary associational activities in Southeast Asia, especially in authoritarian settings where the state sponsors, or even creates CSOs, the region boasts a vibrant but fragmented civil society that nevertheless constitutes a valuable space ‘for political engagement and transformation’ (Weiss 2008: 152).7 In this realm, two classes can be distinguished. A small, non-state yet elite set of actors comprising scholars’ networks such as ASEAN-ISIS and regional business councils tends to enjoy a comfortable and collaborative relationship with officials. In contrast, a vast non-elite or subaltern, and more fragmented, class comprising a variety of CSOs, labour groups and social movements often struggles to get a hearing from governments, usually because these groups and their causes threaten the governing status quo through their core emphasis on people-empowerment.8 Among this class, developmental-type CSOs that focus primarily on meeting the functional needs of particular constituencies tend to get a better hearing from officials as they are considered to be less troublesome than CSOs that engage in political advocacy. Although non-elite CSOs that engage in advocacy do not enjoy a close and comfortable relationship with authoritative actors, nor hanker after such a relationship, they are not averse to engaging with states and international organizations such as ASEAN in order to advance their cause – usually to transform prevailing governance arrangements in ways that emphasize rights, democracy, justice and public participation. These are issues that many Southeast Asian governments under-emphasize in their top-down, developmentalist approach to political, economic and social governance. The line between these two classes of civil society is sometimes blurred, with elite networks such as ASEAN-ISIS often advocating fundamental changes in ASEAN. Nevertheless, this distinction between the two is useful if we are to understand the contested nature of civil society regionalism in Southeast Asia, particularly non-elite civil society’s growing preference for the ASEAN People’s Forum (APF) over the Assembly. Although the ASEAN People’s Assembly (APA), through the leadership of ASEAN-ISIS, had brought regional civil society closer to official ASEAN, civil society groups saw the scholars’ network as a barrier to the APA becoming a more authentic expression of civil society priorities, perspectives and participation. First convened in November 2000 on the Indonesian island of Batam off the Singapore coast, the APA was the first platform aimed explicitly at bringing non-elite CSOs and other grassroots groups into dialogue with regional officials. That such a forum could be formed in Southeast Asia and under the auspices of ASEAN, long known for its elitism and remoteness from the region’s people, was the result of the leadership of ASEAN-ISIS, which had actively lobbied for civil society engagement with ASEAN since the 1990s.9 However, there were two other factors that facilitated the realization of such an idea: (a) the ready presence of a vibrant and growing regional civil society in Southeast Asia that was willing to engage with ASEAN; and (b) the new push by ASEAN to build an ASEAN Community, which not only invited CSO attention on ASEAN but also led to recognition on the part of ASEAN officials that the Association had to consult more with regional civil society in order to realize its goal of building a community of caring societies. Many CSOs had not tried very hard to engage ASEAN before the 1997–8 Asian Financial Crisis (Caballero-Anthony 2006: 64). Instead, they directed their advocacy towards the more powerful multilateral organizations, whose neo-liberal rules and programmes were seen as more 168

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likely to undermine people’s well-being, rather than a weakly institutionalized ASEAN with little in the way of binding regional rules and programmes that could pose a threat (Chandra 2006: 74). CSOs had even targeted their advocacy towards APEC and ASEM, which were seen as champions of neo-liberal economic governance.10 However, CSOs began to view ASEAN in a different light from the late 1990s and especially following ASEAN’s announcement in 2003 of its ASEAN Community project, which envisaged a deepening of regional integration first begun under the ASEAN Free Trade Area. CSOs worried by the economic and social dislocations of economic liberalization and integration initiatives, however, also saw an opportunity presented by the social pillar of the three-pillared ASEAN Community project to embed a more rights-based and socially just form of economic governance in the region. With ASEAN attempting to reposition itself as a rules-based organization through the ASEAN Charter, CSOs became convinced that engaging ASEAN as another authoritative actor could be productive. A good part of this shift was due to advocacy by the Asian Partnership for the Development of Human Resources in Rural Asia (AsiaDHRRA), a regional civil society network on rural development, that convinced other CSOs that their respective global or local agendas merited their engagement with ASEAN (Ramirez 2008: 3). By this time, regional officials had also come to appreciate the value of CSOs’ links with, and deep knowledge of, local communities on issues as varied as social protection schemes, HIV/AIDS, women’s development, youth and drugs (Nesadurai 2004). The growing openness within a number of ASEAN states to engage in dialogue with their citizens meant that these governments were also more willing to support ASEAN engagement with regional civil society (Acharya 2003).11 As a result of these developments, the ASEAN-ISIS idea for non-elite groups in the region to engage in closer dialogue with regional officials through a people’s assembly found a receptive audience on all sides. ASEAN-ISIS performed a number of critical roles with respect to APA – as its ‘convenor, its fund-raiser, its facilitator, its spokesperson, its driving force in the initial years until it takes a life of its own’ (Caballero-Anthony 2006: 64). Its leadership was invaluable in successfully launching APA, given the numerous setbacks the Assembly faced from member governments.12 Although APA brought together a wide cast of regional CSOs at the six forums held until its closure in 2009, its function as a platform for deliberation with regional officials had been undermined by the latter’s reluctance to participate fully in APA, preferring to attend only the opening and closing ceremonies (Chandra 2009: 8). With the exception of the secretary-general, even when ASEAN officials attended the annual APA meetings, they did so in a private capacity, ostensibly to allow for a frank exchange of views between civil society and officials. This did not always happen, however, because many officials could not step out of their official roles (Morada 2008). Moreover, as I have argued elsewhere, this approach accorded the APA sessions lesser status than forums in which ASEAN officials participate in their official capacity (Nesadurai 2004). In contrast, ASEAN’s engagement with business groups has been institutionalized through the ASEAN Business Advisory Council (ABAC), which is often consulted on matters pertaining to economic issues and ASEAN’s economic integration programme. ASEAN has also institutionalized the link between ASEAN senior officials and ASEAN-ISIS. Although APA may have enhanced ASEAN’s ‘participatory’ credentials by providing a public space for people’s voices to be heard by ASEAN officials, the Assembly’s official statements were formally conveyed to ASEAN through ASEAN-ISIS. For regional civil society, it was frustrating that no direct, formal interface had been established between ASEAN leaders and the civil society groups meeting through APA (Morada 2008: 5). Civil society’s frustrations with APA were in marked contrast to CSO’s embracing of the ASEAN Civil Society Conference (ACSC) first organized in Malaysia in December 2005 alongside the 11th ASEAN Summit. Although the Malaysian government commissioned the ASEAN 169

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Study Centre of the Universiti Teknologi Mara to convene the Conference, CSOs were involved in the preparations for the event and were pleased that for the first time a CSO-prepared conference statement was directly presented to the ASEAN leaders by CSO representatives rather than through a mediator, as was the case with APA (SEACA 2005: 140; Chongkittavorn 2009). This was the direct civil society-ASEAN interface that CSOs had long been expecting for APA. ASEAN also announced that it would recognize the ACSC as the ‘formal platform’ for CSOs, to be convened in conjunction with the annual Leaders’ Summits (Ramirez 2008: 6). Civil society’s shift in preference towards the ACSC was accompanied by the formation of a new regional CSO network – the Solidarity for Asian People’s Advocacy (SAPA) – following the 1st ACSC.13 SAPA took the lead in organizing further conferences parallel to the ASEAN summits. However, the 2nd ACSC held in conjunction with the 12th ASEAN Summit was not deemed to be the official civil society platform by the Philippine host government, which chose to accord that status to APA – seen as less threatening by the Arroyo administration, which was grappling with challenges to its legitimacy from vociferous Philippine CSOs (Ramirez 2008: 7). Singapore organized the 3rd ACSC but without an interface session between leaders and CSO representatives (Chongkittavorn 2009). The 4th and 5th ACSCs, both convened in Thailand in February and October 2009, were also designated the 1st and 2nd ASEAN People’s Forum (APF).14 The 6th ACSC in Vietnam in September 2010 has been designated the 6th APF (APF 2010), effectively turning all previous ACSCs into APF sessions. In light of these developments, and at the behest of the German foundation that was now APA’s main funder, ASEAN-ISIS undertook a review of APA in 2009 to decide whether to continue with the Assembly (Interviewee #1 Singapore, August 2010).15 Although a number of ASEAN-ISIS members and CSOs agreed that having both the Assembly and the Forum could only be good for ASEAN-civil society engagement, ASEAN-ISIS in the end chose to close the book on APA, deciding that it had indeed fulfilled its goal to bring civil society closer to official ASEAN. The burden of organizing the six APA meetings held thus far, which had been placed on just one or two ASEAN-ISIS member institutes, also played a part in the decision to end APA (Interview #2, Kuala Lumpur, June 2010).16

SAPA and the Forum: a non-elite network actor and the new public sphere For regional CSOs, APF is clearly the more authentic social forum. Although both APA and APF enabled deliberations amongst CSOs, labour and local community groups, as well as broad social movements, ASEAN-ISIS was seen to be dominating the Assembly, monopolizing civil society’s engagement with official ASEAN, acting as gatekeeper to restrict public participation in APA and even making it difficult for civil society to develop a concerted position on regional economic governance (Collins 2007: 222; Chandra 2009: 5–8). Although each year’s APA agenda involved inputs from regional civil society, the latter was not involved in any significant way in decision-making in APA, which was the prerogative of ASEAN-ISIS. This is why regional CSOs consulted on the future of APA indicated their willingness to support maintaining the Assembly if civil society was accorded a place at the APA decision-making table (Interview #2 Kuala Lumpur, June 2010). Moreover, a common civil society position on economic governance was difficult to achieve through APA because ASEAN-ISIS endorsement of ASEAN economic integration was at odds with civil society’s objection to the neo-liberal elements of the ASEAN Economic Community project, which focuses extensively on competitiveness and productivity but fails to integrate workers’ rights, social justice principles and environmental considerations within the economic integration agenda and work plan. Regional CSOs with considerable experience of 170

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engaging other multilateral organizations preferred to engage ASEAN directly rather than through an intermediary such as ASEAN-ISIS, which was so close to the ASEAN governing elite (Chandra 2009: 7). By 2005, the ASEAN Secretariat was also reaching out to regional CSOs, meeting specifically with the Asian Forum for Human Rights and Development (FORUMASIA), the Southeast Asian Committee for Advocacy (SEACA) and AsiaDHRRA at the ASEAN Secretariat to discuss ways to bring CSOs closer to ASEAN processes. This initial meeting led to the first regional CSO consultation on ASEAN in 2005, which was also attended by the ASEAN secretary-general and senior Secretariat staff (Ramirez 2008: 6). The ACSC was acknowledged as the platform through which regional CSOs would engage with ASEAN on an annual basis. Following the 1st ACSC held in Kuala Lumpur, SAPA was formed in 2006 through the efforts of FORUM-ASIA, SEACA, AsiaDHRRA and Focus on the Global South (FOCUS) (Ramirez 2008: 6). SAPA has become a fairly representative regional advocacy network, with a membership of about 100 national and regional CSOs and CSO networks that also participate in SAPAorganized annual regional civil society consultations. These consultations are on a wide range of concerns affecting Asian communities in the areas of human rights and democracy; globalization, trade, finance and labour; sustainable development and environment; and peace and human security (SAPA 2007). The central theme of SAPA advocacy is people empowerment, especially of those marginalized or adversely affected by the governing status quo, as well as people’s participation in official governance processes (ThinkCentre 2009). To accomplish these goals, the network aims to improve ‘communication, cooperation and coordination among non-governmental organizations operating regionally’ (SAPA 2007).

