Last Unit: Japan-East AsiaPolitical Relations

• Structure: The bipolar structure of the Cold War defined Japan’s pre-1990 relations. The US-Japan Security Alliance continues to act as an impediment to deepened relations with China, Korea and the ASEAN states;

• Agency: Efforts by pro-China faction within the LDP and the Socialists at establishing relations with China; Post-Cold War: DPJ under Hatoyama attempts recalibration of foreign policy. Unsuccessful. LDP’s Abe reasserts strong stance on territorial issues and close US ties;

• Norms: Asianist and Developmental norms have been at the heart of Japan’s post-war attempts to re-connect with East Asia, but are consistently trumped by bilateralism with the United States.

Unit 8

Japan’s Economic Relations

with East Asia

Prof. Glenn Hook

Aim

To apply the concepts and theoretical approach

introduced to Japan’s economic relations with

East Asia.

Objectives1) To identify the importance of structure, agency and norms in

explaining the bilateral economic relationship with East Asia in

the postwar and post-Cold War eras;

2) To demonstrate how structure, agency and norms can be used

to explain specific aspects of Japan’s economic relationship with

East Asia, focusing on the development of the regional economy

in the Cold War and Post-Cold War periods;

3) To illustrate how structure, agency and norms can be used to

explain Japan’s role in the East Asian financial and economic

crises of 1997 and its subsequent post-crisis strategy

Introduction• Japan’s economic policy: separating politics from economics

and the promotion of the norm of developmentalism;

• The economic relationship has become the most developed of

the political, economic and security dimensions of Japan’s

regional relations.

• Three key sites of Japan’s activities and links:

(1) Newly Industrialized Economies

(2) the ASEAN-4

(3) China

S.A.N. in Japan’s Economic Relations with East Asia

• Structure: 1. Cold War period:

• Structural forces: bipolarity;

• Important events: Nixon’s visit to China; collapse of the Bretton

Woods system; the 1985 Plaza Accord; the inflation of the yen.

2. Post Cold War period:

• Structural force: multipolarity;

• Important events: flourishing of multilateral institutions in East Asia,

rise of China; East Asian Financial Crisis; Japan’s main economic

relations remain the NIES, ASEAN 4 and China.

Structure: Finance Minsters who agreed the 1985 Plaza Accord

From left: Gerhard Stoltenberg , West Germany; Pierre Bérégovoy, France; James A. Baker III, United States; Nigel Lawson, Britain; Noboru Takeshita, Japan.

S.A.N. in Japan’s Economic Relations with East Asia

• Agency:

(1) Japanese government in building up the economic

infrastructure in East Asia through ODA;

(2) Japanese corporations/businesses and business

associations investments and transfer of production

facilities;

(3) Japanese prime ministers and politicians from the LDP

economic expansion of Japan into East Asia.

Agency

Corporations, PMs and bureaucrats have been key actors in driving Japan’s postwar economic relations with East Asia

Fukuda Takeo Hatoyama Yukio

S.A.N. in Japan’s Economic Relations with East Asia

• Norms:

Developmentalism, Asianism, Anti-militarism

Economism

NormsCountry

China

JapanTime

Change in industryChange in production base

Primary Secondary Tertiary High-tech

Asianism Antimilitarism

Economism

Developmentalism

Japan’s Economic Re-Entry into East Asia

• Official Development Assistance (ODA): Increased throughout 1970s, 1980s and 1990s. Helped integrate region economically and politically; ‘tied’ ODA controversial

• Foreign Direct Investment (FDI): As with ODA, rebuilt links with East Asian economies. 1950s-60s: Resource Extraction, 1970-80s: Production moving abroad

• Trade with East Asian states increased progressively from 1970s on, and continued to increase in post-Cold War period. Apart from China, East Asian states maintain trade deficit with Japan due to exports of manufactured goods and technology.

Moving Production Abroad: Toyota factories around the world

FDI

Japan’s TNCs have been accused of utilizing FDI as a means to exploit cheap labour in East Asia the so-called ‘race to the bottom’

Despite recent declines Japan maintains high-levels of FDI to East Asian economies

ODA

Japan’s ODA loans to China halted with the symbolic event of the Beijing Olympics in 2008 – representing China’s full economic development. Grants and technical assistance are under review, as China has now overtaken Japan as the region’s largest economy.

