Volume 11 Number 1 Spring 1999
Globalization and regionalism are the two main trends of the world economy today. Globalization is represented by the WTO, whose system aims to strengthen free trade and open markets, while regionalism encourages many countries to join various regional economic cooperation organizations such as NAFTA, EEA, and ASEAN.
In East Asia, the preoccupation of virtually all countries with accelerating economic development and enhancing their economic competitiveness has encouraged them to promote cooperative economic relations with their neighbors. Among them, the Greater Chinese Economic Area (GCEA) is now increasingly becoming the focus of attention.
There are doubts as to whether or not the GCEA can be included in the category of regional economic cooperation systems, but considering its possible impact on the region, the GCEA should be examined carefully.
The activities of the GCEA can be divided into two specific areas. One, on a regional level, is to strengthen the economic ties between China, Hong Kong, Macao, and Taiwan, and the other, on the global level, is to combine all Chinese economic powers. The GCEA is not yet completely developed, but if it is realized, it will lead to change in the East Asian international order.
Based on that premise, the article aims first to examine the present situation and the possibility of the creation of the GCEA and secondly, to estimate and predict the influence it has had and will have on East Asian international order.
What is the GCEA?
To begin with, the term GCEA refers to the concept of Chinese territory, including mainland China, Hong Kong, Macao and Taiwan. Second, it refers to the Pan-Asian Chinese economic bloc including Thailand, Malaysia, Indonesia, Singapore, the Philippines and other East Asian countries where Chinese people have an overwhelming influence on the economy. The People's Republic of China (PRC) and these countries maintain vital economic relations (See Table 1). Last, it also refers to a virtual space cooperation network comprising all of the overseas Chinese (huagiao)1) who are scattered throughout the world.
More importantly, this article analyzes the term GCEA more accurately to reveal its nature. The GCEA consists of three words. First of all, 'the greater' connotes space, an indication that it includes every country where Chinese people live. Second, the term 'Chinese' specifies that the GCEA is based on racial solidarity. In other words, the main actors of the GCEA are the Chinese people.
Last, the term 'economic area' needs to be discussed in more detail. 'Economic area' is usually divided broadly into two categories, 'rgionalization' and 'economic integration,' according to its main actors and motives. The term 'regionalization?' refers to the 'functional economic integration', caused by the concentration of economic activities of private enterprises owing to their own economic interests in a particular area.
On the contrary, 'economic integration,' so-called 'institutional economic integration,' refers to the agreed integration of economic actors, whose agreements determine the conditions and the forms of cooperation, including those of a 'free trade zone,' 'common market,' 'economic union,' and 'complete economic union.'
The crucial difference between these categories is whether governmental organizations intervene in their regional economic cooperation procedures. Since the Chinese government has never intervened in the process of economic cooperation, and has never attempted to remove trade barriers such as tariff walls or quotas, the GCEA belongs to the category of 'regionalization,' that is, a 'functional integration,' rather than to the category of 'institutional integration'. Furthermore, the word 'regionalization' indicates that it is geographically limited to neighboring East Asian countries; hence, overseas Chinese who live in Europe and North America are excluded from the GCEA. In this context, the article defines the GCEA as the enhancement of the Chinese economic area by extending overseas Chinese mutual cooperation in East Asian countries.
However, as mentioned previously, the GCEA is not an international organization, and the possibility of its becoming an official organization such as the EU, NAFTA, or ASEAN is very remote at the moment. Futhermore, the Chinese government has refrained from discussing the GCEA publicly, fearing the negative effects it would cause. However, there are numerous signs indicating the possibility of the growth of the GCEA which should be carefully examined.
Chinese Government Policy Concerning the GCEA
What is the real intention of the Chinese government concerning the GCEA? Does it intend to develop the GCEA to the level of a formal organization? To answer these questions, this article first examines the background of the creation of the GCEA and Chinese policies regarding it, and then analyzes the Chinese government's understanding and evaluations of the GCEA in terms of East Asian order.