Organizational and intellectual leadership and the forging of an alternate regionalism For more effective civil society advocacy on governance, Richard Falk (1998: 109) argues that CSOs need to develop common positions on key governance issues and reach a consensus on alternatives to official governance. They also need to direct advocacy towards relevant authoritative actors, principally the state and international organizations. Important to this task is organizational and intellectual leadership to (a) convince CSOs that they need to collaborate and present a unified front; (b) consolidate a coherent counter-governance project from the myriad resistances to different parts of the hegemonic project; and (c) coordinate the production and sharing of alternate sources of knowledge through which counter-positions to the hegemonic regional governance arrangement can be developed and coalitions generated out of disparate groups. Although the strength of CSOs often rests on each group specializing on a single issue, the task of challenging hegemonic governance arrangements requires at the least the articulation of a coherent counter-governance project that draws on common principles from these different issue areas. The organizational structure and work programme of the SAPA network has helped it in its task of getting CSOs in the region to work together in lobbying ASEAN, principally by convincing them of the ‘regional nature of the issues they confront’ (Ramirez 2008: 7). It has also aided the development of a coherent counter-regional project. SAPA networking goes beyond Southeast Asia, covering South Asia and Northeast Asia as well; in all three subregions, the network’s core mission is to articulate a more progressive regional governance than that proposed by official regional organizations. In Southeast Asia, SAPA’s working group on ASEAN, comprising about 40 CSOs based in Southeast Asia, leads the network in lobbying for enhanced civil society participation in ASEAN processes and in developing a unified position on ASEAN’s various policies and programmes (SAPA 2007; ThinkCentre 2009). A similar regional working group handles the research 171

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and advocacy programmes for Northeast Asia, while SAPA’s South Asian work programme is conducted through an already existing South Asian CSO network – SANTI (South Asia Network Against Torture and Impunity) – established in Bangladesh to lobby the South Asian Association for Regional Cooperation (SAARC). SAPA’s advocacy in these subregions is also conducted through people’s forums – the Asia-Europe People’s Forum and the SAARC People’s Forum (SAPA 2007: 9). Aside from its organizational structure and work programme, Marlene Ramirez, the secretary-general of AsiaDHRRA, credits ‘a new generation of CSO leaders … prepared to cross political lines and traditions to form broad-based partnerships’, unlike in the past, as key to SAPA’s consolidation as a network actor, able to forge a high degree of unity amongst very diverse organizations each with its own legitimate area of focus (Ramirez 2008: 8). SAPA’s alternative model of Southeast Asian regionalism comprises substantive and procedural dimensions. In substantive terms, SAPA challenged each of the three pillars of the ASEAN Community – ASEAN Political and Security Community, ASEAN Economic Community and ASEAN Socio-Cultural Community (SAPA 2006a, b & c). Advocating ‘a people-centred and people-empowered’ regionalism, SAPA emphasizes the centrality of human rights, human dignity and human security in ASEAN’s framework for political and security cooperation, recognizing also that the state can constitute a source of insecurity for the region’s peoples (SAPA 2006a: 84; Dosch 2009: 80). On economic governance, SAPA emphasizes redistributive justice, equitable growth and labour rights; for sociocultural community building, it stresses the centrality of entitlements and freedoms while advocating a rights-based and human security approach to the issue of migrant workers, which contrasts with the national security framework through which ASEAN member governments tend to view the matter (SAPA 2006c: 102). SAPA’s input to the ASEAN Charter process further reflects these principles. At the September 2010 APF in Vietnam, SAPA called for a fourth pillar on the environment to be made part of the ASEAN Community so that crucial issues of climate change, natural resource conservation and management, and environmental issues would be addressed in a coherent manner rather than in piecemeal fashion through the Socio-Cultural Community pillar, where environmental issues are currently parked with sundry other items on social and cultural cooperation (Uy 2010). In procedural terms, SAPA has called on ASEAN to recognize and include seven key stakeholders, including trade unions, NGOs, and peoples’ movements in ASEAN policy-making processes (SAPA 2006a: 87). In addition, it advocates a social dialogue between ASEAN and regional civil society as part of the ASEAN Economic Community pillar (SAPA 2006b: 96). In developing these concerted positions, SAPA draws on the collective wisdom of CSOs that emphasize research as a key resource for their advocacy work. The region boasts a number of CSOs such as FOCUS, Third World Network, Asian Regional Exchange for New Alternatives (ARENA), Asia-Pacific Research Network (APRN) and others that produce research papers on regional and global governance institutions and processes (Caouette 2006). By developing alternate or critical knowledge that deconstructs prevailing concepts, policies and practices related (especially) to neo-liberal economic globalization and its governance, these CSOs usually offer well-argued papers to support alternative governance arrangements that emphasize social justice, ecological issues, and the economic rights of workers, local communities and marginalized groups (Nesadurai 2010: 18–19). It is through these works and those of other network members that SAPA has produced position papers on the ASEAN Charter and the ASEAN Community project (see SAPA 2006a, b & c). A fairly coherent alternative regionalism has, therefore, emerged out of research-based networking and advocacy through the SAPA network and in institutionalized public spaces such as the APF, constituting a counter-hegemonic challenge to the dominant ASEAN framework of conservatism, illiberal political governance and neo-liberal economics. 172

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SAPA’s achievement in articulating an alternative regionalist project must be complemented by its ability to direct its struggles over governance to the relevant authority figures. In this regard, institutionalized forums where civil society actors interact with authoritative actors can be helpful; these forums may be regarded as the institutional embodiment of participatory governance as well as an avenue through which CSO advocacy may be more effectively channelled. While such interactions do not always guarantee that officials will adopt CSO perspectives and solutions, and this is revealed by SAPA’s inability to influence the final form of the ASEAN Charter and the ASEAN Inter-Governmental Commission on Human Rights, at the very least, the discursive space may be widened, which could over time lead to substantive change. To further facilitate the network’s advocacy on ASEAN, which has its secretariat in Jakarta, SAPA’s working group on ASEAN established in January 2009 a civil society office in central Jakarta named the ASEAN People’s Centre, which is expected to ‘develop into a regional hub’ for civil society’s advocacy on ASEAN matters (ThinkCentre 2009). However, these substantial advances in ‘regionalism from below’ have not been matched by official progress on participatory regionalism. Instead, ASEAN’s governing elite have begun to employ discursive manipulations and have intruded into APF processes to limit official ASEAN movement on this front.

ASEAN and the Forum: participatory regionalism takes a back seat Discursive manipulations have involved at least one ‘high-level ASEAN official’ publicly contesting civil society’s notion of a ‘people-centred’ ASEAN in favour of the phrase, ‘people-oriented’ ASEAN (Chandra 2009: 9–11). The term ‘people-oriented’ is preferred by ASEAN officials and is documented in the ASEAN Charter in Article 1–13. Alexander Chandra, a prominent SAPA activist and presently Southeast Asian coordinator for the Trade Knowledge Network finds that the difference involves more than just semantics (Chandra 2009: 9–11). It can be interpreted as an ASEAN commitment to emphasize people’s concerns and welfare when designing regional policies without necessarily integrating the region’s people in policy consultations or decisionmaking. CSOs, in contrast, are demanding a ‘people-centred’ ASEAN that will embrace a more democratic decision-making structure in which the region’s people – its stakeholders – are empowered, including through their involvement in deliberations on policies that ultimately affect their welfare. Discursive contestation over this particular terminology clearly involves officials and regional civil society attempting to impose distinct constructions of ASEAN that caters to their different interests. ASEAN, however, seems unlikely to institutionalize greater civil society participation in its internal deliberations and decision-making processes. The Charter, after all, clearly reflects ASEAN sentiments on this matter, having failed to create any institutional mechanism for civil society participation in ASEAN’s consultative processes (ASEAN 2007g). In light of these trends, the future of the interface between civil society representatives from the APF and ASEAN leaders remains in doubt. Member states such as Brunei, Cambodia, Laos, Myanmar and Singapore are said to be unhappy with these interface sessions and have questioned the legitimacy and the mandate of civil society activists claiming to represent the region’s people. Malaysia, the initiator of the first interface, has reportedly been criticized for failing to control CSO participation at that first session (Chongkittavorn 2009). The discomfort of regional governments with the interface prompted senior ASEAN officials in 2009 to decide that these interface sessions would be optional rather than a permanent fixture of ASEAN summits. Moreover, five out of the ten civil society representatives chosen by participants at the 5th ACSC/ APF to represent them at the October 2009 interface session in Thailand were rejected by their respective governments – Cambodia, Laos, Myanmar, Philippines and Singapore – while only the 173

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moderator of the interface, a Thai academic, was allowed to speak, prompting representatives from Malaysia, Indonesia and Thailand to walk out of the interface meeting (APF 2009). The five individuals had been rejected because they had not been vetted as interface participants by ASEAN senior officials, who had, in fact, earlier approved five other persons more acceptable to the countries concerned (Interviewee #3, Singapore, August 2010).17 Even if one accepts that this episode involved a lapse in protocol on the part of civil society, the presence of the vetting process calls into question the official commitment to a genuinely participatory ASEAN. To avoid a repeat of the contested 2009 interface, the Vietnam Organizing Committee (VOC) preparing for the 2010 Hanoi summit has outlined procedures and criteria for both the 6th APF/ ACSC and the interface (APF 2010). More significantly, the VOC requires that APF participants and leaders will have to agree on both the civil society representatives to the interface and its agenda, effectively handing veto powers to leaders and national governments (APF 2010: 7). While this condition could arguably be justified as imparting order to what could be an unstructured affair, it nevertheless undermines regional civil society’s freedom to manage its own representation, and to express itself openly to officials and leaders who seem intent on exercising control over who they deal with and the topics on which they are prepared to engage. The vetting process, it has been suggested, has been adopted to prevent CSO representatives with partisan (i.e. opposition) political affiliations from using the interface as a channel to air their political grievances to national leaders (Interviewee #2, Kuala Lumpur, June 2010; Interviewee #3, Singapore, August 2010). While leaders might be unhappy with the opposition affiliations or sentiments of those selected to act as civil society’s representatives to interface sessions, the fact remains that if these individuals have been chosen by civil society participants at the APF to represent them and the APF, then those chosen should be recognized in this capacity by leaders and officials rather than in terms of their individual political leanings or acceptability to leaders.18 This is why a less controversial option would be to select individuals to represent issues rather than countries at the interface sessions, emphasizing discursive rather than country-based or demographic representation.

Conclusion: towards an Asian counter-hegemonic regionalism This chapter has argued that despite a growing rhetorical commitment to engagement with regional civil society, at the practical level official ASEAN continues to resist civil society’s call for its greater involvement in ASEAN processes of agenda setting, deliberation and decisionmaking. This does not mean that there is no engagement between ASEAN and regional civil society. Civil society participation has, however, been mostly confined to areas of functional utility to ASEAN, usually depoliticized to emphasize the technical expertise and grassroots familiarity of CSOs and local community groups, and therefore helpful when addressing issues such as rural development, HIV/AIDS, disaster relief, women’s development and youth. In fact, ASEAN’s preference, reflected in recent official documents and blueprints, appears to be for a civil society that will help it achieve the already established goals and projects of ASEAN’s governing elite rather than a civil society that will – through genuine, two-way deliberations – help ASEAN set these goals and agendas in the first place. Notwithstanding these limitations, the APF is still a significant development in Asian regionalism for the following reasons. As an initiative led by non-elite civil society groups, APF appears to represent a more authentic social forum compared to APA. However, whether this authenticity can be maintained is open to question. Although regional officials have not thus far intruded into CSO deliberations in the APF, their imposition of terms and conditions for civil society participation in the interface sessions with ASEAN leaders suggests that the move to participatory regionalism is not assured. Moreover, 174

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how open and free the Forum is also depends on where it is hosted. With summit hosts usually providing partial funding for the APF/ACSC,19 there is scope for official interference in the Forum through setting criteria and conditions for participation and debate. Governments could even refuse to hold the Forum, which has yet to be formally institutionalized in the ASEAN Charter, although the ACSC is mentioned in official documents on the Socio-Cultural Community pillar (ASEAN 2009: 23). Despite these problems, the APF offers one valuable site in which various expressions of resistance to mainstream regional governance from civil society are being consolidated into a more cohesive counter-hegemonic regional project that challenges core elements of the regionalism supported by official ASEAN. In particular, it is SAPA, a non-elite regional civil society network, that has provided a locus for harnessing the knowledge and voices of a variety of CSOs across Southeast Asia to articulate such an alternative regionalism. While SAPA appears to perform a role similar to that of ASEAN-ISIS in APA, SAPA is closer to the grassroots in ASEAN than ASEANISIS. Indeed, SAPA and its leading members have helped to generate amongst regional CSOs a greater regional consciousness and a consensus on many key regional governance issues. In that sense, SAPA is becoming more representative of the region’s peoples, which, in turn, renders the APF as the more authentic social forum even as the state tries to intrude into Forum affairs. These recent developments in regional civil society suggest that ‘regionalism from below’ in Southeast Asia will be a phenomenon that will gain in strength even as it faces obstacles from governments in the region. The significance of the APF for wider Asian regionalism lies in the fact that it is part of a growing Asian-wide transnational web of networks and people’s forums through which solidarity is being forged amongst civil society actors, and through which alternative regional projects are being articulated across Asia, specifically Southeast Asia, South Asia and Northeast Asia. SAPA is the central ‘network actor’ in this web of interactions, deliberations and consensus-building from which alternative regional governance frameworks are articulated and speak to the specific local conditions of different subregions. Each of these counter-regionalist projects shares a common framework, however, centred on rights, democratic governance, social justice and people participation. As a result, an increasingly coherent counter-regionalism is in the making across Asia.

Notes 1 For a list of member institutes, see the website of the Institute of Strategic and International Studies (ISIS Malaysia), a founding member of ASEAN-ISIS, at www.isis.org.my/index.php?option=com_content& view=article&id=282&Itemid=127, accessed 10 August 2010. 2 The working group for an ASEAN Human Rights Mechanism comprising academics and activists, established in 1996, has been actively lobbying ASEAN to adopt a human rights agenda. See Mohamad (2002). 3 See Dosch (2009) on the internal differences within ASEAN-ISIS. 4 I use the term ‘elites’ to refer to groups/networks such as ASEAN-ISIS and others routinely invited by officials to contribute to regional policy based on their scholarly/technical expertise. 5 The term CSOs is often used interchangeably with non-governmental organizations (NGOs). 6 Track-1 refers to inter-governmental interactions while track-2 interactions involve non-state actors, principally scholars, interacting with officials to provide input on regional problems. Although non-elite civil society members sometimes participate in track-2 deliberations, their locus of interaction on regional and other policy issues are referred to as track-3. 7 I adopt Alagappa’s definition of ‘civil society’ as that social space between state and family but outside of the market in which people organize themselves using discourse and action to collectively influence the state and other authoritative actors, but ‘whose activities are not motivated by profit’ (Alagappa 2004: 9).

