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Asia's Post-Crisis Regionalism: Bringing the State Back in, Keeping the (United) States OutAuthor(s): Paul BowlesSource: Review of International Political Economy, Vol. 9, No. 2 (May, 2002), pp. 230-256Published by: Taylor & Francis, Ltd.

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BOWLES: ASIA'S POST-CRISIS REGIONALISM

approach and an analysis of power relations in the global economy. The

assumptions that regionalism in Asia should be analysed primarily in

terms in private actors or that it is based on a benign interdependence

between countries that span the Pacific, assumptions which underlaymuch visioning of the 'Pacific Rim' in the 1990s, are untenable. The

contours of post-financial crisis regionalism are, by state design, aimed

at restoring to Asia a greater degree of political power and autonomyvis-a-vis the rest of the world, and the US and the international finan-cial institutions it controls, in particular. The implications of this areprofound, not only for our understanding of 'the region', but also forour analysis of the current phase of the global economy.4

In the next section, a brief description is given of the characteristics

and analysis of regionalism in pre-financial crisis Asia. Section 3 analysesin more detail the emergence of a new post-crisis regionalism and exam-ines the reasons for its emergence. Particular attention is paid to themotives of the two most significant powers in East Asia, China and

Japan. The implications of this regionalism for theoretical analysis of theglobal economy are discussed in the concluding section.

2 ASIAN REGIONALISM PRIOR TO THE

FINANCIAL CRISIS

Embroiled in the military conflicts of the Cold War period, the coun-tries of Asia did not participate in the wave of regionalism which provedpopular with other developing countries in the 1950s and 1960s. Whenregionalism re-emerged as a preferred economic policy in the 1980s and1990s, Asia again lagged behind the rest of the world in terms of theformal political institutionalization of regionalism. Indeed, a distin-

guishing feature of Asian regionalism for many scholars was preciselythe fact that the 'region' itself was ill-defined (or capable of multiple

definitions) and that the 'regionalism' that was taking place was theresult of market-led, rather than government-led, integration processes.As Stubbs (1995: 786), for example, has argued:

although the state has been instrumental in nurturing businessgrowth, regionalization in the Asia-Pacific region - unlike the othermajor regions of the world - has been driven by the private sectornot by governments. Hence, the boundaries of the region do notcoincide neatly with state boundaries. In many ways the region'sgovernments are still trying to come to grips with the rapideconomic changes that swirl around them.

The 'regional economy' in Asia, and in a number of sub-regions, wastherefore identified by economists and policy analysts based primarilyon the activities of Japanese multinational corporations (MNCs) and of

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REVIEW OF INTERNATIONAL POLITICAL ECONOMY

overseas Chinese businesses. These activities were highlighted as oper-ating on the basis of a series of 'networks' based on the productionprerequisites of post-Fordism and the personal connections which facil-

itated and characterized much of the overseas Chinese diaspora. It wasthese business networks, rather than the existence of supra-national polit-ical institutions, which led to the identification and integration of a

'regional economy'.5 This was also true at the sub-regional level. Forexample, 'Greater China' was identified as one such sub-region, com-prising of an international division of labour which integrated produc-tion in the southeastern coastal regions of China and companies inTaiwan and Hong Kong. Here, too, the impetus for economic integra-

tion was identified as largely business driven rather than state driven.As Naughton (1997: v) writes, 'firms, especially small and medium-sizefamily firms, play central roles in the story, with government policiesplaying secondary, reactive roles'.