Concerning the development of the GCEA, the national characteristics of the Chinese people should be mentioned first. Wherever Chinese people live throughout the world, they develop their own communities, often referred to as 'Chinatowns.' Traditionally, Chinese people value human relations above everything else, attaching great importance to kinship and blood-ties, as well as to regional and vocational background. Hence, the most important factor of Chinese people's economic activities is 'guanxi,' or human relationships, and this develops into the sense of homecoming and national solidarity, sentiments which led overseas Chinese to invest in China after the Chinese government began economic reforms and openings.
The Chinese government has also helped overseas Chinese to invest in China by building special economic districts. The governmental organizations dealing with the overseas Chinese are the Office of Overseas Chinese Affairs of State Council (OCASC) and the National Federation of the Expatriated Overseas Chinese (NFEOC). The OCASC was abolished in 1970 during the Cultural Revolution, but it was reinstated in 1978 and now has 1,300 branches all over China, except Tibet. The NFEOC was established in 1940, and was also abolished during the Cultural Revolution. It was reinstated in 1978 and is now being operated in 28 provinces.
Protecting the rights of returning huagiaos and their relatives as well as increasing overseas Chinese rights in their residential countries are the main duties of the OCASC and the NFEOC. On the other hand, huagiaos take advantage of the close ties with these agencies, using them for the development of China, their homeland.
The main purpose of Chinese government policy concerning the overseas Chinese is to make efficient use of their capital for its economic development. To this end, since 1978, it has enacted various laws encouraging the overseas Chinese to invest in China, including Implementation of Regulations on Foreign Exchange Control Regulations Relating to Enterprises with Overseas Chinese Capital, Foreign Capital Enterprises, and Sino-Foreign Equity Joint Ventures (August 1, 1983), Provisions of the State Council for the Encouragement of Foreign Investment (October 11, 1986), Provisions of the State Council Concerning the Encouragement of Investments by Compatriots from Taiwan (July 3, 1988), Sino-Foreign Equity Joint Venture Law (April 4, 1990), Provisions of the State Council Concerning the Encouragement of Investments by Overseas Chinese and Compatriots from Hong Kong and Macao (August 19, 1990), and Provisional Regulations on the Establishment of Foreign Invested Joint Stock Limited Companies (January 10, 1995).2)
These laws guarantee the rights of returning overseas Chinese, including the following: First, huagiaos and their relatives have the same rights as native Chinese. Second, institutions and associations are prohibited from discriminating against them. Third, authorities should consider the fact of their living abroad for a long period of time, and extend a helping hand to them.
In this context, the PRC has implemented the following policies toward overseas Chinese who are living abroad. First, the PRC does not permit huagiaos dual citizenship, encouraging them to become citizens of their countries of residence. Second, the PRC guarantees the rights of huagiaos and requires the government of their countries of residence to guarantee their legal rights. Third, the PRC encourages oversea Chinese to respect the laws of their countries of residence and to maintain peaceful relations with native citizens. Fourth, the PRC promotes the unity of overseas Chinese, encouraging loyalty to their homeland.
Historically, the policy attitude toward overseas Chinese is directly affected by internal political conditions. For example, during the Cultural Revolution, China adopted antagonistic policies toward overseas Chinese, but since the economic reforms and openings, it has treated them more favorably in order to vitalize its economy. It is ironic that overseas Chinese who once fled their homeland are now the major investors in the PRC. The mutual interdependence of China and the overseas Chinese stems from the fact that the Chinese government is politically powerful but economically weak, while overseas Chinese are economically powerful but politically weak. A further positive aspect is that overseas Chinese enjoy a favorable situation in managing firms in China in that they share the same culture and sense of values, while they are treated more favorably than other foreign investors. Hence, the GCEA functions as an operational system satisfying the mutual desires of both the Chinese government and overseas Chinese. That is to say, the Chinese government and overseas Chinese promote their common interests through mutual cooperation, as the former receives benefit from overseas Chinese capital in developing its economy, while the latter profits by investing in China. Although this type of relationship could be seriously undermined by Chinese political instability and the fear of reduced benefits from inducing overseas Chinese capital, the risk is minimized by various safety measures maintained by overseas Chinese enterprises.3)
Ironically, it is reported that the Chinese government has prevented the news media from reporting its successes in economic development, as it could trigger fears of a 'Chinese Peril.' For example, there is a noticeable difference between the official trade figures of the United States, which shows a large trade deficit with China, and China's figures, showing a smaller deficit. In addition, the Chinese government enthusiastically promotes the GCEA with regard to the East Asian overseas Chinese. Though the GCEA is a topic of serious consideration in neighboring countries, the Chinese government has never expressed an official position on the GCEA. Moreover, Chinese scholars, fearful of any pressure from the government, refrain from discussing the GCEA. This also suggests that the Chinese government is fairly content with the present situation, and does not want the GCEA to be a subject for discussion among neighboring countries.