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8 In this chapter, I use the term ‘civil society’ or CSOs to refer to the non-elite groups engaged primarily in advocacy on political, economic and social issues. 9 The role of ASEAN-ISIS in the genesis of APA is discussed in Caballero-Anthony (2006). 10 Neo-liberalism is a set of politico-economic ideas for governing economies and societies based on the self-regulating market. Core policies include liberalization, privatization and deregulation, all aimed at minimizing the state’s role in the economy and unleashing efficiencies in allocation, production and distribution. Employment, social equity and social stability are not core goals of neo-liberal governance, while competitiveness and efficiency are. Even if there is substantial state intervention in markets, a neo-liberal regime may still be in place if states adopt its core goals for firms and the economy and seek to inculcate the population with the ethics of individual responsibility, initiative, hard work and self-reliance. See Lemke (2001). 11 While democratization in Thailand in the 1990s and in Indonesia following the fall of Suharto led to a sprouting of civil society activity in these previously authoritarian states, CSOs in other, less-thandemocratic settings such as Vietnam and Myanmar were also registering an increase (Caballero-Anthony 2006). In these rather more inhospitable settings, CSOs found ways to negotiate with the state and to ‘creatively adapt to their highly restrictive milieu’ (Nesadurai 2010: 12). Many of these CSOs used the new communications technology to ‘escape’ repression and silencing, operating not only through cyberspace but also creating links to other CSOs, in turn, contributing to the growing vibrancy of regional civil society in Southeast Asia. 12 These setbacks are detailed in Caballero-Anthony (2006: 65–66). 13 Ramirez (2008: 6) outlines the series of events leading to the 1st ACSC. 14 The February forum was scheduled to coincide with the 14th ASEAN summit. Although the summit was aborted following internal unrest in the host country, Thailand, the Forum went ahead. 15 Author’s interview with a Singapore-based scholar familiar with the work of the ASEAN-ISIS network, conducted in Singapore in August 2010. 16 Author’s interview with a representative of the Philippine member of the ASEAN-ISIS network, conducted in Kuala Lumpur in June 2010. 17 Author’s interview with a Singapore-based scholar of ASEAN, conducted in Singapore in August 2010. 18 Past ACSC/APF sessions have generated between 200 and 1,000 participants. 19 Funding also comes from regional CSOs and international foundations.

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14 Regulatory regionalism in Asia Shahar Hameiri and Kanishka Jayasuriya

In the field of international relations the term ‘regionalism’ typically refers to various forms of institutionalized or more informal association between geographically contiguous states.1 Because scholars have tended to view states and regions as distinct and mutually exclusive institutionalterritorial domains, they have long been obsessed with the question of the relative strength of regionalism vis-à-vis the states that make up a particular region: How deep is regional integration? How broad? How binding are regional arrangements on national governments? In contrast, we argue in this chapter that a growing and increasingly important variant of regional governance – that which we call regulatory regionalism – is actually located and contested within the institutional spaces of the state, not between states. Rather than denoting the relocation of political authority to supranational institutions, regulatory regionalism highlights the existence of regional governance projects within the apparently national governance and policy apparatuses. Therefore, regionalization in these cases is not transforming the interstate terrain as much as it changes the institutional, territorial, spatial and ideological representation of the state itself to those subjected to its power. Indeed, to make sense of the political dynamics of such new forms of regional integration, or even simply to render them visible to analytical scrutiny, we have to step away from the prevalent tendency to treat the state as a coherent, homogenous and impermeable container. Much of the activity we identify in this chapter has been ignored or misunderstood in the scholarly debates that dominate the field because of the underlying ‘methodological nationalism’ of the main theoretical positions. Rather than reifying the ontological and epistemological premises of international relations (see Walker 1993), we apply a governance approach for examining new forms of regionalism. In our framework, the emergence and development of novel modes of regional governance is understood in terms of their incorporation within political/governance projects of state transformation. What do we mean by this? Regional governance, the principal theme of this volume, refers to the management of the conflicts created through growing interdependencies within a specific – albeit ideologically constructed – geographical region through the creation of institutional fora, policy instruments and networks of private and public actors. As such, regional governance encompasses those institutions, instruments and mechanisms that allocate political power, influence material stakes and shape the ideological representation of the region. Indeed as Thomas (2009) observes, 177

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governance is mainly concerned with policies and politics; or rather, various modes of governance represent a particular form of political rule over the region. The advantage of approaching governance as a technique of political rule is that it enables us to ask these basic questions: Who rules? What is the domain of rule? How is political rule institutionally and spatially organized? Regional governance, viewed through this prism, is a distinctly political exercise and to the extent that particular forms of regional governance become dominant, it is only as a component of a particular political project underpinned by a conjunction of powerful coalitions and favourable political-economic and geostrategic conditions. More specifically, the concrete moves towards regional integration need to be seen as political projects undertaken by domestic actors and coalitions. In other words, regional political projects have roots in domestic structures. Though, as we shall see, the sharp distinction between domestic and external, which was always tenuous (see Agnew 2009), is further problematized by the emergence of various forms of regulatory regionalism. In earlier work we have used the idea of governance projects to explore the domestic foundations of ‘open regionalism’ in East Asia in the form of various projects of ‘embedded mercantilism’ (Jayasuriya 2003). However, these domestic structures and concurrent regional projects have come under increasing pressure in an era of globalization, with the Asian Financial Crisis of the late 1990s proving an important catalyst. One of the outcomes of the decline of East Asia’s dominant political project of the 1980s and 1990s has been the emergence of the various forms of regulatory regionalism we identify here. In a nutshell, we argue that the development of regulatory regionalism should be seen not simply as a response to the rise of new problems of economic and security governance, but as part of the process through which political rule is organized and contested. In what follows we begin by expanding on what it means to study regional governance as a political project. We then go on to examine the drivers of regulatory regionalism in Asia. The third section looks at the instruments and actors of regulatory regionalism, while the conclusion identifies potential future research directions.

Regionalism as a governance project One of the major drawbacks in dominant approaches to regional integration is that they are premised on an, often implicit, methodological nationalism (see Wimmer and Glick Schiller 2002), which reifies an analytical dualism between regional institutions and the nation state. The problem of creating ‘hard’ levels of analysis is not unique to the study of regions, but to the international relations discipline as a whole (Cerny 2010). In the study of regions, this analytical dualism produces three seemingly contending approaches to regional integration, which despite their apparent divergence nevertheless share similar theoretical limitations, particularly in relation to new modes of regional governance. The first approach, which could be broadly termed liberal institutionalism, is the descendant of earlier functionalist and neofunctionalist theories of regional integration (Haas 1964; Balassa 1965; Mitrany 1975). It sees regional institutions eventually supplanting some or all state functions. The second is premised on a realist tradition that views national political elites and institutions resolute in their resistance to the encroachment of regional institutions into sovereign functions (Milward 2000; Lake 2009). Finally, constructivists, who have become increasingly important in the study of regionalism since the 1990s (Acharya and Stubbs 2006; Acharya 2009), tend to focus on the interrelations between the development of regional institutions and linkages, and the emergence of regional identities. In all three cases, the nation state is the starting point for the analysis of regional institutions. 178

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In contrast, the governance approach suggested in this chapter focuses on the transformation of the internal political spaces of the state rather than on the spaces between them, though the two processes are of course closely related. This is a crucial dimension of our argument because it implies that adopting a governance lens from which to view regional order allows us to locate the latter within the context of political projects of market-making and state transformation in individual countries. From this perspective, the process of state transformation is the key to the analysis of regulatory regionalism (Hameiri 2009; Jayasuriya 2009). We see regional governance projects as part and parcel of the process of state transformation. By state transformation we are ultimately referring to an institutionalized and/or routinized transformation of the manner in which political power is produced, reproduced and distributed within states (Hameiri 2010). This is based on a materialist view of the state which, influenced by theorists such as Poulantzas (1978) and Jessop (1990, 2007), conceives of it as a social relation and an expression of power (Painter 2006). State transformation in our analysis has three interrelated dimensions involving shifts in the location of state power, meaning the actual governance structures and spaces where state power is exercised; in the kinds of actors exercising state power; and in the kinds of ideologies used to legitimize the exercise of state power. The emergence of regulatory regionalism manifests a particular kind of state transformation – that which involves the opening up of ‘regional’ – ideologically projected as such – governance spaces within the state. The distinctive dimension of emerging forms of regional regulatory governance lies in the transformation of the internal spatial architecture of the state. By ‘state space’ we refer to the way that state strategies constitute and delimit the boundaries and the representation of the space through which political rule is secured. As already mentioned, much of the international relations literature takes for granted the national territorial boundaries of state action. Yet as Poulantzas reminded us, these frontiers and boundaries ‘do not exist prior to the unification of that which they structure’ (Poulantzas 1978: 105). Political geographers have long argued that the production of space, and hence of territorial space, is a political process (see Brenner and Elden 2009). Just as in previous centuries national boundaries were entrenched and consolidated, the twenty-first century sees forms and practices of regional governance in which the ‘regional’ becomes incorporated within the spaces of the state. Regulatory regionalism refers to one possible trajectory of transformation of the state’s spatial and territorial boundaries (Jayasuriya 2009; Hameiri and Jayasuriya 2011). More specifically, regulatory regionalism could be described as a process of internal transformation that creates the appearance of regional frontiers within the state’s policy and governance apparatuses. Regional governance, from this perspective, is not an agglomeration of national territorial and political units at a higher regional level. It is a more fundamental regionalization of economic and security issues. Emerging forms of regional regulation rely more on the active participation of national agencies in the practices of regulation, than on formal international treaties or international organizations for their enforcement (Zaring 1998; Phillips 2001; Jayasuriya 2008). Worldwide, the clearest example of regulatory regionalism is the Open Method of Coordination (OMC) within the European Union. The term ‘Europeanization’ essentially refers to the internal transformation of EU member-states driven by OMC processes. Similar structural processes – albeit much more informal and embryonic – are evident in Asia. Crucially, the regionalization of governance is far from a simple functional process. The creation of regional spaces is at its root a political project underpinned by social and political coalitions and distinctive ways of framing these spaces. Regulatory regionalism brings into play a multiplicity of scales of governance within the state, creating novel forms of political conflict between contending regulatory regimes. Actors will attempt to shift the scale at which particular 179

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issues are governed as a way of tipping the balance on these issues in their favour. For example, Lillie (2010) argues that increasingly the distinction between ‘offshore’ and ‘onshore’ production does not involve any physical relocation of production sites. It is rather a way for capital to escape from national class compromises and undermine the associational power of the working class by altering the regulatory regime through which capitalist social relations are facilitated. In this respect, Gough has argued that shifting scales of governance strategies ‘can be understood as mediations of fundamental contradictions of spatial accumulation. Shifts in the scale of governance then appear as means for shifting the balance within these tensions by using scaled institutions and economic processes’ (Gough 2004: 206). From this perspective, regulatory regionalism is one expression of changing class relations within transformed scales of economic activity. The important point is that a rescaling of the kind associated with regulatory regionalism is not simply a strategic choice of actors. Rather, as we shall see in this chapter, it is only possible because of the historically specific conjuncture of favourable political-economic and geopolitical conditions generated by globalization and the end of the Cold War.2

The drivers of regulatory regionalism in Asia Regulatory regionalism, as we have argued above, could be seen as a process through which the spaces of the state are transformed as it moves governance beyond its traditional national territorial framing, though not necessarily beyond the national policy and governance apparatus as such. Rather than being about trade liberalization or defence cooperation between states, as regionalism has traditionally been perceived, regulatory regionalism refers to the regionalization of the state’s domestic policy and governance apparatuses, mainly through the involvement of national agencies and actors in regional governance. Such a process could be facilitated by intergovernmental agreements that open up regional regulatory spaces within the state across a wide range of issues, with the OMC the most obvious example here. Regulatory regionalism could also emerge in a more tentative and ad hoc manner due to the real or perceived regionalization of particular economic activities and/or security problems. The latter pattern appears more pertinent to the Asian experience. To make sense of this process we have to locate it in the context of shifts in the global political economy in recent decades and specifically in the increasing transnationalization of production and financial flows. These developments have changed the nature of state-market relations in Asia (see Jayasuriya 2003; Underhill and Zhang 2005), as well as promoted the emergence and strengthening of transnational interests and coalitions. In particular, the Asian Financial Crisis has catalysed the (incomplete) decline of East Asia’s ‘embedded mercantilism’ – the political project primarily associated with the Asian developmental state – as well as the associated ‘open regionalism’ regional project, which focused on promoting trade liberalization between national units (Jayasuriya 2003, 2005). In turn, the challenges and conflicts associated with Asia’s changing political-economic realities have played a crucial part in making the management of transnational risks an important governmental and regional activity, thereby driving the growth of regulatory regionalism even further (Jayasuriya 2009). Perhaps the most important driver of regulatory regionalism in Asia has been the emergence of regional-transnational production networks, initially associated with Japanese investment after the 1985 Plaza Accord and later with the rise of China. While China’s economic development is itself an outcome of structural transformation in international production, its various subregions are now important locations in regional or global production networks that traverse national borders and that in some cases link East Asia with other parts of the globe (Breslin 2005). Though the Chinese national government has not shown particular interest to date in leading wide-ranging 180