These analyses tended to overstate the role of 'the market' in fosteringintegration in the region. They present us with something of a paradoxin that most of them accept that national economies can be described as'developmental states' where governments play key roles in 'guiding themarket' but where, it seems, inter-national and intra-regional integra-

tion are played out beyond the reach of the state. Such a paradox is, infact, a false one and is solved by a better appreciation of the role thatthe state played in fostering intra-regional trade and capital flows. Forexample, Japan's policy with regard to foreign direct investment (FDI)changed critically during the post-war decades to one favourable to, andsupportive of, FDI during the 1980s. The emergence of a hierarchicaldivision of labour in the region fostered by Japanese MNCs was not achance occurrence but one premised in no small part on Japanese policy.6

Similarly, the ability of Japanese (and other) MNCs to expand in thisway was due in no small measure to the investment liberalization under-taken by host governments. The emergence of the 'China Circle' wasnot entirely an accident either in which states were only 'reactive'; inparticular, China's initial choice of venue for its four Special EconomicZones (SEZs) in 1984 was based on exploiting cultural, ethnic andgeographic links between the SEZs and the overseas Chinese commu-nities in Taiwan and Hong Kong. The subsequent rapid growth of thefour cities initially chosen as SEZs and the extent of the spread of invest-ment into other parts of Guangdong and Fujian Provinces could perhapsnot have been predicted by Chinese policy makers, but the emergenceof a 'Greater China' economic zone certainly owes something to theirpolicies.

However, while the above analyses may underestimate the role ofthe state in promoting regional economic integration, they do make thevalid point that Asian regionalism was based on a lower level of formal

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inter-governmental regional institutions and policies than were observed

in other regions, most notably, in Europe and North America. In this

comparative sense, the above analyses are right to stress the relatively

greater role of the 'market' and relatively less importance of the 'state'in regional integration in Asia than elsewhere, even if there has been a

tendency to push the argument too far in that direction.

At the level of formal regional economic arrangements, it is true, Asia

lagged behind. While Europe was moving full speed ahead with the

'Single Market' project and the US was abandoning its traditional solereliance on multilateralism as a route to free trade and signed free trade

agreements first with Canada and then with Canada and Mexico, Asiaremained reluctant to join in. The initial response to the emergence ofNorth American and European 'blocs' included calls, made particularlyloudly by Malaysia's Prime Minister Mahathir, for an East Asian Econ-omic Group. This idea was, however, stillborn and Asian countries settledfor the different version of regionalism embodied in APEC.7 This bodyis much looser in regulatory design that the other 'blocs', operates by

consensus and voluntary action (or inaction) rather than by legal stric-

ture. APEC's formation in 1989 owed as much to the perceived politicalneed to ensure that trade across the Pacific remained open and to prevent

the emergence of three closed blocs as to any substantive trade liberal-ization initiatives. As the fear of the emergence of three protectionistblocs receded, APEC formed, in 1993, an Eminent Person's Group underthe Chairship of Fred Bergsten to devise a 'Vision' for APEC whichwould justify its continued existence. APEC committed itself to 'openregionalism' and to the goal of establishing a free trade area in regionby 2010 for developed country members and 2020 for developing countrymembers, a goal which was subsequently adopted at the APEC meeting

held in Bogor, Indonesia in 1994. This 'vision' represented a victory forthe pro-globalist thinkers and established for the institution a frameworkwhich stressed the interdependence of economies, the mutual advan-tages which existed for all in trade liberalization, and which minimizedthe differences between developed and developing country members.8In establishing this framework, APEC was simply following, and con-tributing to, the ways in which the ideological construction of the 'PacificRim' was being pursued in the wider intellectual and policy commu-nity.9 The boundaries of the 'region', at this level, were ever- expanding.10

The idea of 'open regionalism' - of using regionalism to further inte-gration into the global economy - was also central to Asia's mostdeliberate attempt at formal economic regionalism, the ASEAN FreeTrade Area (AFTA).11The formation of AFTA, proposed in 1991 and

coming into effect on 1 January 1993, marked ASEAN's most ambitiousattempt at regional economic cooperation since its formation in 1967 and,indeed, put ASEAN on a path which it had rejected several times in the

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past. The formation of AFTA came after many of the ASEAN countries

had struggled with the need to boost export earnings during the 1980s

in response to the debt crises of the early years of that decade. The res-

ponse of the ASEAN-4 (Indonesia, Thailand, the Philippines, Malaysia),following the advice of the international financial institutions, was to

engage in trade liberalization, albeit at their own pace rather than collec-

tively, and to shift towards policies more conducive to export promotion.