Since the Chinese economic reforms and openings in 1978, the GCEA has rapidly developed, resulting in promoting mutual cooperation between China and neighboring countries where overseas Chinese have an overwhelming influence on their economy. Consequently, there has been a movement toward a regional integration which includes China, Hong Kong, Taiwan, and other East Asian countries. However, despite its progress, a great many obstacles stand in the way of the GCEA in developing into an international organization such as the EU, NAFTA, or ASEAN.
First, China and neighboring countries which could be included in the GCEA have different economic systems. Although China has made steady progress in opening and reforming its markets, it still maintains a socialist economic system, while its prospective partners have capitalist economic systems. Hence, it will be difficult for related countries to effect parallel integration with China. Furthermore, even the creation of a free trade zone by tariff agreements will be difficult owing to the discrepancies in levels of development and the degrees of trade liberalization among different nations.
Second, there are ongoing political tensions and confrontations between the PRC and Taiwan, the two main actors of the GCEA. Unless this problem is solved, the advancement of the GCEA is practically impossible.
In fact, economic cooperation between the PRC and Taiwan has been steadily increasing and is now making progress. Futhermore the governments of both countries, adopting the principle of separation of political matters from economic matters, have made efforts to exclude political influence on economic activities in order to encourage mutual economic cooperation. The PRC is now the second-largest trade partner of Taiwan, while Taiwan is the fifth-largest trade partner of the PRC. As < Table 2 > shows, however, economic cooperation between the two countries has been at a standstill for the past few years, meaning that trade and investment between the two countries have now reached a peak, and to reverse this trend there needs to be a political turnabout in terms of each recognizing the other's political system.
Third, the main actors of the GCEA are namely, the Han Race, the Chinese people and overseas Chinese, that is to say racial solidarity is the most fundamental element. While this may be an important factor in maintaining internal integrity, at the same time it could also provoke suspicion and perhaps even criticism from foreign countries. Not surprisingly, when the GCEA is fully realized, the PRC will be a powerful force to be reckoned with, not only politically and militarily, but in the economic arena as well.
Since this could create a serious threat to China's neighbors which have historically suffered under a unified and powerful China, those countries will strongly resist the creation of the GCEA. Moreover, it is certain that China will pose a very powerful challenge to both the United States which has enjoyed its status as the only superpower in the post-Cold War era, and to Japan which has pursued hegemonic power in East Asia. Hence, all the related countries will be on guard concerning the progress of the GCEA.
The growth of the GCEA might also provoke antagonism toward overseas Chinese in East Asian countries, as was seen in the recent mob violence in Indonesia. It was reported that overseas Chinese were targeted by Indonesian citizens as economic opportunists. The dilemma arises because East Asian countries urgently need overseas Chinese capital and the markets of China, Hong Kong, and Taiwan, not only to overcome the present foreign currency crisis, but also in order to continue development of their economies.
The most serious obstacle is the United States. With Sino-American amity already seriously undermined, the end of the Cold War removed the single most important impetus for cooperation and the primary justification for compromise. Joint strategic planning against the Soviet Union had motivated U.S. presidents from Nixon to Clinton to make concessions to China. The complicated game of triangle politics encouraged the growth of trade and cultural ties and led Americans to ignore the disquieting evidence of China's unrepentant autocracy. But as the Soviet Union, as well as the Soviet threat, vanished, China's leverage and license also disappeared.
Ostensibly, the United States does agree with the 'One China Principle,' but suggests that the unification should be made peacefully. At the same time, it is still selling weapons to Taiwan, and provoking China's ire with such moves as approving the visit of the President of Taiwan to the United States.