Official Development Assistance as a percentage of GNI (2011)

UN Goal

Per cent

Japan

Japan’s gradual regional economic decline

1980 1990 1995 2000 2005 2008 2009 2010 2011 2012

-50

0

50

100

150

200

250

Japan, China, ASEAN balance of trade

Japan (export)Japan (import)Japan (balance)China (export)China (import)China (balance)ASEAN (export)ASEAN (import)ASEAN (balance)

Year

Billi

on U

S$

Japan and the economic development of the East Asia region

• Developmental Models taken up by East Asia, based on Japanese model: Export-led, close co-op between state and private industry, links between manufacturers, subsidiaries, and subcontractors. – ‘Flying Geese’ model – Japan the ‘lead goose’

• Propagation of Developmental Norms: METI has pushed export-led growth, and state/private sector cooperation, as well as Japan as top of Asian division of labour (against US/World bank orthodoxy)

• Criticisms of the Developmental State Model is based on the model of ‘complex production links’. High cost of start-ups and new techonology, leave other East Asian states dependent upon Japan as tech exporter and US as market

Japan’s Role in the East Asian Financial and Economic Crises of 1997• Cause: flaws in Japan’s ‘flying geese’ model, and Japan’s

actions in undermining regional economies

• The Japanese-led model had three weaknesses: – too dependent on the export-led model; post-crash bubble Japan

devalues currency, reduction in export markets for Asian economies

– too heavily reliant on foreign capital/investment;– over-protection of inefficient and moribund industries based on

crony capitalism.

• Immediate trigger: flight of capital from Thailand due to failing investor confidence, contagious, spreads to regional economies

Japan’s Role in the East Asian Financial and Economic Crises of 1997

Map showing the countries which

were most affected by the

economic crisis

Japan’s Role in the East Asian Financial and Economic Crises of 1997

Japan’s Response:

• Japan supported the IMF rescue package, was largest donor;

• A proposal to set up a so-called Asian Monetary Fund (AMF)

further relying on the developmental model and stressing

the Asianist and internationalist norms – faced down by US

and IMF;

• Other initiatives: the domestic stimulus plan of Prime Minister

Obuchi; export credits; transfer of technology; assistance for

small businesses.

Japan’s Role in the East Asian Financial and Economic Crises of 1997• Failure: Yen continues to fall (increasing Japan’s

competitiveness against regional states), and its failure to establish AMF Malaysian PM Mahathir: Japan no longer the ‘lead goose’;

• New Miyazawa Initiative: To reassert leadership. US$30 billion to guarantee sovereign bonds in East Asian states. Not restructuring, but support in a crisis. Basis for currency swaps.

• Chiang Mai: May 2000. Based on Miyazawa initiative, pushes swap agreements. Developed into Chiang Mai initiative in 2010, ASEAN plus 3 currency swap, reserves of US$120 billion (some regional leadership competition between Japan and China – both sides try to offer more to the fund, in the end, exact same amount).

Japan’s regional economic strategy post-Financial Crisis

Challenges to Japan’s leadership

• Globalization puts pressure on developmental model;

• ASEAN seeks access to Japan’s domestic market;

• ODA decline: 1980: 71% went to East Asia. 2009: 42%;

• China: leading economically, opening parts of its market, driving regional growth (even in Japan, e.g. 2002-3 recovery due to China’s growth);

• Attachment to the US – conflict of Asian and US interests;

• Damage limitation vis-à-vis nationalist Chinese reaction to Japanese run businesses during Senkaku/Diaoyu dispute.

Japan’s current regional strategy

Response to Challenges• Expansion of FTAs: China takes the advantage in 2000,

announcing plans to sign FTA with ASEAN as a group. Japan responds with ‘Koizumi Initiative’, first FTA, 2002 with Singapore. Followed by FTAs with other ASEAN states;

• APEC and Trans-Pacific Partnership (TPP): TPP a US initiative, PM Noda has pledged to take Japan in;

• East Asia Free Trade Area (EAFTA): Japan favours including the East Asian Summit (EAS) countries (including US, Australia), while China focuses on ASEAN plus 3, smaller group, more influence. China not party to TPP.

Japan’s regional economic strategy (results)

Results

• Bilateral FTAs: Enable Japan to control liberalization of its own economy (especially in sensitive areas)

– Also builds up links with ASEAN, e.g. through Comprehensive Economic Partnership (CEP), increases opportunities for off-shore production in SEA

• Response to China: FTAs, EAS, TPP, contribute to counteracting rise of China as regional competitor.

• Chiang Mai Initiative: Helped restore Japan’s standing post-economic crisis.

Former PM Kan at the TPP Summit in 2010 – PM Abe is stepping up negotiations to join

Conclusion• East Asian Economic Crisis damaged Japan’s reputation;

• China represents challenge to regional economic leadership;

• Difficulty in balancing between Asianism, Economism, and Developmentalism on the one hand, and the bilateral relationship with the US on the other;

• But . . . The post-crisis strategy has worked to restore Japan’s position to a large extent;

• Pressure from China has given Japan impetus to further integrate with East Asian economies, especially ASEAN.