In addition, individual countries adopted policies more favourable to

FDI in an effort to attract the foreign capital needed to spur continued

industrialization.

These policies were fortuitous in that Japanese firms were expanding

rapidly overseas in response to the massive appreciationof the yen which

followed the Plaza Accord in 1985. Japan's FDI grew at an annual average

rate of 62 percent over the 1985-9 period. At the same time, the East

Asian NICs were also investing heavily overseas with the ASEAN-4 and

China being favoured destinations. As a result, FDI as a percentage of

GDP quadrupled in the ASEAN-4 between 1985 and 1990. Having shifted

to a strategy of FDI-sponsored export-led growth, ASEAN states were

keenly aware of the need to ensure that ASEAN as an investment site

remained competitive. At the end of the 1980s there appeared to be a

significant threat to this in the form of competition from China, theformer Soviet bloc following the dramatic events of 1989-91, the poten-

tial investment-diverting effects of greater European integration in 1992,

and the NAFTA, particularly the threat of investment diversion to

Mexico.

The increasing concern about possible investment diversion is clear

from the joint communiques of the ASEAN ministerial meetings with

the ASEAN foreign ministers responding to the 'increasing competing

demand for capital and investment resources from Eastern Europe, fromthe indebted countries of Asia, Latin America and Africa, as well as to

meet the needs of reconstruction in the Gulf and in the Soviet Union 12

by supporting the call for an ASEAN free trade area in 1991. A regional

economic agreement was seen therefore as the best way of maintaining

ASEAN's investment appeal and of fostering its continued integration

into global trade and capital flows. Thus, the formation of AFTA was

in large part a response to the changing external environment, and in

particular the fear of investment diversion.-3 The spur to create AFTA

also owed something to ASEAN's desire to remain relevant in the face

of the rise of APEC and, in this sense, also had political motives. Regional

projects typically contain a political dimension, a dimension which, as

will be argued in the next section, has come fully to the fore. To summa-

rize, regionalism in Asia in the early to mid-1990s was premised on the

emergence of an economic region increasingly integrated by the activi-

ties of multinational corporations, particularly Japanese MNCs, and by

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BOWLES: ASIA'S POST-CRISISREGIONALISM

the network capitalism epitomized by the Chinese diaspora. This pro-cess was undoubtedly a more private-sector-driven process than that inevidence in other regions, although even in Asia state policies played

important roles in shaping the kind of regional economic integration thattook place. At the level of formal regional economic institutions, the'region' was more spatially ambiguous with APEC acting as a looseconsortia of countries notionally acting to preserve open trade across thePacific. The most concrete form of regional economic arrangement wasprovided by the AFTA, an arrangement premised on the need of ASEANcountries to remain competitive in attracting investment in the changedpost-Cold War international political economy. The use of trade andinvestment liberalization agreements to promote

integration intothe

international economy was supplemented with the domestic liberaliza-tion of financial markets with the result that financial capital also pouredinto ASEAN and other Asian countries in the 1990s. However, this wasto lay the seeds for the financial crisis of 1997, as the money whichpoured into the region equally quickly poured out, and led to a crisiswhich profoundly altered the economic landscape in Asia and whichhas changed the basis for regional economic cooperation.14

3 ASIA'S POST-FINANCIAL CRISIS REGIONALISM

3.1 The Crisis and the IMF

The events of the Asian financial crisis are well known and will besummarized only briefly here.15The main focus in this section will beon the response to the crisis and the implications of this for our under-standing of regionalism in Asia. The Asian crisis was triggered by the

decision of the Thai central bank to float the baht on 2 July 1997. TheThai government decided that it could no longer defend the currency,announced a managed float, and called upon the IMF for technical assis-tance. The 'contagion' spread to other countries in the region includingthe Philippines, Malaysia, Indonesia, South Korea, Hong Kong, andVietnam. By the time the dust had settled, the IMF had instituted thelargest bailout in its history with the US$ 54 bn loan to South Korea.Indonesia received US$ 40 bn, Thailand US$17.2 bn and the PhilippinesUS$1 bn.16