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regional regulatory projects such as the OMC, in part due to its proclaimed commitment to state sovereignty, its economic rise manifests a new form of production that is not necessarily encompassed within the national territorial space. This has been associated with concomitant growth in regional modes of regulation aimed, for example, at fostering financial stability. Yet, it is not only transnationalized production that operates regionally. Domestic capital also increasingly operates on a regional rather than national scale. For example, Singapore’s state capitalist companies now have expansive regional reach. Their regionalization has been accompanied by efforts to promote regional forms of economic governance, as well as affecting the political governance arrangements of other states in the region (Rodan 2004). The ASEAN Free Trade Area (AFTA) agreement and the developing web of bilateral trade agreements between regional states can be considered as part of this ongoing regionalization of activities and functions of domestic capital – private or state controlled. Indeed, as Christopher Dent (2010) demonstrates, free trade agreements (FTAs) in Asia (and elsewhere) have in recent years taken on a more regulatory scope than their 1990s predecessors. Rather than simply being about the elimination of trade barriers between states, FTAs now include clauses that require domestic regulatory transformation in areas such as intellectual property, investment, government procurement, and competition policy, as a condition of trade liberalization. While the transnationalization of production and regionalization of domestic capital played a particularly important role in driving the emergence of regulatory regionalism in Asia, it is also important not to overlook the contribution of the region’s increased financialization in the wake of the Asian crisis. Rethel (2010) argues that the earlier disagreements in the 1990s between supporters of financial liberalization (‘liberalizers’) on the one hand and the developmental state (‘interventionists’) on the other, have come to be largely replaced by a consensus in the region that a degree of financial development is essential and that emphasis has to be placed on improving financial governance, both within and between states. She documents a staggering growth in the size of bond markets in Asia, as the earlier bank-led developmental state model is increasingly being surpassed. The growth of bond markets has been accompanied by the establishment of the Asian Bond Market Initiative (ABMI), a platform for developing and regulating domestic currency bond markets, as well as the Chiang Mai Initiative (CMI), a scheme designed to prevent the collapse of the national currencies of participating states by facilitating currency exchange agreements. Crucial to the two initiatives is a regional surveillance mechanism, under the ASEAN Plus Three (APT) umbrella, whose primary objective is to assess the quality and health of domestic governance arrangements. Responsibility for surveillance has been placed mainly with the Executives’ Meeting of East Asia-Pacific Central Banks (EMEAP) and the APT finance ministers (Nesadurai 2009), though in the case of ABMI for example, the task of developing bond markets is in the hands of technocrats and not political actors (Rethel 2010: 13). The example above of the twin processes of increasing financialization and financial regulatory innovation also highlights the rising significance attached to ideas of risk and risk management in the emergence of regulatory regionalism in Asia. Arguably, risk management in various guises has become the most important driver of regionalization of the kind discussed in this chapter. German sociologist Ulrich Beck (1999, 2009) has identified the emergence of new kinds of risk in recent decades, which he calls ‘de-bounded’ – not limited by national borders or calculable time frames. These risks, which are mainly the unintended by-products of industrialization and globalization, are low probability but high consequence, and therefore escape existing forms of social and private insurance, which rely on statistical analysis and financial compensation. For Beck, de-bounded risks differ from those of industrial society in that they can only be managed through reflexive collective and self-governance. Increasing awareness of their existence, he argues, creates a new 181

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‘risk society’, in which modernity and progress are problematized, and risk management shifts to the core of politics. In time, Beck sees the development of a ‘world risk society’, in which people understand that effective management of de-bounded risks is beyond the capacity of individual governments and that thicker forms of regional and global cooperation are required. In Asia, too, governmental, intergovernmental and nongovernmental actors have called for new regional approaches to the regulation of problems such as climate change, environmental degradation, the spread of infectious diseases, human trafficking and transnational terrorism (Dupont 2001). Though such efforts have often fallen short of driving substantive change in governance (see Caballero-Anthony 2008b), there is no doubt that the rationale of risk management has become pervasive across the region, as evident by the ASEAN charter for example. Yet, in line with the general argument in this chapter, risk management should be seen as a particular form of political governance. Governing through risk involves a set of boundary crossings over the traditional Weberian public and private spheres and the Westphalian internal–external divide. The important aspect of the so-called ‘world risk society’ is that it requires a global and/or regional response to issues previously firmly within the jurisdiction of states. In the same manner as the economic governance processes described above, risk management has to be seen not as an externally driven process, shaped by empirically observed transformation to the security environment, but as an internal process that fundamentally transforms the national spaces in which the governance of these issues is conducted. Risk management should thus also be seen as a political project concerned with the rescaling of state activities, instruments and discourses, beyond the national political arena. This means that other actors and coalitions may resist the characterization of particular issues as risks, when rescaling is detrimental to their interests (Hameiri 2011). The near-annual haze problem in Southeast Asia – the result of illegal and unscrupulous forestclearing practices in Indonesia – is a case in point. Despite considerable evidence of the fires’ adverse effects on the health of individuals across several states and the efforts of the Singaporean government in particular to set up a regional agreement for standardizing forestry practices, powerful interests well-connected within the Indonesian state who benefit from land-clearing have managed to prevent such rescaling from taking place. To date, the Indonesian government has declined to sign the regional agreement (Tay 2009).

The instruments and actors of regulatory regionalism in Asia Instruments Regulatory regionalism is a phenomenon that cuts across a very diverse range of issues from finance to energy governance. What all new modes of regulatory governance have in common, however, is the recognition that regional regulation can be implemented and policed at the local level – either the national or sub-national. In practice this has taken the form of multilevel governance, usually in conjunction with the development of specialist international/transnational policy networks around particular issues that incorporate parts of the state. Multilevel governance is a term popularized in the EU studies literature3 and, according to Hooghe and Marks (2003), it could assume one of two meanings. Type I multilevel governance in their conception essentially refers to a kind of federalism, in which exclusive, generalized and territorially defined political units of various sizes are contained within each other like a Russian doll. This is the traditional view of regionalism as a territorial unit above its component-states. Type II multilevel governance, on the other hand, refers to function-specific, flexible and 182

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problem-solving jurisdictions. These jurisdictions may come and go according to perceived need and may even compete with one another over the authority to govern particular issues. Regulatory regionalism arrangements tend to approximate the second ideal-type of multilevel governance, as functional-specialization is one of the primary mechanisms by which issues are rescaled beyond the national level (Hameiri and Jayasuriya 2011). In Asia, Caballero-Anthony (2009a), for example, has identified the emergence of a rudimentary form of multilevel governance, with ASEAN at the centre of several new policy networks operating at the regional, national and sub-national levels. These networks have particularly been concerned with the management of new non-traditional security issues, which are typically seen to traverse national borders, thereby requiring a regional response. Another important example for multilevel governance in Asia is the Asian Development Bank’s (ADB) Mekong Project. The Mekong Project is managed by a complex system of governance that includes ministerial councils of the relevant countries, a secretariat to manage its affairs, and a parallel system of national-level committees that serves as a conduit between trans-boundary water management and internal national management structures. Hirsch (2006) describes an intricate terrain of multilevel conflicts between the various actors over who governs what, and at what level. This example demonstrates that within Type II regionalizations there are no clear hierarchies of scale, as we have come to expect in Type I arrangements, and therefore the establishing of boundaries, as well as their hierarchical ordering, tends to be a dynamic process of conflict and accommodation, which shapes the actual form of regional governance. An important mechanism of regulatory regionalism that relates to both policy networks and multilevel governance is metagovernance, which refers to the ‘governance of governance’. This includes a range of regulatory activities, but mainly those concerned with establishing procedures and rules for the regulation and development of governance arrangements that incorporate a range of governmental and non-governmental actors, whether these be network, multilevel governance or both (see Jessop 1998; Jayasuriya 2004). Metagovernance is particularly important for regulatory regionalism, since regional governance of this kind generally does not involve direct forms of rule but, as we have said, tends to rely on the participation of a wide range of actors across the public-private divide in regulation. The increasing importance of metagovernance in contemporary governance processes is associated with a realignment of power within bureaucracies. Metagovernance functions tend to be located in the core executive of states and international organizations, while actual governance is increasingly dispersed to a great variety of governmental and non-governmental actors, so that as governance is becoming increasingly diffuse metagovernance is increasingly concentrated (Jayasuriya 2004). In Asia, the ADB has played a metagovernance role in the development of the aforementioned Mekong Project. It has also, however, been instrumental to the particular form assumed by the region’s two financial governance platforms – the CMI and the ABMI. In the case of the ABMI, the ADB provides important technical and research assistance, while also hosting AsianBonds Online – the ABMI’s information database. While the ADB to some extent acts as a conduit for introducing international financial governance to Asia, and to that extent the schemes are a manifestation of the emergence of ‘market states’ in Asia (Robison 2006), Rethel (2010: 14) notes that there are important differences that pertain to the particular political-economic and ideological context in Asia in which bond market development has occurred. For example, while bond market development is generally seen, by standard-setting organizations such as the Bank for International settlements, as crucial for national and international financial stability, ADB research emphasizes the utility of bond finance as a way of supporting infrastructure development in the region. 183

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Actors Along with the emergence of new instruments of governance, regulatory regionalism is also associated with the integration of new kinds of actors into the governance process, as well as with changes in the roles of existing governmental and intergovernmental agencies. We have already mentioned above the way in which the core executive of states and organizations has been taking on metagovernance capacities within an increasingly diffuse governance landscape that includes public, private and third-sector actors. Much has been written about the growing significance of private actors in governance. Particular attention has been afforded to private security companies (PSCs) – or private military companies (PMCs) (Singer 2003; Liss 2009) – while scholars have also examined the increasing importance of private sector consultants and experts in guiding policy decisions and in designing, implementing and auditing regulatory governance within and beyond the state (Stubbs 2003; Hamilton-Hart 2006). The important aspect of this phenomenon is that these are private actors exercising various forms of public power. For example, Krahmann (2008) has argued that the increasing privatization of security-provision poses potential challenges to the idea of security as a public good. In a study of maritime PSCs in Southeast Asia, Carolin Liss (2009) has shown that while national governments were quite hostile to the involvement of PSCs in the region, operators tend to make informal arrangements with local officials to ensure contractors are not harassed. But it is not only private actors that have been taking on specialized governance functions. In fact, there has also been a substantial growth in the number and scope of public, unelected regulators and policy-making bodies (Vibert 2007). These agencies tend to engage in relevant policy networks that include peers from other states and multilateral and private sector organizations (Slaughter 2004). One example from Asia would be the Asia/Pacific Group on Money Laundering (APGML), which connects national regulators with the Financial Action Task Force, the World Bank, the International Monetary Fund, the International Organization of Securities Commissions and several others (Sharman 2008: 648). Therefore, it does not matter so much whether the regulatory actor involved is public or private, since the divide between Weberian-Westphalian notions of public and private, domestic and international are challenged through the development of regulatory regionalism. Rather, there is an observed tendency towards increasing specialization of governance and a growing gap between established ideas of sovereignty and political representation and new forms of political agency advanced through the new modes of regulatory governance discussed in this chapter.

Conclusion and future research In this chapter, we have attempted to correct the bias of much of the literature on regionalism in Asia, which focuses primarily on formal institutions and agreements between states. There is a growing diversity of regional governance arrangements, which we call regulatory regionalism, not picked up by mainstream international relations research. This is because regulatory regionalism is not located in the terrain between states but involves the transformation of the internal architecture of the state, and rather than denoting the emergence of supranational entities this transformation occurs through the active participation of national and sub-national agencies in regional regulation. The significance of this chapter’s findings, as well as earlier research into regulatory regionalism, is not descriptive. Rather, we are seeing the emergence of new and important forms of political rule. Making sense of basic questions such as who rules and how, which in traditional international 184

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relations perspectives are answered a priori, therefore requires stepping beyond the limits of methodological nationalism towards a new framework that places state transformation at the core of the study of regionalism. In essence, we identify here a new research agenda for scholars of regionalism. But, as with all new research agendas, considerable more work has to be done to flesh out our argument further. We have argued that regulatory regionalism is one of the possible trajectories of state transformation, which itself is a process associated with shifts in the global political economy. To make sense of the potential dimensions and future trajectories of this process, then, we must closely interrogate the various aspects of state transformation – the shifting location of political authority, the emergence of new regulatory actors exercising state power, and the changing ideological rationalization for the use of state power (Hameiri 2009). Future research also has to take account of the challenges to regulatory regionalism, including specifying the kinds of coalitions that emerge to contest the transformation of the state and the circumstances in which these have been successful in preventing the rescaling of governance. It is apparent, for example, that despite the increasing diffusion of public authority, ideas of national sovereignty and national political community remain very powerful and retain a strong popular appeal in Asia, as elsewhere. Indeed, we need look no further than the government-sponsored march of Chinese nationalism in recent decades and the officially sanctioned revival of Confucianism – trends that seem to be in some tension with Mao’s agrarian socialism of the past. Whether such contradictions can be resolved is difficult to predict, but only partial explanations to future developments will emerge out of persisting with current international-relations frameworks. Like it or not, state transformation and the associated emergence of a multitude of new modes of regulatory governance – regional or other – is now an inescapable part of the political landscape in Asia.