Unsubstantiated theories about the 'yellow peril' and the 'China peril' are circulating. Some even suggest that the recent financial crisis in East Asian countries is one of the scenarios staged by the U.S. to tame the PRC.4)
With China's rise as the most powerful nation in Asia evidenced by its rapid development, it is claimed that the United States is attempting to frustrate China's efforts to acquire hegemony over the financial sector. China is already in possession of nuclear arms, and its gaining a foothold in the financial sector could be a threat to the United States.
In fact, it is true that China is confident in its ability to protect its market from international hot-money, now that it has acquired 80 billion dollars as well as financial know-how with the hand-over of Hong Kong. Furthermore, if China achieves unification with Taiwan, it would hold the most foreign currency. In this sense, China's development differs substantially from that of other East Asian countries over the past few decades, from Japan on down.
Since the end of the Cold War era, the United States has been the most powerful country in the world, but only in the political and military sectors, not in the economic sector. Therefore, the United States is now adapting the strategy of neo-liberalism, i.e., globalization, which aims to open the world markets and abolish laws preventing free trade. The U.S. points out that it is impossible for East Asian countries to fulfill democracy and market economies while at the same time allowing the government to play an essential role in the mercantile system. It further warns that if East Asian countries do not accept its brand of socio-political economics, it will replace its friendly policies with a more confrontational stance.
The United States has already acquired the strongest competitive edge in the financial markets and the information industry. It has put in place a variety of institutions to promote free trade in both the manufacturing and the service industries by re-organizing the General Agreement on Trade and Teriffs (GATT) system into the World Trade Organization (WTO). Then, in bilateral negotiations, it urged all countries to open their markets and abolish various regulations. Indeed, East Asian countries yielded to those requirements, and it became the source of their financial crisis. The American government controlled international organizations such as the IMF to exercise its influence upon those countries. A case in point is that the United States had pressured China on its MFN status, the WTO, and human right issues, but the Chinese government and its people showed no signs of wavering. Therefore, the only remaining option was to demonstrate that China's economy, while appearing to be making rapid gains, rapidly, could collapse in a day. The financial crisis in East Asian countries has served as a good example.
Meanwhile, the Korean financial crisis has been developing rapidly as well, and a disruption in the Korean foreign currency market could seriously harm the competitiveness of China's manufacturers. One possibility is that the devaluation of the won may cause the Chinese government to devaluate the yuan, leading to the flight of foreign capitals from the Chinese market.
As a result, China is showing signs of concession toward the United States to resolve this, choosing to adopt cooperative policies, rather then to oppose the United States. For example, during President Clinton's June 1998 visit to China, the two countries reached an agreement not to aim their strategic nuclear warheads at one another. In another conciliatory move during the U.S.-China summit meeting in 1997, China promised not to export its nuclear technologies to third-world countries. Consequently, the two countries began a regular high-level strategic dialogue through the annual Defense Consultative Talks, which were initiated in December 1997.
There are several reason why Sino-American relations remain important to both the United States and the PRC. China continues to benefit economically and technologically from its American connection. The United States may not need China to balance the power of the Soviet Union, but the Chinese can facilitate settlements in Cambodia and on the Korean peninsula. Moreover, the United States hopes to curb destabilizing Chinese arms sales, and each nation remains alert to the other's nuclear arsenal. In areas such as environmental pollution and drug trafficking, both countries will benefit from working together.
Still the PRC is not likely to continue to be acquiescent toward the U.S.. When China's industrialization reaches a certain level, it will have the largest market to itself. Then, China can require East Asian countries to pay to take part in its market. The most plausible scenario is that China will promote the internationalization of the yuan. In this case, East Asian countries will have to trade in yuan with China and can also use it in trade among themselves. If China establishes an Asian International Monetary Fund, using the yuan as its key currency, this scenario will be realized. One of China's main purposes, i.e., the acquisition of power over the financial sector, can be realized only by the internationalization of the yuan. But this contradicts the interests of Japan, which is strongly pursuing the "internationalization of the yen." Owing to the financial crises in East Asian countries and the integration of Europe, Japan and East Asian countries are taking a greater interest in the internationalization of the yen. In addressing this concern, the Finance Ministry of Japan liberalized its foreign exchange service in April 1998, and reformed its financial system to investigate and deliberate 'the internationalization' by establishing "the Subcouncil on the Internalization of the Yen" under the Council on Foreign Exchange and Other Transactions.