While the facts of the crisis are well known, the causes of the crisisremain disputed. For some, financial panic provides the most plausibleexplanation with the irrational behaviour of foreign investors to blamefor the sudden dramatic reversal in capital flows to the region.17 Forothers, the weakness of domestic financial institutions, their lack of regu-lation, and the general malaise of 'crony capitalism' was to blame.18 Itis clear that one of the critical actors in the drama - the IMF - saw the

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cause of the crisis as emanating from essentially domestic factors whichrequired the tried and trusted methods associated with the stabilization

and structural adjustment programmes which the IMF and World Bank

had been applying to other developing countries since the early 1980s.As MacLean et al. (1999) noted, the IMF intervened in Asia both at the

macroeconomic and structural levels. The policies recommended atthe macroeconomic level were, by and large, the typical ones that char-acterized IMF interventions in the past. To stop currency depreciationand restore confidence, the IMF prescribed its traditional austerity med-icine. This involved, first of all, a tight monetary policy, i.e. an increasein interest rates and the adoption of strict limits on the growth of the

money supply. In order to cover the carrying costs of the financial bailout,the IMF also asked for the curtailment of government budgets (achievedmainly through the reduction of social programmes, the scrapping of

large public infrastructure projects and the elimination of subsidies).These fiscal measures have been criticized since none of the countries inquestion was particularly profligate in the spending. In fact, since 1993,only Korea had run a budget deficit - equal to 0.1 per cent of GDP -and this only in 1996. Thailand and Indonesia had run average budgetsurpluses of 2.3 and 1.2 per cent of GDP respectively.

Critics argued that the tightening of state budgets would inevitablyworsen the recession brought about by the crisis and it did. The recog-nition that these policies were not bringing about the desired effects(exchange rates continued to slide, the outflow of capital worsened andoutput fell more than projected), and the perception that they mighttrigger social unrest, led the IMF to modify some aspects of its pro-gramme. However, the damage caused by the financial crisis and, in theview of many in Asia, exacerbated by the policies of IMF had been done

as economic crisis followed the financial crisis and brought with itunprecedented output declines after a decade or more of rapid growth.19A noticeable recovery in output and the trade account has taken place

since the depth of the crisis. However, the cost has been high in termsof the development objectives of the countries concerned and have beenachieved almost entirely through deflation. For example, in the ASEAN-4 and South Korea the change in the current account went from acumulative deficit of US$ 54 bn in 1996 to a cumulative surplus of US$69.2 bn in 1998, a total adjustment of US$ 123.2 bn. However, as Table

1 indicates, a full US$ 116.6 billion of this adjustment was due to a fallin imports and only US$ 6.6 bn was due to increased exports.

As Table 1 shows, the restriction of domestic demand caused by thefinancial crisis and the IMF imposed austerity measures was sufficientlylarge to cause a dramatic decrease in imports and thereby lead to a turnaround in the trade balance. Thailand, for example, went from havinga current account deficit equal to 8 per cent of GDP in 1996 to a surplus

236









Table 1 Externaladjustment(US$ bn)

Current Account MerchandiseImports

1996 1998 Adjustment 1996 1998 Adjustment1996-8 1996-8

Thailand -14.7 14.2 28.9 63.9 36.5 -27.4Malaysia -4.6 9.1 13.7 78.4 58.3 -20.1Indonesia -7.7 4.0 11.7 44.2 31.9 -12.3Philippines -4.0 1.3 5.3 31.9 29.5 -2.4Korea -23.0 40.6 63.6 144.9 90.5 -54.4Totaladjustment 123.2 -116.6

Source:Ferguson (2000).

of 12 per cent of GDP just two years later - a staggering change broughtabout almost entirely by collapsing imports. To the short-term decreases

in living standards implied by the drop in imports must be added,therefore, the longer- term development costs of import reductions.