Notes 1 Research for this chapter was generously supported by Australian Research Council funding for a Discovery Project (DP110100425), ‘Securitisation and the Governance of Non-traditional Security in Southeast Asia and the Southwest Pacific’, for which the authors are grateful. Additional funding was also provided by the Asia Research Centre and the Social Research Institute at Murdoch University. 2 On the role of geopolitics in the construction of regions see Beeson (2009). 3 For an overview see Bache and Flinders (2004).

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15 Corruption in East Asia Howard Dick

Introduction There is a widespread perception around the world that Asian countries are corrupt.1 This perception filters across the media, academia and the aid community. It is fed by corruption indices and the rocky path of governance reform. The perception is not entirely wrong, but neither is it a fact, let alone a useful guide to understanding or policy intervention. First, Asia is as extensive as the Americas and even more diverse in geographies, cultures and historical trajectories. Second, corruption in the region – though pervasive and resented – is not necessarily the fundamental weakness of governance; it may be a symptom rather than a cause. Third, social and political change is a very long-term, complex process in which moral crusades and hasty interventions often have unpredictable and messy consequences. This chapter seeks to do four things. First, it considers whether any useful broad generalizations can be made about corruption in Asia. Second, it breaks up the broad abstraction of Asia into clusters of countries that have something in common in terms of heritage, system of government or development, to see whether these stories reveal any patterns in trajectories towards clean government. Third, it analyses whether democratic or authoritarian systems are more likely to give rise to prosperity and clean government, taking into account the role of a growing and more influential middle class. Finally, it draws out some policy implications for governance reform. The chapter is a critical essay, not a survey of the literature on the subject. I argue from the perspectives of history and political economy that corruption is only one aspect of necessary social change. An analogy is climate change: it can be diagnosed scientifically but cannot be ‘fixed’ without addressing the social, economic and political systems that generate it.

Definitions and data Corruption is at first sight a fairly simple phenomenon: the abuse of official position for private or personal gain, typically within the state apparatus but also, as Transparency International (2009a) argues, within the private sector. The clearest example is bribery, which may extend beyond cash payments to perquisites in-kind or ‘gifts’ provided to secure a discretionary favour. Nevertheless, complications soon intrude. Gifts are not necessarily bribery (Verhezen 2009). Where civil service 186

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salaries are low, small payments are often justified as ‘facilitation’. Moreover, ‘corruption’ is only one of several means that people and organizations use to gain advantage. Networking and personal connections are another. In many Western countries lobbying has become a massive industry that is strangling effective representative democracy. In short, corruption is just one colour in a rainbow of informal institutions and behaviours that cut across formal laws, regulations and procedures. Even apparent success in the fight against ‘corruption’ does not mean that the political, legal and economic system necessarily delivers good governance, or that it is fair. There are two fundamental issues. First, underpinning the apparently simple and universal definition of corruption is the Weberian ideal of the rational bureaucratic state acting in the public interest. From a Western perspective this may seem to be unarguable. However, many countries are still evolving from patronage societies in which the public interest is weakly defined and legal sanctions are weak. In such transitional cases, and in a situation of a small tax base and low civil service salaries, ‘corruption’ may not be quite so cut-and-dried. Attention must be paid not only to deviations from the allegedly universal ideal but also to deviations from prevailing social norms. Second, by its very nature corruption is hidden from the public gaze. Corruption is made up of deals that involve an exchange of money for favours and are known only to the parties to the deal (Lamdsdorff 2007). Secrecy is the essence of the informal arrangement that allows public servants or politicians to maintain the pretence that affairs are being conducted according to the formal laws and constitution of the state. The compromising deal becomes public only if the deal breaks down through opportunism or the pressure of unanticipated events. Citizens know how corruption impinges upon them in daily life, but otherwise must deduce the extent of the phenomenon from unexplained outcomes and associated rumours. The scandals that blow up when the corruption of those in power comes to public attention are notable not only for their juicy revelations but also for the wave of suppressed anger they engender. Scandals give people a target for their discontent. Nevertheless, trying to measure the extent of corruption from revealed scandals is less reliable than measuring icebergs based only on the proportion that can be seen above the surface. ‘Corruption’ is in the eye of the beholder: all that can be measured is perceptions of corruption in terms of prevailing norms, which are subject to change. Clearly, this is influenced by the ways in which corruption impinges upon those who perceive it. The reporting of corruption in the mass media also plays a part: an anti-corruption drive may cause more cases of corruption to be exposed. As with any campaign on behalf of public morality, the target is a shifting one and the outcomes unpredictable. These are matters to which we will return, but first it is helpful to get an overview from some figures that are available. The Corruption Perceptions Index (CPI) compiled annually by the non-governmental organization Transparency International (TI 2009b) is the best available ranking of countries by level of perceived corruption. Allowing that corruption is subjective and that cross-country comparisons are partial and statistically fraught, the data shows some interesting results. First, East Asian countries span the entire range – from Singapore, which ranks third after New Zealand and Denmark, to Myanmar, which rank third last, just ahead of Afghanistan, out of the 180 countries surveyed (TI 2009b). Second, these 13 countries of East Asia, omitting a number of small states but including India by way of comparison, fall equally into the top and bottom halves of the scale. In other words, there is no single cluster that would allow for a simple generalization to be made about an Asian ‘model’. If the corruption ranking is compared with World Bank data on income per capita at purchasing power parity, it can be seen that there is a rough correlation. The member countries of the Organization for Economic Cooperation and Development (OECD) – Japan, Korea, Singapore, Hong Kong and, were data available, Taiwan – rank well ahead of the rapidly 187

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Table 15.1 Corruption index, bribe rate, population and GDP per capita by main Asian Countries (2009) World rank

Country

Corruption score (ex 10)

Bribe rate (%)a

GDP p.c. US $ 2008b

Population (m.)

Ease of Business (rank)

3 12 17 37 39 56 79 84 84 111 120 139 158 178

Singapore Hong Kong Japan Taiwan Korea (Rep) Malaysia China India Thailand Indonesia Vietnam Philippines Cambodia Myanmar

9.2 8.2 7.7 5.6 5.5 4.5 3.6 3.4 3.4 2.8 2.7 2.4 2.0 1.4

6 7 1 na 2 9 na 9 11 29 na 11 47 na

37,600 30,900 38,400 na 19,100 7,200 3,263 1,068 3,900 1,100 1,050 1,847 651 na

5 7 128 na 49 27 1325 1140 67 227 86 90 15 50

1 3 15 46 19 23 89 133 12 122 93 144 145 Na

Sources: TI (2009b,c), WB (2010a,b). Notes: a. Proportion of sample households paying a bribe in past twelve months. b. GDP per capita at purchasing power parity in current US dollars, 2008. c. na = not available.

industrializing economies of Malaysia, China, India, Thailand, Indonesia and Vietnam. Countries in the lower half of the corruption range all have incomes per capita at or below US $2,000, with only India doing better than its very low income-per-capita would predict. It is no surprise that strife-torn Myanmar (Burma) ranks at the bottom, while the Philippines is also well down the list. Nevertheless, the CPI ranking does not necessarily equate to the impact of corruption. The World Bank’s 2009 ‘ease of doing business’ ranking of 183 countries makes an interesting contrast (Table 15.1). Although the same Asian countries show up at the top and bottom of the latter ranking, there some striking differences in the middle of the range: Thailand, Korea, Malaysia and Vietnam do much better, while India does much worse. These differences relate to the time and cost of dealing with the state bureaucracy and the predictability of outcomes. How does corruption affect daily life? Transparency International in its ‘Global Corruption Barometer’ asks a sample of households whether or not they have paid a bribe in the past 12 months (TI 2009c). Households in Singapore (ranked 3 in the World Bank’s ‘ease of doing business’ table) and Hong Kong (ranked 12) report a much higher incidence of bribe payment (6–7 per cent) than Japan (ranked 17) or South Korea (39) at 1–2 per cent. Malaysia (ranked 56), India (84), Thailand (84) and the Philippines (139) all cluster in the range of 9–11 per cent, with the outliers being Indonesia (ranked 111) and Cambodia (158) at 29 per cent and 47 per cent respectively (Table 15.1). Some insight into these variations can be found in another indicator in the Global Corruption Barometer: ‘to what extent do you perceive the following institutions in this country to be affected by corruption’ (on a scale of 1 to 5). The answers are available for 11 of our 18 Asian countries, with the most corrupt institution(s) in bold (Table 15.2). These data suggest three distinctive patterns of corruption. First, in Singapore and Hong Kong – the two city-states ranked as least corrupt in terms of public institutions – the nexus of corruption seems to be the private sector. Second, in the democracies of Japan, Korea, Malaysia, India, Thailand and the Philippines, 188

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Table 15.2 Perception of corruption by country and institution, 2009 Country

Parties

Parliament

Officials

Judiciary

Business

Media

Singapore Hong Kong Japan S. Korea Malaysia India Thailand Indonesia Philippines Cambodia

2.1 3.3 4.3 4.3 3.9 4.2 4.1 4.0 4.0 3.0

1.8 2.7 3.9 4.2 3.3 3.6 3.1 4.4 3.9 2.7

2.2 3.0 4.3 3.7 3.7 3.7 3.6 4.0 4.0 3.5

1.8 2.5 3.2 3.6 3.1 3.2 2.8 4.1 3.4 4.0

2.7 3.9 3.8 3.8 3.4 3.4 3.2 3.2 3.0 2.6

2.5 3.6 3.6 3.6 2.7 2.9 2.8 2.3 2.0 2.3

Source: TI (2009c).

political parties are seen as the most corrupt institutions, while in Indonesia the problem shows up even more markedly in parliament itself. Third, in Japan and the Philippines, the bureaucracy is seen to be as corrupt as political parties – in Cambodia the nexus is to be found specifically in the judiciary. In short, while corruption is universal, there are very different manifestations between countries. There is no definitive linear scale and no linear trajectory. The rest of this chapter will therefore focus on specific countries and seek to tease out from these case studies whether there is anything that can be learned from Asia.

Trajectories, clusters and cases Corruption is always contextual. People in low-corruption countries with well-established formal institutions and flourishing civil societies tend to forget that these good things are the product of centuries of social evolution. It is salutary to remember that as late as the mid-1940s, all of Europe except for the offshore islands of Britain and Ireland, the enclave of Switzerland and neutral Sweden, was under the sway of totalitarianism, either fascist or communist, with both systems proving themselves to be amoral, murderous and thoroughly corrupt. Only since the fall of the Berlin Wall in 1989 have the countries of Eastern Europe begun to establish social democracies. The expanded European Union is still young and fragile – and good government cannot yet be taken for granted. While Europe has gradually reassembled itself into a community of democratic nations, Asia remains fragmented into nation states ranging from democratic to totalitarian, from highy prosperous to desperately poor, and from very clean to very corrupt. In the 1940s, when Europe was under the sway of fascist and totalitarian regimes, Asia as far west as Burma had just been released from the straightjacket of colonial rule. The brief period of Japanese occupation was hardly enlightened but it did awaken and quicken nationalist aspirations, ensuring that the re-imposition of colonial rule would be brief and contested. However, with the notable exception of American rule in the Philippines, there was very little tutelage for sustainable social democracy. Then from around 1948 the spread of the Cold War, entrenched by Mao’s victory in China and the Korean War, gave rise to a much more brutal political environment in which military and authoritarian regimes were supported as proxies by the rival superpowers. Only after the fall of the Berlin Wall, and with a dramatic policy shift by the United States government, did democracy and human 189

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rights become explicit aims of foreign policy, giving hope, resources and credibility to popular democratic movements. There were also economic factors. First, newly independent nations after the Second World War inherited and extended a panoply of bureaucratic controls over the market economy. Trade taxes were escalated both to fund national government budgets and protect infant industries, thereby creating huge incentives to corrupt customs officials. Balance of payments deficits and exchange controls led to black markets for foreign currency and all kinds of financial manipulations. Second, the Cold War and the insidious interaction of prohibitions on narcotics corrupted not only local armies and police forces but entire regimes, while ensuring the ongoing support of the United States government (McCoy 2003). This messy heritage has great import for the quality of government and the prevalence of corruption. As in Europe, government in Asia before the colonial era was patrimonial, mostly through systems of kingship and nobility, though moderated in China, Korea and Vietnam by formal bureaucratic institutions. Colonial rule entrenched patrimony through the institutions of indirect rule, while at the same time concentrating power, wealth and status in the hands of foreign elites. The lesson for aspiring nationalists was that education and military service were the best pathways to upward mobility. Even though nationalism was the populist ideology of independence movements, the model of government was statist and dirigiste, reinforced by communist ideology and/or military rule. In such a system, those in power extract resources while the rest of the population defers to and nourishes them in the hope of favour, even if that amounts to nothing more than to be left alone. The notion of ‘abuse of power’ is therefore tenuous indeed. Whatever the rhetoric, ‘abuse of power’ usually translates as simple ‘disloyalty’. Corruption is a charge levelled most often against those who have fallen from grace, a weapon against political opponents. Yet despite this very broad contrast between Europe and Asia, the trajectories of individual Asian countries show marked variation. One old chestnut that can be refuted at the outset is, namely, that British rule paved the way for good government. The Transparency International scale of corruption shows that former British colonies can be found from top (Singapore, Hong Kong) to bottom (Myanmar) of the scale. Nor did American rule establish good government in the Philippines. A more plausible hypothesis is that Japanese rule may have ultimately been a good thing, whether in Japan itself (ranked 17), which successfully resisted colonization, or in its former colonies of Taiwan (1895–1945) (ranked 37) and Korea (1910–45) (ranked 39). As Booth (2007) and others have argued, Japanese colonial rule, though harsh, did lay foundations for economic development in terms of physical infrastructure, agricultural productivity, education and public health. This may also have helped independent (South) Korea and Taiwan later to follow the Japanese model of rapid industrialization. The following case studies are not presented as a typology. Various authors have tried to classify countries according to levels of corruption and perceived characteristics. Such studies are invariably interesting but also tendentious. The grouping below is idiosyncratic, intended to highlight similarities or to contrast differences arising from either initial conditions or change over time. Ultimately, it is the time path that matters, and here random factors seem to play a more important role than is allowed for in the neat theories of social science.

