Pacific Rim Dynamics

The Pacific Rim has emerged as one of the most dynamic regions in the world. Analysts predict that this bloc will be the fastest growing area in the 1990s. It currently accounts for 20 percent of the global product, producing everything from textiles to high definition televisions, and it has a $20 billion dollar trade surplus with the rest of the world. In less than a half of a century, Japan has become a dominant economic power. China and the Newly Industrialized Countries(NICs)--Hong Kong, Singapore, Taiwan and South Korea--are fast on its heels. China's gross national product is expected to exceed that of Japan before the beginning of the twenty-first century. The world must now contend with the emergence of the Pacific Rim and the different cultures and varieties of development that propel these economies forward.

Six Southeast nations have signed a free-trade agreement under the title of Association of Southeast Asian Nations (ASEAN). However, this region is not nearly as politically united as the European community. Saburo Okita, head of the Domestic and International Policy Studies Institute in Tokyo, notes, "One of the biggest differences between the East Asian integration and European integration is that in Europe it's based on treaties. In East Asia it's based on market forces."

The major economic powers of this region are Japan and China. Their rapid economic rise and impending influence are beginning to manifest themselves, as Japan calls for a seat on the Security Council and China seeks to join the GATT. Memories of Japanese imperialism before and during World War II are still strong; a few countries see in Japan a new economic imperialism. Some Pacific Rim nations fear becoming an economic pawn of the Japanese. In 1990, new Japanese direct investment proposals and approvals in ASEAN exceeded those of the U.S. companies by more than four times. Exemplifying their concerns of a Japanese hegemony, these nations are now trying to attract diverse investments; Vietnam is asking the U.S. to lift the 17 year old trade embargo.

Japan, in its rise, has benefitted from its policies of extensive information gathering, and a very long-term view expressing itself in high levels of savings, investments, and R&D expenditures. The direct role of the government and the organization of business has also contributed to Japan's success.

As the relationship between the U.S. and Japan becomes increasingly interdependent, new tensions are developing. Currently, the U.S. consumes one-third of all Japanese exports but Japan has a trade surplus with the U.S. of $42 billion. American businessmen argue that Japan does not practice free trade; they see the Keiretsu as an illegal agreement between companies that controls prices and curbs competition--in effect a cartel. However, in Japan the Keiretsu is a way of life and a deep part of the nation's culture. There have been a number of harsh exchanges between the two countries recently, despite the economic integration, with threats of protectionism and withdrawal of funds.

These tensions have intensified with the global recession. Japan's long term capital account showed a deficit of $28.07 billion for this year, compared to a surplus of $36.06 billion in 1991. Further, Japan has been rocked by political and financial scandals, where senior members of the government have been connected with members of organized crime.

The global recession, harmful to more mature economies, has had little effect on China. The giant is sleeping no more. During the past decade, China's GNP has grown an average of nine percent per year. In the first three months of this year alone, foreign companies contracted to invest $65 billion in 3,837 Chinese enterprises--an average of 42 new foreign-financed ventures each day. This investment comes as the government continues its reforms away from a centrally-planned economy. Wage, labor, and bonus payments have increased, spurring growth through incentives. Most strikingly, China has established five experimental free enterprise zones which have witnessed quick growth and high levels of foreign investment. The United States has watched China with some ambivalence, applauding its market reforms, but criticizing its abysmal human rights record and willingness to sell missiles and nuclear technology to anyone offering cash. The U.S. however has continued to grant China Most Favored Nations status with two express purposes: to promote U.S. business development and to avoid isolating China in the hopes of affecting more reforms.

China will grow more economically powerful with the return of Hong Kong in 1997. Hong Kong--which alone accounts for 57 percent of new contracted investment in China--will provide China with experienced enterpreneurs and more investment. Further, Taiwan is legalizing investment in China. According to Fortune Magazine, these developments will combine Taiwan's technological and financial power ($82 billion in resources), Hong Kong's international marketing skills and China's vast supplies of land, workers, and ambition. Asia is becoming a daunting economic powerhouse, a development that has global implications.