Still the relations between Japan and East Asian countries must be strengthened in order to make the yen a key currency in East Asian, not to mention the need for stabilization, and this is a threat to the advancement of the GCEA.
Though China can overcome the problems mentioned above, the following factors will impact the future of the GCEA: First, it is problematic as to whether overseas Chinese capital can be regarded as fixed capital investments. Instead of investing in the manufacturing sector, they prefer to invest a great deal in circulation, finance, and real estate. These types of investments, however, do not harmonize with Chinese development strategies.
Second, there are no institutions or organizations that can take charge of the systemization and institutionalization of the GCEA. There are non-governmental organizations such as the Chinese Traders Association, but to develop into an economic cooperation system of a certain level, would require more official organizations and institutions. Given its desire to maintain a low profile, however, China can't take an active role in the growth of the GCEA. With these limitations, China can neither enact laws to promote the GCEA, nor can it strongly induce overseas Chinese capital.
Third, the technological level of East Asian countries is still relatively low and they export most of their products to other foreign countries, rather than to China. Consequently, it is pointed out that there are limits as to what the GCEA can achieve in its aim to develop into a self-supporting economic cooperation system.
Last, China has many internal problems, such as economic dislocation, and socio-political disorder. With the rapid growth of civil society, the political disorder has also increased, causing many social problems such as the birth of a class of the 'super-rich,' pro-western sentiments, and flight to urban areas. In addition, it is possible that there will be a spillover of harmful efforts from the East Asian financial crisis that will affect the GCEA. Furthermore, while external and diplomatic factors are unfavorable as well, they are still under China's control.
Although the Cold War has ended, some controversial problems still exist in East Asia. For example, South and North Korea still confront each other on the Korean peninsula; China and Taiwan cannot reach any agreement on unification; and there are potential conflicts between Russia, Japan and China over their territories. These problems are powerful enough to spark armed disputes at the slightest provocation. Moreover the recent financial crisis could be a crucial factor in predicting the strategic situation East Asia. In this context, the formation of the GCEA has become the focus of attention.
The GCEA must overcome many problems in order to develop into an official organization, and it is improbable that the GCEA will emerge as an institution in the short term. China, the main proponent of the GCEA, is still at a low economic level, and the recent East Asian financial crisis is continuing. These facts, coupled with the critical stance of neighboring countries, especially Japan, toward the GCEA can delay its formation.
But the possibility of the GCEA's development is not solely determined by economic factors. Political and security issues, such as China's East Asian strategy, the Japanese response against it, and the United States' East Asian strategy must be carefully considered. Owing to China's 'economy first' policy, East Asian countries are enjoying a peaceful situation now. However, after accomplishing its goals for development, China's pursuit of hegemonic power in East Asia could lead to conflicts with the United States and Japan. Considering these factors, the GCEA will become a very beneficial organization for China, both economically and politically.
- The word
'overseas Chinese' means both huagiao and huanen.
'huagiao' usually refers to those who live abroad though
maintaining Chinese citizenship (nationality) while 'huanen'
refers to those who have foreign nationality. Since some countries
permit dual citizenship, the definitions are somewhat blurred. The PRC
has not made a distinction between the two either. Therefore, in this
article, 'overseas Chinese' are defined as Chinese people who live
abroad, including both huaguiao and huanen .
- Meanwhile, a flurry of new legislation has been introduced in China during the last twenty years. Legislation relating to foreign investment has been influenced by a number of factors: China's attempts to gain entry into the World Trade Organization, the passage of various Memoranda of Understanding between China and the United States, and China's efforts to maintain Most Favored Nation status with the United States.
- For example,
overseas Chinese never invest large amounts initially. They start with a
small short-term investment, and if it succeeds, increase the amount and
extend the period of investment. They are also always ready to withdraw
their money when circumstances are uncertain. Moreover, they plan to
lessen their risks by investing together with European corporations and
other overseas Chinese corporations. Kim Hee-woo, Asian Market and
the Choice of Korea (Seoul: KIET, 1997), p.270.
- Chan-kun
Lee, American Hegemony and the Hedge Fund in the IMF era (Seoul: Yeongusa, 1988), pp.44-45.