Singapore and Hong Kong The success of Singapore and Hong Kong in becoming high-income developed economies owes less to British rule than to their being city-states. Obviously it is much easier to establish good government in a single city than it is in a whole country, especially one as vast as China, India or 190

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Indonesia. Singapore would surely not have done so well had it remained in the Federation of Malaysia, nor would Hong Kong had it been merged back into China in 1998 instead of being allowed substantial ongoing autonomy. Singapore and Hong Kong are truly islands of good government and there may be a lesson here for anti-corruption strategies: to focus on key cities rather than whole countries. ‘Corruption was a way of life in Singapore during the colonial period’ (Quah 2009: 132). Notwithstanding that corruption had been made illegal since the Penal Code of 1871, the police force in particular lived off the protection of vice. For the skeleton colonial administration, it was far more important to maintain public order than to promote integrity. In a modus operandi familiar across Asia from Bombay to Shanghai and Tokyo, governments tacitly relied on secret societies and underworld gangs to keep peace on the streets, and dealt ruthlessly with those who challenged the established order. This changed after 1959 when the People’s Action Party (PAP) came to power under Cambridge-educated lawyer Lee Kuan Yew, with the goal of what would now be termed ‘good government’. The Prevention of Corruption Act came into force in the following year, greatly strengthening the powers of the Corrupt Practices Investigation Bureau (CPIB). The essence of the CPIB’s approach is best described as ‘zero tolerance’ towards both grand and petty corruption. It was soon established that not even top public servants and ministers were immune from investigation and harsh sanction. At the same time, the police force was cleaned up at street level with attention to both corrupt officers and bribe-payers. For example, truck drivers who had been preyed upon by corrupt officers were given an initial caution but warned that a second offence would lead to their own imprisonment and loss of livelihood (Chua Boon Keng, pers. comm.). In Singapore, corruption was quickly seen to be not negotiable. Supervision of commercial behaviour, however, is still much less rigorous. Singapore’s draconian anti-corruption laws do not have extra-territorial effect. There is no sanction against Singaporeans behaving corruptly in neighbouring countries, while Singapore is a safe haven for foreign-corruption suspects and their assets. In Hong Kong, which remained a British colony until 1998, the ‘live-and-let-live’ policy lasted a great deal longer. This allowed the well-entrenched Chinese triad gangs to prosper from the narcotics boom of the 1960s that was fuelled by American involvement in the Vietnam War. The rot came to public notice in mid-1973 when Kowloon’s respected Deputy District Police Commissioner Peter Godber fled Hong Kong to escape charges of accumulating illicit funds (Lethbridge 1985). The scandal hastened the establishment in 1974 of a powerful Independent Commission Against Corruption (ICAC) reporting directly to the governor. It quickly confirmed the prevalence of ‘syndicated corruption’ within the police (Lethbridge 1985; McCoy 2003: 404). Notwithstanding a partial amnesty in the face of a police revolt, summary powers of dismissal proved a potent weapon. ICAC triumphed and has since come to be seen as a model for other jurisdictions around the world. Nevertheless, as in Singapore, regulatory and investigative powers over the private sector are still weak and there is no extra-territorial effect.

China and Vietnam China has the longest and almost continuous system of fighting corruption – more than 2,000 years. Establishment with the empire of a meritocratic bureaucracy necessitated a system of monitoring and accountability in the form of imperial censors (Hucker 1966). Local officials were expected to be omnicompetent – even the event of natural disaster, let alone political disturbance, would attract attention and disfavour. Beyond this, however, was a system of regular reporting to the capital, occasional inspection with the incentives of promotion and the sanctions of demotion, dismissal, banishment or death. Nevertheless, imperial officials exercised enormous 191

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discretion and it was a risky venture for local interests, individually or in concert, to attempt to report unfavourably upon one who was greedy and corrupt. A somewhat similar discipline system was developed by V. I. Lenin for the Soviet Union and was taken up by the Chinese Communist Party as early as 1922 (Gong 2009: 65). There is now a set of discipline inspection commissions, supervision bureaus, anti-corruption bureaus, public security bureaus, audit offices and legal courts (Ma 2009: 83). Because state officials must in practice be Party members, this is potentially a powerful system of monitoring and sanction. However, as Gong (2009: 76–77) argues, the Party seeks to impose ‘morality by decree’ to maintain its moral legitimacy rather than to control performance. The countervailing pressure is that the Party is first and foremost a hierarchy of patronage, coordinated through the Central Organization Department (McGregor 2010). Disciplining an official inevitably challenges the standing of higher-ranking officials and Party members within that patronage network and risks bringing other corrupt behaviours to light. Indeed, the very system of recruitment and promotion entrenches corruption (Yan Sun 2009). Hence there is enormous pressure to go softly, unless the damage is so great that an official can be disowned and expelled from the Party, in which case formal legal process may come into play with the ultimate sanction of death (McGregor 2010).

Japan, Korea and Taiwan Japan’s apparently low corruption rating among Asian countries is deceptive. There is a good deal of corruption but it is much better organized and less opportunistic than anywhere else. Part of the explanation is more than 60 years of conservative hegemony by the Liberal Democrat Party (LDP), its predecessors and successors. Victory of the Democratic Party of Japan (DPJ) in the 2009 election hardly broke that monopoly, as DPJ President Ichiro Ozawa had been until 1991 secretary-general of the LDP and incoming Prime Minister Yukio Hatoyama came from an LDP dynasty. The consequence has been a deeply entrenched form of inter-factional rivalry and corruption known as money politics. The other part of it is a tacit agreement between government, police and the criminal gangs known as yakuza as to the tolerable limits of criminality. The common taproot of both forms of corruption is what can be skimmed off the rezoning of land and construction contracts, what McCormack (1996) dubbed ‘the construction state’. This reached a culmination with the bubble economy of the late-1980s, when banks lent recklessly for property, leading to the collapse of the financial system and structural recession in which the huge amount of funds lent to criminal syndicates could not be recovered. Over the past decade or so, reforms have reduced the scope for corruption without altering the system itself. Electoral reform by the short-lived coalition government in 1994 abolished multimember constituencies while in 2005 Prime Minister Junichiro Koizumi’s postal-reform bill paved the way for postal savings to become more transparent, which in turn has brought transparency to the so-called ‘second budget’ used to channel postal funds into often dubious infrastructure projects. Japan’s high level of national debt has become a further constraint on infrastructure spending. Both Ozawa and Hatoyama became embroiled in funding scandals but this was not the prime cause of their sudden resignations in mid-2010. The media continue to expose scandals but the political system continues to resist more thorough reform of political funding (Bowen 2003). The culture of ‘funds-for-favour’ between business and government is still deeply entrenched, often referred to as ‘structural corruption’. Korea has faced similar public pressure for clean government, with periodic disgrace of top political figures and executives of the leading business conglomerates (chaebol), between whom there has long been an incestuous relationship. Elections have brought in new governments with a mandate for clean government but they in turn have been corrupted by the entrenched system of 192

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funds-for-favours, deepening public cynicism. Thus three former presidents, Chun Doo-Whan (1980–88), Roh Tae-Woo (1988–93) and Roh Moo-hyun (2003–8) have been found guilty of corruption while anti-corruption reformer Kim Young-sam (1993–8), who had put the two former generals on trial, and Kim Dae-jung (1998–2003) were both embroiled in corruption scandals involving their families. Roh Moo-hyun committed suicide. As in Japan and Taiwan, the structure and dynamics of power frustrate institutional reform. Nevertheless, as David Kang (2002) has argued, a balance of power between political and business elites (‘mutual hostages’) has ensured that constrained corruption and rent-seeking have still allowed growth and development. Taiwan is often distinguished from Japan and Korea for its lack of business concentration, but this is somewhat misleading. The concentration of political power and state enterprise under the control of the Kuomintang Party, with its Leninist origins, gave rise to a similar phenomenon that Karl Fields (2002) has described as ‘KMT Inc.’. Although as the government of China from 1927 to 1949, the Kuomintang under Chiang Kai-shek had arguably been the most corrupt in the world, in Taiwan this resulted in a developmental state that productively invested economic rents. Eventually the Party ushered in democracy and began to disengage from business, but in 2000 a wave of protest against corruption brought to power the Democratic Progressive Party under Chen Shui-ban. Immediately on leaving office in May 2008, he and his wife were charged and subsequently imprisoned for embezzlement of state funds and laundering campaign funds. Although supporters claimed that the charges were vengeance by the restored Kuomintang government, it would seem – as in Japan and Korea – that corruption is intrinsic to democratic politics.

Malaysia Ranked 56 in the World Bank corruption chart, Malaysia shows that it is hard to establish clean government in an ethnically divided nation. On independence in 1957, Malay(si)a was, except for a few oil sheikdoms, the most prosperous colony in the British Commonwealth. The fateful compromise, however, was that the Malays would control the government while the Chinese controlled the economy. This compromise broke down with the race riots of 1969, giving rise the following year to the one-sided positive discrimination of the New Economic Policy that sought to transfer 30 per cent of the economic wealth of the country to Malays. This is turn gave rise to a thoroughly corrupt nexus between the ruling United Malays National Organization (UMNO) and the new Malay business class (Gomez 2002). In alliance with the Malaysian Chinese Association (MCA) and the Malay Indian Congress, UMNO has maintained unbroken control of national government since 1957. Attempts by popular breakaway leader Anwar Ibrahim to gain government through a rival multi-racial alliance have been stymied by his imprisonment for sodomy and, more recently in 2009, by the buying off of coalition members of parliament who had looked to cross the floor. The current prime minister, Najib Razak, has announced his intention to terminate the New Economic Policy but Malaysian politics remains locked in a corrupt stalemate.

Thailand and Indonesia In both countries, powerful anti-corruption commissions were brought into being after the Asian economic crisis of 1997–8 and its associated political transitions. Thailand had a change of government with a mandate for clean government under a new constitution; Indonesia switched from an authoritarian to a democratic regime. In neither case can the sustainability of reform be taken for granted. 193

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The Asian Financial Crisis began in Thailand in mid-1997. The corrupt Banharn Silpa-archa government was utterly discredited, leading to royal intervention to bring back the ‘clean’ Democrat Prime Minister Chuan Leekphai. With the support of the International Monetary Fund (IMF), this led to the establishment of an array of independent bodies to monitor and enforce good government: the Constitutional Court, Administrative Court, Office of the Auditor-General, National Human Rights Commission, Consumers’ Protection Organization, Environmental Conservation Organization, Ombudsman and, in 1999, the independent National Counter (later Anti-) Corruption Commission (NCCC/NACC). Under the revised 2008 law, the NACC consists of the president and eight other members ‘appointed by the King on the advice of the Senate’ (NACC 2010). The NCCC had teeth and soon began to have an impact, including in 2000 the dismissal of the powerful minister of the interior. This liberal democracy of checks and balances was soon under siege. Discontent with the slow pace of economic recovery under IMF tutelage led in 2001 to a convincing election victory by the Thai Rak Thai (Thai Loves Thai) Party of the media-magnate-cum parliamentarian Thaksin Shinawatra, who proceeded to consolidate a highly personalized and corrupt patronage network (McCargo and Pathmanand 2005). Impatient of constraint and criticism, he sought to muzzle both the independent media and the NCCC. His disposal of the family’s media conglomerate, Shin Corporation, to the Singaporean government’s Temasek Holdings, without payment of the due tax, became the trigger for a street uprising in Bangkok that led to invalidation of the April 2006 election and his overthrow in September 2006 by a palace-backed military coup. Democracy was restored in 2007 under a new constitution, with strong provisions against electoral fraud and conflicts of interest. Although a reformed party of Thaksin’s supporters won the subsequent election in December 2007, street demonstrations in Bangkok by yellow-shirted supporters of the opposition made the incoming government unworkable. The governing party was dissolved by court order and, with royal approval, a new Democrat coalition was formed under Prime Minister Abhisit Vejjajiva. The backlash by rural-based ‘red shirt’ supporters of Thaksin had by mid-2010 made Thailand ungovernable. In the absence of any elite consensus as to how and by whom the country should be governed, anti-corruption reform has been overshadowed by violent protests and the fear that the polity itself will fracture on the death of the ailing king. Indonesia became embroiled in the Asian Financial Crisis a few months after Thailand, also leading to IMF intervention and a similar package of reforms. The 32-year-old, military-backed and authoritarian New Order regime of President Suharto was exposed to savage popular anger over corruption and abuse of power. Since 1966 Suharto and his wife had formed alliances with trusted Sino-Indonesian businessmen to establish lucrative rent-seeking franchises and monopolies (Robison 1986; McLeod 2000). When his children began to engage in state-privileged businesses, however, the limits of public patience were sorely tested. Under the slogan of ‘Down with corruption, collusion and nepotism (KKN)’, a popular movement forced Suharto to resign in May 1998, ushering in a new era of democratic reform (Reformasi). In 1999, parliament passed two laws, one setting up an Audit Commission for the Wealth of Public Officials, the other mandating an Anti-Corruption Commission, which came into being in 2004 alongside a special Anti-Corruption Court, a Constitutional Court, a Judicial Commission, a Human Rights Commission, an Ombudsman, and so on. Hopes that democracy and decentralization would bring corruption under control were soon quashed. The Corruption Eradication Commission (KPK), as it became known, was set up with wide powers to investigate and prosecute. Despite initial cynicism, it went after ‘big fish’ and successfully prosecuted district heads and governors, even ministers and parliamentarians. Nevertheless, parliament and the notoriously corrupt but now independent judiciary proved 194

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intractable to reform. Parliament became a bastion of corruption, which also proliferated among the ‘little rajas’ at the now empowered local level. Dick and Mulholland (2011) describe the situation as ‘the state as marketplace’. Matters came to a head in May 2009 when the head of KPK was arrested and later convicted for murder in an alleged love triangle. Two other commissioners were forced to resign over charges that turned out to have been engineered by recalcitrants in the attorney general’s office and the police. The sudden resignation in May 2010 of the clean and reformist Minister of Finance Sri Mulyani suggested weakening presidential support for the anticorruption campaign. Before leaving to become vice president of the World Bank, she pointedly remarked that ‘she could no longer exist in a political system in which ethics had become an exotic virtue’ (Jakarta Post 20/5/10).

