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How China’s Role in the Asian Production Chain Influences Japan’s, Korea’s and Thailand’s Responses to China

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Abstract:

The emergence of China as an economic and military power is one of the most consequential events in contemporary geopolitics. No region has been more affected by the rise of China than Asia. Predictions of how Asian nations will respond to China are often grounded in realism—the dominant international relations paradigm. However, Japanese, Korean and Thai responses to China since the end of the Cold War defy realist predictions that Asian states would either balance against or bandwagon with a rising China. Contrary to realist predictions, these states’ responses have also not been homogeneous. Instead, Asian nations have, to varying degrees, invested in China and integrated Chinese capital and labor into regional manufacturing chains. They have not ignored military concerns, but have combined different levels of military hedging against China with economic engagement.

This paper suggests that variation in Asian states’ preferences for economic advantage versus military strength explain changes in responses to China, and that understanding China’s role in the Asian production chain is central to assessing Asian states’ responses to China. I consider how China’s receptivity to foreign direct investment since the end of the Cold War dovetailed with the industrial and trade policies of Japan, Korea and Thailand, and propose that complementary economic and trade strategies between each of the three Asian nations and China play a significant role in determining the political and security responses of the three to Beijing.

In spite of China’s rising military power during the late 1990s and early 2000s, elites in Japan, Korea and Thailand saw the benefits of managed economic engagement with China as outweighing the costs because of a tradition of prioritizing economic and technological strength. In the cases of Japan, Korea and Thailand, all three have engaged China in avenues ranging from investment, technical and scientific assistance, foreign aid, and preferential trade agreements. Tokyo viewed technical assistance, loans and grants to Beijing as an investment to strengthen China’s technological and employment base so that it could be integrated in Japan’s production chain. Korean economic planners saw China as a manufacturing base, and facilitated Korean investment in China. Thailand, a production base for Japanese and Korean firms shipping intermediate goods to and from China, Japan and Korea, also benefitted from China’s growth and economic openness.

Asian states responded to China’s position in the regional production chain, particularly in high-technology products, as much as to its growing military power. Beijing’s receptivity to foreign investment provided the “pull,” while Tokyo’s and Seoul’s policies provided the “push” in establishing a regional manufacturing network for technology products. For instance, countries in the region were able to dramatically increase their semiconductor exports to China as affiliates of Japanese, Korean and US companies situated in Asia used these products in the manufacture of consumer and industrial goods. Between 1999 and 2007, the dollar value of Japanese, Korean and Thai exports of semiconductors increased approximately eight-fold, forty-fold, and ten-fold, respectively.

There is reason to believe that the virtuous circle of prosperity in Asia may undergo more tension. China’s recent economic and commercial policy changes suggest an intra-Asian future characterized by greater trade conflict and economic rivalry. States such as Japan and Korea have been able to integrate China into their economic growth strategies precisely because China was very open to inflows of foreign direct investment. However, recent data suggest that Beijing is beginning to implement some of the protectionist policies that typified Tokyo and Seoul of the past. China’s policies will likely alter existing manufacturing and trade linkages in East and Southeast Asia which have thus far helped many states prosper.

Economic strategists in Japan, Korea, and to a limited extent, Thailand, have already voiced concern over increasing levels of competition in key technologies and industries from China, and also from other states within the region. As Chinese products are becoming more competitive with those Japanese and Korean goods which have contributed to their respective economic strength, the likelihood of trade conflict will increase over time. As a processor and manufacturer of intermediate goods, Thailand faces less direct competition from Japan and Korea, but could suffer in the future if the numerous Japanese and Korean firms operating in Thailand downsize due to Chinese firms’ increasing ability to manufacture such products themselves.

Furthermore, domestic political change in Asian states such as Japan and Korea also foreshadows greater rivalry between these countries and China. While previous national strategies prioritized economic strength and advantage, elite preferences have evolved so that Asian states are more sensitive to both economic and military threats. With China now posing a military security threat, and increased economic threat to many Asian nations, these shifting preferences suggest an Asian future in which China’s integration in regional production networks may have less of a pacifying effect on security dilemmas.
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MLA Citation:

Fei, John. "How China’s Role in the Asian Production Chain Influences Japan’s, Korea’s and Thailand’s Responses to China" Paper presented at the annual meeting of the SASE Annual Conference, Autonomous University of Madrid, Spain, Madrid, Spain, Jun 23, 2011 <Not Available>. 2014-11-25 <http://citation.allacademic.com/meta/p510054_index.html>