The policies undertaken by the IMF at the structural level were espe-

cially criticized in Asia. Policies under his heading can be divided into

two categories: (1) those designed to reform financial systems and(2) those aiming to open up the economies of the crisis countries. Underthe first category, the IMF pushed for the closure of insolvent - and, insome cases, simply illiquid - banks, the enforcement of capital adequacystandards and the adoption of Western accounting practices and disclo-sure rules. Bank closures in the midst of financial panic, however, invitedeven greater panic, while the hasty enforcement of capital adequacy stan-

dards, in conjunction with the general credit squeeze, contributed to

recession by making it impossible for many companies to obtain evenworking capital.

Under the second category, the IMF encouraged the dismantling ofnational monopolies, the sale of state assets to the private sector, the

elimination of tariffs and non-tariff barriers to trade, and the opening ofthe financial and insurance sectors to foreign investors. These policiesof 'intrusive' or 'deep' conditionality went well beyond what could bejustified by economic theory alone. For example, countries were pres-sured into accepting greater foreign ownership even though this ran

counter to much of the literature on 'firesale FDI'. As Bhagwati (1998: 9)noted: 'Economists have usually advised the exact opposite in suchdepressed circumstances: restricting foreign access to a country's assetswhen its credit, but not that of others, has dried up'. In South Korea, theIMF also pushed for changes in the labour laws to make redundancieseasier although it is difficult to argue that this was necessary to solve thefinancial crisis and was seen as having more to do with engineering a

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transition to Anglo-American style capitalism than with solving SouthKorea's crisis.

The perception that the IMF was acting to protect the interests of

Western lending institutions and to open Asian markets for Western firmsat the expense of Asian workers and the sovereignty of Asian countrieswas widely held in the region. As Bello (as quoted in Higgott 1998: 345)noted at the time 'never has the IMF's connection to its principal stock-

holder been displayed so prominently'.20 This view was not restricted to

leftist critics either. Bhagwati (1998), a prominent neoliberal economist,also argued that what he termed the 'Wall Street-Treasury complex' hadgot it all wrong in pushing for speedy capital account liberalization in

Asia. The Wall Street-Treasury complex was not easily convinced of the

error of its ways, however, and its leading exponents added insult toAsian injury by declaring, in triumphant mood, that the Asian crisis

proved the superiority of American free market capitalism over Asia's

'managed capitalism'.2'In the face of these policies and perceptions, it is not surprising to

find that this has led, in Higgott's (1998) words, to the 'politics of resent-ment'. One manifestation of this resentment is that Asian countries haveembarked on a new path of regional economic cooperation incorporating

both monetary and trade dimensions. These forms of cooperation areexplained fully below. Before embarking on the analysis, it is importantto first recognize that the degree of enthusiasm for the new regionalmechanisms and the intensity of the 'politics of resentment' do vary bygovernment in the region.22 As with all regional integration initiatives,individual member countries may have varying motives for participating.In the following discussion, the focus is on the broad contours of the

newly emerging regional arrangements followed by an in-depth analysisof the two leading countries in the region, China and Japan.