Philippines The first country in Asia to achieve postwar independence in 1946, the Philippines did so with the benefit of 40 years tutelage in democratic institutions, 11 years of self-government (albeit interrupted by the Japanese occupation), a strong and independent judiciary, a well-trained and effective civil service, and a free press, all based on the American model. The new republic also seemed to have bright prospects for economic development. Yet today the Philippines is still a very poor and highly corrupt polity, which has become an arena for contending powerful families, at times descending into warlordism. This became brutally apparent in 2009 in the province of Manguindanao, when a convoy carrying the family and supporters of a rival political candidate along with 32 journalists was stopped and the occupants brutally massacred by followers of the ruling Ampatuan clan, who enjoyed the support of President Arroyo-Macapagal, having delivered her an overwhelming vote in the previous election. While this was certainly an extreme case in a remote province torn by Muslim rebellion, it nonetheless illustrated the dynamics of electoral politics and power in the Philippines. Provincial governors wield enormous power, even of life and death, and the national bureaucracy, despite some very good people, has very little real power or resources. A free press regularly and courageously brings to light cases of corruption, but political alliances and a corrupted judiciary ensure that there are few convictions and little fear of sanction, while journalists themselves are routinely killed – 68 since 1992 – a toll worse than Russia (CPJ 2010). Despite much fine democratic rhetoric, the state is all but dysfunctional.

Cambodia and Myanmar These two countries are the most extreme cases, best described after Global Witness (2009) as ‘one-party kleptocracies’. Property rights are created, validated and cancelled not at law but by arbitrary state fiat. Corruption is ubiquitous and without sanction. Cambodia is still rebuilding its state institutions after the genocidal rule of the Khmer Rouge (1975–9) and struggling to wean itself from dependence on foreign aid. In an economy where the US dollar is the default currency and the local riel is almost worthless, entrepreneurship brokered by state officials and military leaders focuses on any activities that can earn hard currency – from legal tourism, textiles and ship registration to the allocation of mining rights to illegal trafficking in narcotics, gems, timber and prostitution (Global Witness 2009). A desperately underfunded and predatory state apparatus takes its cut wherever it can. Myanmar has become notorious for the military regime’s brutal suppression of the democracy movement and the imprisonment of Aung San Suu Kyi and other dissidents. The last survivor among Asia’s once numerous military dictatorships, its armed forces (Tatmadaw) have remained tenacious in the face of Western boycott, through a combination of Chinese patronage, 195

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resource exports (including oil), foreign investment, tourism and the narcotics trade from what used to be known as the Golden Triangle (Selth 2002). Amidst an ongoing crisis of regime legitimacy and civil war, in which civil society simply does not exist, corruption is not the foremost problem.

Democracy and authoritarianism Running through the above case studies is the contrast of democracy and authoritarianism. Each type of regime has very different institutions that affect the pattern of corruption and the nature of reform but with no clear relationship to outcome. Amidst all the diversity of Asia, it is impossible to say whether one type of regime is more or less conducive to good government as measured by the prevalence of corruption. It all depends. Singapore is the outstanding case of a low-corruption, one-party regime, but it has not been replicated, not even in adjacent Malaysia, with one-party hegemony and the same British colonial inheritance. Lee Kuan-Yew’s combination of British public school and Chinese Confucian values has clearly been decisive, along with his ruthlessness and longevity. The closest parallel to Singapore is the city-state of Hong Kong, where the corruption commission ICAC was introduced by a British governor and has been maintained under Chinese auspices under the guided democracy of the People’s Republic. The ICAC model has been copied in Australia but not elsewhere in Asia. At the other extreme of size, China’s authoritarian rulers know that their legitimacy depends upon keeping some check on corruption. However, most of the corruption associates with the Party that controls all parts of the state from top to bottom. Since corruption is endemic, the best that can be done is to impose exemplary punishments. While the number of cases is quite staggering, as yet no province or city (apart from Hong Kong) could be described as ‘clean’. Indeed, this would run counter to the very system of patronage by which the Party hierarchy functions, a very Marxian contradiction. Nevertheless, as long as material prosperity is maintained, in a culture of guanxi some exemplary punishments may be enough to ensure that corruption is not perceived to be excessive. Much the same could be said of Vietnam’s one-party state, even though it is a poorer country and with a higher level of perceived corruption. A different kind of dilemma confronts the developmental states of Japan, South Korea and Taiwan. In all three countries democracy is well entrenched, albeit in the form of ‘money politics’ with a high degree of collusion between ruling parties, the bureaucracy and big business. The outcome is a well-organized form of corruption and patronage that accepts constraints but is all but impervious to political reform. Governments may change but the dynamics remain much the same. This situation could be described as sustainable, except for the evidence that the corrupt consensus prevents the necessary structural changes, both economic and political. The dilemma is most stark in Japan but it shows up also in South Korea and Taiwan and makes for an uncertain future. Something similar could be said of Malaysia, albeit less democratic and with racial complications. In both India and the Philippines, democracy looks to be secure, yet neither country seems likely to find a low-corruption trajectory of development. Indians may take some comfort from the fact that corruption is hardly worse than in China, while the loosening of regulatory controls over the past two decades has released entrepreneurial energies that are at last driving economic growth. Whether a well-entrenched, independent but corrupt judiciary is a blessing or a curse in a highly litigious society remains to be seen. The Philippines clearly does suffer from too much politics and too much corrupt law, both of which inhibit the entrepreneurial drive of a much smaller business class and make the Philippines much more dependent upon remittance income from offshore employment. 196

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Thailand and Indonesia, once lauded as the new ‘Asian tigers’, are muddling along, less secure in their more recent transitions to democratic institutions. Thaksin and Suharto’s attempts to build developmental states, one democratic, the other authoritarian, both proved abortive. The challenge is now to find another pathway to a functional state. The limitations of anti-corruption reforms through extraordinary commissions have been exposed in the context of endemic corruption throughout the ruling elite. For Cambodia and Myanmar, it is proving even more difficult to find a pathway to prosperity and good government. Amidst besetting problems, it is almost irrelevant as to whether that pathway be democratic, authoritarian or hybrid. More important is that the path be stable and deliver some modest benefits of peace, security and development, including (at least) better government. In both democratic and authoritarian countries, perhaps the most dramatic socioeconomic change over the past one or two generations has been the phenomenal increase in the level of urbanization, especially in capital cities, and the associated rise of a middle class. In the midtwentieth century when the new nations of Asia became independent, the level of urbanization outside Japan was of the order of 10–20 per cent (UN 2010). It now stands at around 50 per cent. Apart from the obvious effect of mass rural-urban migration, this has involved a subtle shift in the nature of society. In the villages, families are tied into networks of patronage, loyalty and obligation. In the cities,, by contrast, personal networks are more transient. Anomie is a prevailing condition. All this translates into very different relationships with the state. Urban populations are by nature formless, restless and volatile. The notable exception is the middle classes, whose salaries are drawn either from the state itself or from business and professional organizations that stand in defined relationships with the state. Their number has burgeoned with economic growth and prosperity. The rising middle class is ambivalent about clean government. On the one hand, it tends to believe in good government as a general principle and be willing at some risk to come out in street rallies against rulers or governments that are seen as hopelessly corrupt. On the other hand, as civil servants and clients of the state, the middle class are themselves party to and beneficiaries of corruption in its various forms. Moreover, they have proven adept at distorting government taxation and spending to their own benefit. In many countries there is little responsibility when it comes to paying tax but no reluctance about enjoying large public subsidies such as for fuel use or power. While justified in terms of the benefit to the poor, the reality is urban middle-class welfare: there are much more targeted and effective ways of providing assistance to the rural and urban poor. The willingness to support tough measures against state corruption therefore has a lot to do with how secure the middle class feels itself to be in enjoyment of its privileges, not least a Westernized lifestyle with modern consumer durables.

Conclusion Corruption is endemic to Asia, as indeed to most other parts of the world. Quite simply, it is part of the way things are done. It is not like some rash or ailment that can be cured by a well-targeted dose of reform. Endemic corruption cannot be brought under control by legal enforcement unless there is broad support, at least within the elite, for moving towards a less corrupt society. Elites are typically fractious in the contest for power, wealth and status. In any transition, whether from colonial rule to independence, from authoritarian rule to democracy, or from a poor rural to a prosperous urban society, elites may – by a sometimes bloody process of trial and error – forge what Burton and Higley (1987) refer to as an ‘elite settlement’ that will maintain order and prosperity (at least for the elite). A low-corruption consensus may be desirable but it is not 197

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a first-order constraint. On the contrary, a high level of corruption may be the glue that holds the elite consensus together. Only after the basic rules have been embedded and are being observed in stable constitutional form does the quality of that consensus come to matter. History does suggest a general, if erratic trend, towards better government. As Britain experienced in the nineteenth century, a country can make considerable progress in quite a short-time if elite norms change and that change is reflected and reinforced in both parliamentary behaviour and the legal system. Since 1945 Western Europe as a whole has emerged from the darkness of Nazi occupation, while Eastern Europe is at last emerging from the drab tyranny of communism. Yet even where good government looks to be established, there is no justification for complacency. The British parliament has been shamed by widespread abuse of expense accounts and associated frauds; the American government has yet to address widespread fraud in defence expenditure, especially in Iraq and Afghanistan. The banking systems of both countries and many others in Europe have been crippled by massive financial engineering that has shaded into fraud and pulled the whole world into economic crisis. In 2010 the profligacy and corruption of some European countries destabilized the whole euro zone. In the absence of transparency and accountability, greed and lust for power ensure that the boundaries of acceptable behaviour soon become elastic. Although corruption is endemic across Asia, there are some grounds for optimism. Asia straddles the spectrum from rich, developed democracies to poor, unenlightened despotisms, but a popular demand for better government is manifest. In the short-term, elections, one-party governments and business leaders invariably disappoint, and even powerful extraordinary agencies seem overwhelmed. Yet despite obvious exceptions, such as Thailand, this does not mean that the quality of government is actually deteriorating. As in China, economic growth allows the amount of corrupt transactions to increase but, by analogy with taxation, the rate of corruption may still be falling. In such a situation, ‘perceptions’ are unreliable and a gradual long-term trend towards better government may be underestimated. Another problem with perceptions is that expectations of reform are usually unrealistic. Anticorruption reform cannot go much faster than reform of government itself, which is a slow and uneven process. The Asian Financial Crisis of 1997–8 triggered a good deal of social engineering that sought to control corruption through the redesign of formal institutions. Bodies such as Thailand’s NACC and Indonesia’s KPK have had notable success if measured in terms of successful prosecutions of high-ranking figures. China has arrested and prosecuted a much larger number. Whether these efforts have had much impact on the underlying incidence of corruption is doubtful. The networks, hierarchies and dynamics of power, especially the insatiable political demand for funds, the business need for favours, and the usual scramble for wealth and status, are powerful temptations despite the risks of exposure, imprisonment and, in China, even death. Big leaps in terms of ideal formal institutions are likely to fail. However, whatever the system of government, any progress towards transparency and accountability is progress towards better government and is likely to become self-reinforcing. Reformers might better direct their efforts not to pushing on the string of legislative reform but to building reform coalitions and achieving islands of good government in key arms of government such as finance (taxes and expenditures), police, and the courts. It may also be more effective to target cities or provinces rather than whole nations. Even so, marked changes to the status quo are likely only in the wake of crises, the wider ramifications of which make for unpredictable outcomes. Nevertheless, in Asia as in Europe, the demand for better government and social justice is one of the driving forces of modern history. In Asia over recent decades there has been a trend, perhaps now weakening, towards more democratic, if not as yet less corrupt forms of government. Yet despite the forceful arguments of Amartya Sen (1999) and many others, it would be premature to 198

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assume that democracy will necessarily be the model for the future. In Asia there are no core prosperous and democratic countries like the six of the original Common Market that set a standard, however imperfect, for democratic government. In that vacuum, China’s authoritarian system with its amazing record of economic growth, as also Vietnam and the prosperous, oneparty, city-state of Singapore may well be seen as viable alternatives to weak, corrupt and unstable democratic regimes.

