East Asian asymmetry grows greater

The asymmetry between the strategic and economic situations in East Asia has just been heightened (subscribers see our January report Why China Will Come out On Top In East Asia).

Maritime clashes but economic links. On the one hand, Beijing is involved in a confrontation with Manila over maritime rights, the latest in a series of clashes between China and countries stretching from Japan and South Korea to the Philippines and Vietnam. The tension has made it easy for Washington to pursue its “Pacific pivot” policy of stepping up military protection for countries in the region which feel threatened by the People’s Republic now that it has abandoned Deng Xiaoping’s low-profile approach to regional affairs and is fast building up its naval forces.

On the other hand, moves to boost East Asian economic cooperation, especially among the three biggest players in the area, continue apace, untroubled by clashes between Chinese trawlers and Japanese and South Korean coastguards.

Free-trade talks. High-level Japanese and South Korean delegations agreed in Beijing at the weekend to begin negotiations with China on a free trade pact between the three nations. They also signed a trilateral investment agreement.

“The establishment of a free-trade area will unleash the economic vitality of our region and give a strong boost to economic integration in East Asia,” said Prime Minister Wen Jiabao. Trade between the three countries rose to US$690 billion in 2011 from US$130 billion at the turn of the century. China is the biggest trading partner of both Japan and South Korea.

Two-year deadline. The three nations have given themselves two years in which to hammer out the free trade deal. It will dovetail with agreements they are forging with the ASEAN states to the south. Within the broader Asian context, this initiative presents an obvious challenge to India, particularly given China’s links to Pakistan and its growing presence in Central Asia.

South Korea’s government expects a free trade deal with China to add 0.95-1.25 percentage points to GDP growth five years after it goes into effect, more than doubling in scope after 10 years. Bilateral trade between the two countries hit US$220.6 billion in 2011, more than the total value of South Korean commerce with the US and EU combined.

Lame duck. Despite the drive for modernization of the People’s Liberation Army, China will remain well behind the US in military terms for a long time. Despite all the clashes involving Chinese trawlers and energy exploration vessels, its ability to project naval power is limited; its only aircraft carrier is still undergoing trials. But on the trade front the moves by the three biggest East Asian economies to draw closer will be underpinned by their concern about Western markets. Their growing interdependence will act as a counterweight to the Obama administration’s plans for a Trans Pacific Partnership free trade zone that looks like being a lame duck in comparison.