3.2 The regional response

The idea of establishing an US$ 100 billion Asian Monetary Fund (AMF),more attuned to the needs of Asian economies and less bent on imposingAnglo-American style capitalism on the region, was initially proposedby Japan at the height of the crisis. This received support from some ofthe countries in Southeast Asia who were shocked by the initial refusal

of the US to support Thailand in its crisis and by the spectre of IMFconditionality. The proposal was rejected, however, by the US as poten-

tially undermining the role of the IMF and as being potentially too laxon conditionality, by the IMF itself, and by China which continued tooppose Japan's leadership aspirations in Asia.2'

Despite the immediate rejection of this plan, the failure of other regionalinstitutions such as ASEAN and APEC to play any significant role in

238









responding to the crisis, and the widespread resentment at the imposi-

tion of conditions by a Washington-based, US controlled, international

institution, the IMF, more concerted regional initiatives have neverthe-

less more recently appeared. It should be noted that a regional responsewas neither guaranteed nor perhaps even probable. On the assumptionthat regional initiatives require a sufficiently powerful and/or respectedregional leader, candidates for this position in post-crisis Asia were not

conspicuously evident. Japan rather belatedly began to pump money into

the region but was partly blamed for the crisis in the first place. As

Higgott (1998: 336) notes 'Japanese capital created overcapacity in the

region without fulfilling the role of a market of last resort to absorb it'.

Furthermore, the willingness of the Japanese government to allow theyen to depreciate in the wake of the crisis led to accusations that Japan

was more interested in maintaining its own competitiveness than in solv-

ing Asia's problems. Japan's capitulation in the face of US pressure over

the initial proposal for an AMF did not enhance its leadership claimsand neither did its continuing domestic economic malaise.24 China's 1994

devaluation of the renmenbiwas seen as a contributing factor to the cur-rent account deficits run up by the ASEAN-4 and South Korea, deficitswhich played a key role in triggering currency flight in 1997. Although

China pointed to its maintenance of the value of the renmenbiduring thecrisis, it continued to have less than cordial relations with its ASEANneighbours on other issues such as the Spratlys and, of course, there were

continuing cross-strait tensions with Taiwan. It is quite possible there-

fore, perhaps even probable, that regionalism would simply become a

spent force under the dual weight of the financial crisis and the tarnished

images of possible regional leaders.Interestingly, this has not happened and, after the initial rejection of

the AMF, closer monetary and trade ties are now being actively fos-tered in the region; a new regionalism, geographically well-defined andlocated in East Asia, involving all of the major countries of this region,is now being forged.25 As Bergsten (2000a) has noted, the East AsianEconomic Group has held summit meetings for three consecutive yearsunder the ASEAN+3 rubric (i.e. the ten ASEAN countries plus China,Japan and South Korea) and a 'Vision Group' has been formed to adviseon the future role and evolution of this group. Following rejection of theinitial Japanese proposal for an AMF, Japan implemented the MiyazawaPlan which made available $30 bn to countries in the region. Subse-quently, in May 2000, a regional network of foreign currency swaps aimedat enabling Asian countries to address any future currency crises them-selves without resort to the IMF was agreed. This development, a coop-eration between central banks in the region, constitutes a defacto AMF,providing a mechanism to meet the aims of an AMF but avoiding themore politically difficult task of establishing a formal institution which

239









might encounter US opposition. This measure, adopted by the finance

ministers of the ASEAN+3 countries, expands the network of bilateral

regional currency deals previously agreed between Japan and Thailand

and between Japan and South Korea which had provision for loansof up to $7.5 bn.26While details of the expanded plan are still vagueit is clear that Asia has the resources to finance such an initiative withthe collective reserves of the ASEAN+3 countries being over $800 bn(over twice those of the Eurozone countries and close to ten times thoseof the US).27 Officials from Japan's Ministry of Finance will also bestationed in Thailand and Vietnam to provide advice on international

debt management, the use of yen loans and other economic issues.28At the same time as these

developmentsin

'monetary regionalism',there have also been initiatives to create free trade pacts in the regionspearheaded by Japan. These include studies being conducted examiningthe possibility for a North East Asian regional trade agreement between

Japan, China and South Korea.29There have also been important bilat-eral trade negotiations between Japan and Singapore and between Japanand South Korea. This represents a considerable departure for Japanesetrade policy, and in South Korea's for that matter, as these two coun-tries are the only members of the OECD which are not members of a

regional trade agreement (if APEC is excluded from such a designation)and represents a sharp reversal of Japan's previous exclusive relianceon multilateral trade agreements.