Note 1 I am grateful to Sofie Schuette and Peter Verhezen for their comments.

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16 Social policy in East Asia M. Ramesh

It is necessary to dispel two commonly held myths before one can discuss social policy in East Asia. First, we need to set aside the assumption that there is some typical welfare model that describes all or even most countries in the region. The region is an extraordinarily diverse place – in terms of history, culture, politics, economy and so on – and the diversity is reflected in its social policies. The second myth that needs to be dispelled is that the region is a social policy laggard. This perception is based largely on the observation of low government spending on social policy and anti-welfare proclamations of some government leaders in the region. While countries in the region do spend less than countries with similar income levels elsewhere, there are reasons other than policy that account for the difference. A related, and equally misleading, perception is that governments in the region emphasize economic development over social development. All capitalist societies, in Asia and elsewhere, emphasize economic policy and deviate only when politically unavoidable – there is nothing particularly unique about Asia in this regard (Ramesh 2000). Given the diversity of social policies in the region, the subject of social policy in Asia can be approached either as discrete studies of particular countries and/or sectors or as a comparative study highlighting the patterns of divergence and convergence. This chapter leans towards the latter. Here, we will examine the context, form and outcomes of education and health-care policies in China, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Education and health-care policies are regarded as critical to the development of human resources; the need of a state role for their provision and financing is relatively uncontroversial, in contrast to income assistance. Education and health care are not only valuable to those receiving them, but also to the whole society because of their potential to support economic, political and social development (Sen 1998). The countries considered here cover a broad range of income groups and growth experiences, and understanding them will convey an overview of the contours of social policies in the region. The different levels of social development in the region is evident from the Human Development Index (HDI) published by UNDP. Countries need to do well along both economic and social dimensions to attain high scores on the index. As Table 16.1 shows, many East Asian countries do not fare well in the league table due to their unremarkable or inferior social development record. 200

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Table 16.1 Human development index (HDI), 2010

China Indonesia Korea Malaysia Philippines Singapore Thailand

HDI Rank (among 169)

HDI Value

Non-income HDI Value

Inequality-adjusted HDI Value

89 108 12 57 97 27 92

0.66 0.60 0.88 0.74 0.64 0.85 0.65

0.71 0.66 0.92 0.78 0.73 0.83 0.68

23.0 17.7 16.7 18.9 21.2

GNI per capita rank minus HDI rank 4 2 16 3 12 19 11

Source: UNDP, HDR 2010 Statistical Tables. http://hdr.undp.org/en/media/HDR_2010_EN_Tables.xls

Korea is the HDI leader in the region and indeed ranks twelfth overall in the world. The case of Singapore is noteworthy because it is a lot like Korea but ranks lower on the HDI due to its sub-par performance along social dimensions. Indeed, the non-income indicators drag down the HDI rank of not just Singapore, but also Thailand, China and Malaysia by 19, 11, 4, and 3 places respectively. Korea, the Philippines and Indonesia, on the other hand, gain 16, 12, and 2 places in the league table due to their non-income indicators being better than their income indicators. Various inequality measures (income, life expectancy, education, etc.) account for much of the inferior performance of Singapore, Thailand, China and Malaysia. In the case of China and Thailand, various types of social inequalities caused a loss of 22–23 per cent in the HDI score. One conclusion to emerge from the HDI record is that China, Malaysia, Singapore and Thailand have not emphasized social development as much as economic growth, while Korea (and Japan) has emphasized both. Indonesia and the Philippines are lacking along both dimensions, though the latter does relatively better on social development. The case of China is unfortunate because until the 1980s its social indicators were better than its economic indicators, but it has shown a sharp and swift deterioration in social achievements in recent years.

The socio-economic context Social policies are shaped by, and shape, the economic and social environment in which they exist. The demographic composition and trends in a society affect the demand for various social policy goods and services, and how and the extent to which governments can meet them. Similarly, the state of the economy affects the income level and thereby the population’s capacity to maintain living standards and afford education and health care. Economic conditions also determine governments’ revenues and the resources available to spend on social programmes. In the following discussion we examine the demographic and economic trends pertinent to understanding social policies in the region.

Population East Asia has gone through some of the deepest demographic changes any society has ever experienced and this has decisively shaped social policies. To illustrate: it took Sweden 68 years and UK 86 years for the aged’s share of the population to increase from 10 to 20 per cent, whereas the same occurred in Japan and Singapore in just 25 years (Jones 1990: 23). 201

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Table 16.2 Population indicators Total (millions)

Population, Average annual growth (%)

Fertility rate (births per woman)

Median age (years)

1990

2010

1990–5

2010–15

1990–5

2005–10

1990

2010

China 1,142 Indonesia 177 Korea 43 Malaysia 18 Philippines 62 Singapore 3 Thailand 57 OECD

1,354 233 49 28 94 5 68

1.2 1.5 0.8 2.6 2.3 2.9 1.2 0.7

0.6 1.0 0.3 1.5 1.7 0.9 0.5 0.4

2.0 2.9 1.7 3.5 4.1 1.8 2.1 1.9

1.8 2.2 1.2 2.6 3.1 1.3 1.8 1.8

25.0 21.7 27.0 21.5 19.3 29.3 24.6 34.5

34.2 28.2 37.9 26.3 23.2 40.6 33.2 39.9

Source: UNDP, HDR 2010 Statistical Tables. http://hdr.undp.org/en/media/HDR_2010_EN_Tables.xls; see also http:// www.pecc.org/resources/doc_view/1531-a-long-term-forecast-of-demographic-transition-in-japan-and-asia

East Asia is, demographically speaking, a young region due to rapid population increase from the 1950s to the 1970s followed by a swift and steep decline in the subsequent decades (Table 16.2). In the 1960s, population growth rate in the region was two or three times higher than the OECD average, but the gap had narrowed by the 1980s. The decline in population growth was the result of declining fertility rate that until the 1960s was significantly higher than in OECD but is now similar, except in the Philippines where it continues to be high. Declining fertility has been accompanied by rising life span and together they have fostered a gradual reduction in the size of the young population and a corresponding increase in the size of the aged population. As a result, child dependency rate has tumbled while the aged dependency rate has increased – and the trend will continue for decades to come (Table 16.3). So rapid has been the decline in population growth rate that the labour force will begin to shrink in China, Hong Kong, Korea and Singapore by the 2020s, followed by Thailand in the 2030s. Subsequently, the population itself will begin to shrink. The increase in aged dependency will impose severe financial constraints on societies as the aged have higher income maintenance and health-care expenditures but have less or no income to pay for it. Accompanying declining fertility and ageing of the population is the trend towards declining household size. The mean household size has declined by one- to two-fifths in East Asia as a result Table 16.3 Dependency ratios and aged’s share of population

China Indonesia Korea Malaysia Philippines Singapore Thailand

Child Dependency Ratio

Old Age Dependency Ratio

Aged (60 years and above) Share of the Population, %

1990

2010

1990

2010

2000

2025

2050

42.9 59.3 36.9 63.5 72.6 29.4 45.9

27.7 39.7 22.3 44.0 53.8 21.0 30.3

8.3 6.3 7.2 6.2 5.8 7.7 7.1

11.4 9.0 15.2 7.3 6.9 13.8 10.9

7.6 11 6.6 5.6 10.6 8.1

12.8 23.1 13.4 10.4 30.0 17.1

22.4 33.2 20.8 19.6 35.0 27.1

Source: UNDP, HDR 2010 Statistical Tables. http://hdr.undp.org/en/media/HDR_2010_EN_Tables.xls, United Nations, 2002.

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of an increasing trend towards nuclear families. The nuclearization of families not only creates higher demand for housing, but also health and social security, as it weakens adult children’s ties with their parents and reduces opportunity for care-giving. One of the most obvious effects of the shrinking size of the young population and increasing size of the aged population will be that less resources will be needed for education and more will be needed for health and social security. The problem of population ageing will be compounded by the fact that women will form a disproportionately large share of the aged population. Women tend to live longer but have less savings and suffer from higher incidence of debilitating diseases. Heller (1999: 52) estimates that even without the addition of new programmes or expansion of existing programmes, East Asia’s public expenditures on social policy as a share of GDP will grow by 2.8–4.1 per cent due to demographic reasons. The increase will take place despite the decline in education expenditures due to declining birth rate.

Economy Economic fluctuations have been a characteristic feature of East Asian economies, especially since the late 1990s. From the early 1970s to mid-1990s, economy grew and income rose spectacularly in all East Asian countries, except the Philippines, until the financial crisis that broke out in late 1997 wrecked most economies in the region. Different economies have grown at different paces since, but in no country except China has the economy grown at a rate seen in the early 1990s. Only China has enjoyed the same high growth in both the 1990s and 2000s. The different economic growth rates are reflected in different living standards, as evident Table 16.4. Thus China’s per capita income today is almost ten-fold higher than what it was in 1990, compared to almost quadrupling of income in Korea and tripling in Indonesia, the Philippines, Singapore and Thailand over the same period. However, the relative ranking has not changed much, with Singapore continuing to remain the richest. The biggest difference is with China, which was at the bottom in 1990 but has now far exceeded Indonesia and the Philippines and may well overtake Thailand by the time this book is published. Economic growth in the region has been accompanied by robust employment levels that have been reflected in a low unemployment rate (Table 16.5). The unemployment rate has been under 4 per cent in all except Indonesia and the Philippines, and in Korea during the 1998 economic crisis. The relatively low unemployment in all countries except Indonesia and the Philippines has meant lower demand on the government for social assistance. Table 16.4 GDP per capita, based on purchasing power parity (PPP)

China Indonesia Korea Malaysia Philippines Singapore Thailand

1990

2000

2010

796 1,539 7,825 4,841 1,752 17,844 2,903

2,376 2,441 16,495 9,169 2,320 32,251 4,962

7,518 4,380 29,791 14,603 3,726 57,238 8,644

Source: IMF, World Economic Outlook database, Oct 2010, http://www.imf.org/external/pubs/ft/weo/2010/02/ weodata/download.aspx

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Table 16.5 Unemployment rate (%)

China Hong Kong Indonesia Korea Malaysia Philippines Singapore Thailand

1990–4

1995–9

2000–04

2005–10

2.5 1.8 3.0 2.6 3.8 9.5 1.8 2.8

3.0 3.8 6.0 4.1 2.9 9.3 2.0 2.7

3.8 6.4 8.5 3.8 3.4 11.4 3.2 2.7

4.2 4.6 9.1 3.4 3.4 8.1 2.5 1.5

Source: IMF: World Economic Outlook database, Oct 2010 (http://www.imf.org/external/pubs/ft/weo/2010/02/ weodata/download.aspx)

While the belief that East Asia is blessed with highly equitable distribution of income is convenient for the proponents of an ‘Asian model’ of economic development (for example, see World Bank 1993; Campos and Root 1996), it is plainly wrong. The fact is that the region is highly diverse, comprising some of the most unequal societies in the world. Only Korea (in addition to Japan and Taiwan) has relatively equal distribution of income, as shown in Table 16.6. Poverty remains a significant problem in the region, even in countries that have experienced high growth rates. Unfortunately, it is not possible to comment on poverty in the region with certainty because of definitional and statistical limitations. The closest the world has to a standard for comparing poverty across nations is the World Bank’s PPP$1 per day for estimating absolute poverty and PPP$2 per day for estimating near-poverty. This is of course a low level for rich countries and, hence, is appropriate only for estimating low and middle-income countries rather the richer countries such as Korea and Singapore. By the criterion of income below PPP$2 per day, three-fifths of the population in Indonesia, nearly one-half in the the Philippines, more than one-third in China, and one-tenth in Malaysia and Thailand live in poverty or near-poverty (Table 16.7). The case of China is truly remarkable, nevertheless, because its PPP$1 per day poverty rate declined from 60 per cent of the population in the 1980s to 16 per cent in recent years. Separate from the World Bank’s definition, which does not take national particularities into account, are government’s official poverty lines, which are Table 16.6 Distribution of income (or expenditure), mid-2000s

China Indonesia Korea Malaysia Philippines Singapore Thailand Norway*

Richest 10% to poorest 10%

Gini index

13.2 10.8 7.8 11.0 14.1 17.7 13.1 6.1

41.5 39.4 31.6 37.9 44.0 42.5 42.5 25.8

Note: * The country with the lowest income inequality in the world. Source: Human Development Report 2010.

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Table 16.7 Poverty indicators (%), 2000s

China Indonesia Korea Malaysia Philippines Thailand

Population below PPP$1.25 a day

Population below PPP$2 a day

15.9 29.4