New order takes shape in East
China, Japan and South Korea have vowed to push ahead with plans for a new union that would reduce their economic dependency on the West.
By Malcolm Moore in Shanghai
Published: 6:18PM BST 10 Oct 2009
The move came as HSBC warned there is likely to be a "shift in the world's centre of economic gravity from West to East". The bank has already decided to move its chief executive, Michael Geoghegan, from London to Hong Kong next February to prepare for Asia's ascendancy.
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Japan and South Korea pledge economic co-operationWen Jiabao, the Chinese prime minister, and his Japanese and South Korean counterparts, Yukio Hatoyama and Lee Myung-bak, said the three countries were "committed to the development of an East Asia community", similar to the European Union.
The idea, which is being strongly pushed by Japan, could eventually lead to a free trade block and co-operation on public health, energy and the environment.
"With the rapid increase in trilateral economic co-operation as well as trade and investment, the three countries have emerged as important trading partners to one another," said a communiqué from the conference. "We will make full use of the great potential of the three economies and bring to higher levels our co-operation in key areas such as business, trade, finance, investment, logistics, intellectual property, customs, information, science and technology, energy conservation, environmental protection and the circular economy."
Between 1985 and 2004, trade within East Asia grew twice as fast as overall global trade. Around 53pc of East Asia's trade is regional, slightly less than the 67pc figure for the enlarged European Union, but more than NAFTA's 46pc.
The proposals are in their early stages, and the three countries emphasised that it was a "long-term goal". Liu Changli, a professor at China's North East Finance University, said a free trade area could be in place "by 2020, on a best-case scenario". He added: "Add another five to 10 years for an economic union and a further five to 10 years after that for a true economic, military, political and cultural union".
The proposals come as Japan is struggling with the collapse of its export sector, a key motor of its economic growth. Since Mr Hatoyama was elected at the end of August, he has been searching for a way to kick-start the economy and alleviate the country's debt, which currently stands at 283pc of GDP, the highest of any G20 nation.
Trade with China, Japan's largest trading partner, slumped by 21.4pc in the first half of this year, as Chinese manufacturers switched from using Japanese components to cheaper Taiwanese substitutes.
Before leaving for Beijing, Mr Hatoyama met with three of Japan's leading captains of industry to repair ties with the business community. Fujio Mitarai, the chairman of the Japan Business Federation, told the prime minister that it was essential to cultivate a deeper relationship, but that there was a need for the Chinese to respect Japanese intellectual property rights.
South Korea's ties with China have also weakened, with substantial Korean populations in Beijing and Shanghai returning home because of the downturn.
Both countries now see China's booming economy, which is set to grow by at least 8pc this year, as a beacon of hope. China, for its part, has a long-term strategy of reducing its dependence on the West and building political and economic ties with Russia, the Middle East, Africa, Latin America and Asia. It has already signed a bilateral free trade agreement with ASEAN, the coalition of South East Asian nations, which is due to come into full effect next year.
However, any attempts by the three nations at closer integration are likely to be opposed by the US, which is concerned about any waning of its influence in the Pacific. Both South Korea and Japan are traditional allies of Washington.
China is also likely to mistrust Japan's intentions. Beijing sees US influence in Japan as a way of keeping its pacifist constitution in place and preventing its military from rising.
Zha Daozhong, professor of international relations at Beijing University, said the East Asian community "is just a framework at the moment. . . They need to work basic things out, like the free flow of labour. One thing that remains fundamental is that Japan and South Korea do not want to see an influx of Chinese workers coming in and taking their jobs".
How the numbers stack up
2nd & 3rd
Japan and China’s position in the list of leading world economies. Economists believe China could surpass Japan by the end of the year.
$266.4bn
Value of trade between China and Japan in 2008, a 12.5pc rise over 2007.
21.4pc
Decline in trade between the two countries in the first half of this year. According to the Japanese government, trade between the two countries will decline over the full year for the first time in 11 years.
1st & 2nd
China and Japan’s position in the list of the world’s biggest holders of foreign reserves.
16pc
The proportion of the gobal economy accounted for in the combined Gross Domestic Product (GDP) of Japan, China and South Korea.
30pc
The amount of time Michael Geoghegan, chief executive of HSBC, will spend in the UK after announcing that he is the latest leading business figure from the West to relocate to Hong Kong, which he described as “the group’s most strategically important region”.