In analysing the emergence of Asia's new monetary regionalism, thedisenchantment with the IMF and the US has been widely recognizedand accepted. However, two important issues remain in need of furtheranalysis and which require a closer examination of the motives of the

two major powers in the region, namely Japan and China, without whom

a broad regional project would be difficult to sustain. The first issue issimply a lacunae in the existing literature, namely, why did China opposethe proposal for an AMF in the immediate post-crisis period but sup-port the currency swap arrangement some three years later? And what,if anything, do the reasons for this change of position tell us about Asianregionalism now? The second issue concerns the emergence of propos-als for regional trading arrangements, proposals which analysts such asBergsten (2000a) and Noland (2000) have attributed mainly to Asian frus-tration at the ineffectiveness of trade liberalization through APEC and

the uncertainties facing the new Millennium Round of the WTO after thedebacle in Seattle. Thus, much as the US was argued to have departedfrom its sole reliance on the multilateral trade track in frustration at theslow pace of the Uruguay Round in the late 1980s, history is now arguedto be repeating itself with Japan showing a similar interest in regionalliberalization initiatives in response to the frustrations over the slownessof the Millennium Round in Seattle a decade later. In advancing such an

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BOWLES:ASIA'S POST-CRISISREGIONALISM

analysis, it is implicitly being argued that the monetary and the tradedimensions of the latest round of Asian regionalism are essentially caused

by different factors and are responding to quite different external forces.

This assumption needs careful examination.

3.3 China's changed position on 'monetary regionalism'

Let us first consider China's position. Put simply, why should China,which initially opposed the creation of an AMF for fear of Japanese dom-

ination, and which has sufficient foreign exchange reserves (in excess of

US$ 200 bn) and capital controls to ward off any speculative currency

attacks, nowback

an Asian only currency swap arrangement? To under-stand this requires an analysis of the shifting sands of wider Sino-U.S. and Sino-Japanese relations. Although China was not directlyaffected by the Asian financial crisis, indirectly the crisis posed signifi-cant challenges for China and its response to the crisis offered someopportunities. The immediate challenge was how to respond to the crisisaffecting neighbouring countries. China's response was to provide finan-cial resources to the region through the IMFand to pledge not to devaluethe renmenbi.In both of these ways, China sought to establish itself as a

bulwark for stability in the region and as a 'responsible' member of theinternational community, a responsibility which it hoped would be rec-

ognized and acknowledged by a strengthening of Sino-US relations. To

this end, China committed US$ 4.5 bn to the operational budget of theIMF to support financial packages to Thailand and Indonesia.30 Thus,China opposed the initial proposal for a Japan-led AMF, threw in its lotwith the IMF, and made its first financial contributions to IMF packagessince 1949. The second part of the strategy for demonstrating its inter-

national responsibility was the pledge not to devalue the renmenbi.Thisundoubtedly had some domestic advantages; China's weak state-runbanking system was sitting on deposits in excess of 500 trillion yuan andany devaluation which might spark a run on the banks could have poten-tially serious consequences for economic and social stability.31Further-more, Hong Kong had just been returned to China and the leadershipin Beijing was keen to provide economic stability in the new 'SpecialAdministrative Region'. However, there is no doubt that the 'no deval-uation' policy also had risks in that the painful process of state ownedenterprise reform had begun and, in the leadership's view, needed to beaccompanied by an economic growth rate of at least 8 per cent p.a. inorder to prevent a potential social backlash. The policy of maintainingthe value of the renmenbimade such a growth target difficult to meet inthe light of falling regional trade volumes and depreciating currenciesin competitor economies in ASEAN and South Korea. Nevertheless, theChinese leadership decided to maintain the exchange rate and to inject

241









additional demand into the domestic economy through a massive infra-

structure spending programme.

