Towards a new 'balance of economic power'

P. S. Suryanarayana

Is a new international economic order taking shape amid the din and bustle over the ongoing 'global' financial crisis? There is no firm answer yet, although some clear political signals can be detected in East Asia. China, an ascendant economic power, and Japan, still the world's second largest but deeply-stricken economy and an ally of the United States, have now come together.

In the process, Tokyo and Beijing have risen above their unresolved political concern about each other. And, they have also associated themselves with South Korea to form a new 'Tripartite Partnership.'

These three contiguous Northeast Asian States together produce 74 per cent of the collective Gross Domestic Product of the 16 East Asia Summit (EAS) countries, inclusive of India. The EAS covers China, Japan, South Korea, India, Australia, New Zealand, and all 10 members of the Association of South East Asian Nations (ASEAN). Viewed differently, unambiguous indeed is the economic relevance of Japan and China to the United States, the European Union, Russia, and the petro-dollar powers in West Asia and elsewhere.

Two strands of thinking

Two strands of out-of-the-box thinking in East Asia raise the statistical importance of the new 'Tripartite Partnership' to the level of a substantive political reality. First, political leaders like Prime Minister Kevin Rudd of Australia, finance-executives like World Bank President Robert Zoellick, and economics professors like Ilian Mihov at INSEAD in Singapore are generally agreed about the future direction of the current U.S.-origin financial crisis. It has, in their view, turned already into an economic crisis across the world and can become "unemployment crisis" in the early part of next year.

The related theory is that the potential humanitarian fallout, ranging from widespread job losses and troubles on the household-economy front to the urgency of 'social safety nets,' might be acutely felt from early-2009 onwards. And, in the most optimistic scenario, the crisis is set to last for most part of next year. For the immediate present, therefore, policy-planners and opinion-makers in East Asia remain considerably focussed on the macro-economic scene and relatively less so on social security aspects. It is in this macro-level ambience that the China-Japan-South Korea 'Partnership' has caught much attention as a potential 'future-oriented' regional order with implications for the global economy.

The second strand of out-of-the-box thinking has more to do with the political logic of the formation of this 'Tripartite Partnership.' It is learnt on good authority that Japan, under its former Prime Minister Yasuo Fukuda, took the "initiative" last year to suggest this exclusive network. And, the logistical genesis of this "initiative" could be traced to the fact that the three countries established their first-ever summit-level contact in 1999, on the sideline of a regional conference. Prior to their latest 'stand-alone summit' at Fukuoka in Japan on December 13, they had, through a chequered phase, met invariably on the margins of major multilateral events.

The progression of these trilateral contacts received a space-age political boost last year itself, when Chinese President Hu Jintao and Mr. Fukuda agreed that the two countries posed "no threat" to each other any longer. The factors behind that path-breaking piece of accord have now propelled Beijing and Tokyo to associate themselves with Seoul on economic matters, in the wider context of the unresolved North Korean nuclear arms issue. One of these factors common to both Japan and China is the sign, ballooning in recent years, that the U.S. may have hit a trajectory of "relative economic decline" in East Asia, where Washington is a long-time 'resident power.' This particular perception, not universally shared by all East Asian powers, has come into sharp focus in the current global economic situation. As a result, the new 'Tripartite Partnership' can be seen as a form of political 'hedging' against the U.S., now in an economic slide-down. Relevant to this reasoning are the deep and diverse economic linkages between the U.S., on one side, and China as also Japan, on the other. However, official versions downplay the U.S. factor in the 'Tripartite Partnership.'

Top Japanese spokesman Kazuo Kodama has told this correspondent that there is "nothing" in Tokyo's initiative that could link it to the perceptions that the next U.S. President, Barack Obama, might seek to refashion ties with East Asia. On the contrary, according to Mr. Kodama, the current global financial crisis was the real "catalyst" for this 'Partnership,' now signed by Japanese Prime Minister Taro Aso, his Chinese counterpart Wen Jiabao, and South Korean President Lee Myung-bak. In fact, so runs the argument, the signing was preceded by the independent decisions of China and Japan to raise the limit for their "currency swap," on parallel tracks, with South Korea. The aim was to bail out Seoul in the context of its rapidly weakening money.

The catalytic effect of the ongoing 'global' financial crisis does not, on balance, negate the perceived long-term compulsions of China and Japan to "hedge" against the U.S. in "relative decline."

Moreover, a few other factors, essentially political in scope, have guided China and Japan towards this 'Partnership.' China's paramount policy objective of becoming an advanced economic power dictates the need for better ties with neighbouring Japan. Their largely "complementary economic links" are already very strong; and any precautionary "hedging" against the U.S. will make sense to China in this context as well. China's State Councillor Dai Bingguo told the Washington-based Brookings Institution on December 11, the increasingly "interdependent" China-U.S. ties had inspired economic historian Niall Ferguson to describe this new reality as "Chimerica" at work on the global stage. A U.S. slow-down or setback is, therefore, something that China will want to address suitably.

Will India be left out?

For Japan, a policy of being accommodative towards a rising China had long ceased to be just an option. And, as U.S.-based strategic affairs expert Mike Mochizuki has noted, Japan has for some time begun to see China as "a potential partner in establishing an attractive global economic balance of power." A logical poser is whether India will be left out.

Answering a related question from this correspondent, Mr. Zoellick said in Singapore on December 18 that the new "[Tripartite Partnership] is not a negative for India or other countries." Echoes of U.S. optimism!

Courtesy: The Hindu