APA Citation:

Fei, J. F. , 2011-06-23 "How China’s Role in the Asian Production Chain Influences Japan’s, Korea’s and Thailand’s Responses to China" Paper presented at the annual meeting of the SASE Annual Conference, Autonomous University of Madrid, Spain, Madrid, Spain Online <PDF>. 2014-11-25 from http://citation.allacademic.com/meta/p510054_index.html

Publication Type: Conference Paper/Unpublished Manuscript
Review Method: Peer Reviewed
Abstract: The emergence of China as an economic and military power is one of the most consequential events in contemporary geopolitics. No region has been more affected by the rise of China than Asia. Predictions of how Asian nations will respond to China are often grounded in realism—the dominant international relations paradigm. However, Japanese, Korean and Thai responses to China since the end of the Cold War defy realist predictions that Asian states would either balance against or bandwagon with a rising China. Contrary to realist predictions, these states’ responses have also not been homogeneous. Instead, Asian nations have, to varying degrees, invested in China and integrated Chinese capital and labor into regional manufacturing chains. They have not ignored military concerns, but have combined different levels of military hedging against China with economic engagement.

This paper suggests that variation in Asian states’ preferences for economic advantage versus military strength explain changes in responses to China, and that understanding China’s role in the Asian production chain is central to assessing Asian states’ responses to China. I consider how China’s receptivity to foreign direct investment since the end of the Cold War dovetailed with the industrial and trade policies of Japan, Korea and Thailand, and propose that complementary economic and trade strategies between each of the three Asian nations and China play a significant role in determining the political and security responses of the three to Beijing.

In spite of China’s rising military power during the late 1990s and early 2000s, elites in Japan, Korea and Thailand saw the benefits of managed economic engagement with China as outweighing the costs because of a tradition of prioritizing economic and technological strength. In the cases of Japan, Korea and Thailand, all three have engaged China in avenues ranging from investment, technical and scientific assistance, foreign aid, and preferential trade agreements. Tokyo viewed technical assistance, loans and grants to Beijing as an investment to strengthen China’s technological and employment base so that it could be integrated in Japan’s production chain. Korean economic planners saw China as a manufacturing base, and facilitated Korean investment in China. Thailand, a production base for Japanese and Korean firms shipping intermediate goods to and from China, Japan and Korea, also benefitted from China’s growth and economic openness.

Asian states responded to China’s position in the regional production chain, particularly in high-technology products, as much as to its growing military power. Beijing’s receptivity to foreign investment provided the “pull,” while Tokyo’s and Seoul’s policies provided the “push” in establishing a regional manufacturing network for technology products. For instance, countries in the region were able to dramatically increase their semiconductor exports to China as affiliates of Japanese, Korean and US companies situated in Asia used these products in the manufacture of consumer and industrial goods. Between 1999 and 2007, the dollar value of Japanese, Korean and Thai exports of semiconductors increased approximately eight-fold, forty-fold, and ten-fold, respectively.

There is reason to believe that the virtuous circle of prosperity in Asia may undergo more tension. China’s recent economic and commercial policy changes suggest an intra-Asian future characterized by greater trade conflict and economic rivalry. States such as Japan and Korea have been able to integrate China into their economic growth strategies precisely because China was very open to inflows of foreign direct investment. However, recent data suggest that Beijing is beginning to implement some of the protectionist policies that typified Tokyo and Seoul of the past. China’s policies will likely alter existing manufacturing and trade linkages in East and Southeast Asia which have thus far helped many states prosper.

Economic strategists in Japan, Korea, and to a limited extent, Thailand, have already voiced concern over increasing levels of competition in key technologies and industries from China, and also from other states within the region. As Chinese products are becoming more competitive with those Japanese and Korean goods which have contributed to their respective economic strength, the likelihood of trade conflict will increase over time. As a processor and manufacturer of intermediate goods, Thailand faces less direct competition from Japan and Korea, but could suffer in the future if the numerous Japanese and Korean firms operating in Thailand downsize due to Chinese firms’ increasing ability to manufacture such products themselves.

Furthermore, domestic political change in Asian states such as Japan and Korea also foreshadows greater rivalry between these countries and China. While previous national strategies prioritized economic strength and advantage, elite preferences have evolved so that Asian states are more sensitive to both economic and military threats. With China now posing a military security threat, and increased economic threat to many Asian nations, these shifting preferences suggest an Asian future in which China’s integration in regional production networks may have less of a pacifying effect on security dilemmas.


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