The stability which China's 'no devaluation' policy brought to the

crisis economies in the region, together with its support for the IMF,was expected, in the calculations of the Chinese leadership, to lead to a

rehabilitation of China as a 'responsible' member of the international

community and to an enhanced regional and international role. This

recognition, however, appears to have been slow in coming. For example,

at the APEC Summit in Vancouver 1997, China's role in was, in China's

eyes, undervalued. Chinese academics argued that:

in its strategy to solve the Southeast Asian financial crisis, the

United States has not fully recognized the importance of China. On24 November last year, at a press conference in Vancouver, Clinton

suggested a three-point plan to solve the crisis, but he overlooked

the role of China, which had not been affected by the crisis.32

China's feeling that its 'constructive strategic partnership relationship'

with the US ought to be reaping more rewards in terms of international

recognition was given chance for further expression and correction in

June 1998. It was in this month that the Japanese yen slid to a seven-

year low against the US dollar prompting fears of a new round offinancial turmoil in Asia. It was also the month that President Clinton

made an official visit to China, when the Chinese side at least, expected

some breakthrough on China's WTO accession process.33The continued

depreciation of the yen provided China with another opportunity to

contrast its policy of responsible exchange rate management with that

of Japan which was accused of failing to 'shoulder its responsibility as

a major power'.34 In the end, Japan and the US were forced to intervene

to support the yen although not before concerns were expressed aboutwhy the two countries had taken so long to undertake such an inter-

vention. Japan's non-intervention could be understood simply in terms

of it wishing, in China's eyes, to offload its economic problems onto

other countries. The reasons for US reluctance drew upon analysis from

elsewhere in the region in arguing that the U.S. would gain by being

able to buy up Asian enterprises with over-valued dollars.35

China did nevertheless have the pleasure of drawing President Clinton

on his official visit into criticism of Japan's exchange rate policy.36 China

continued to promote its own role in solving the crisis and in using the

opportunity to enhance its claims for greater international recognition.

As Wang Menkui, Director of the State Council's Development Research

Centre, indicated:

Through the crisis, China's image as a major power has become

even more prominent ... In the multipolar development of 'one

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superpower and many great powers', China, as one of the greatpowers, is still not powerful enough. This crisis has conspicuouslyshown that China has taken a step forward on the path to becoming

a major power in the world structure.37

Chinese sensitivities were assuaged at the December 1998 APEC Meetingwhere, in contrast to the neglect of China's role by President Clinton in

Vancouver a year earlier, the Chinese press reported that 'the KualaLumpur declaration fully affirmed the mainstay role played by Chinain stabilizing the Asian economy during this financial crisis. The docu-ment used the English word anchor to describe the role played byChina in stabilizing the Asian financial crisis'.38

Thus, for the year and half after the outbreak of the financial crisisChina had followed a consistent policy of supporting the IMF (and its

policies)39 and of maintaining a 'no devaluation' policy for the renmenbi,a policy which it contrasted sharply with that of Japan. China did partic-ipate in the ASEAN+3 meetings but the main focus of its diplomacy was

on promoting itself both inside and outside of the region as a majorpower that could be trusted and which acted responsibly.40The expectedgains from this policy were not only economic - an economic recovery

in the region - but also political in terms of an enhanced role and statusfor China in regional and international affairs. These gains were slowin coming as China met with what it perceived as US indifference anda lack of understanding of the strains that the 'no devaluation' policywas placing on its economy while Japan and the US moved only slowlyto resolve their exchange rate imbalances.

Despite the expectations that the US would offer some WTO conces-sions this did not occur and it was left to Chinese Premier Zhu Rongjito visit the US in early 1999 to offer more concessions to kickstart the

negotiations. However, the policy of seeking to strengthen the Sino-USrelationship was soon to come to an end not because of economic issuesbut because of the US-led NATO war in Kosovo. This war, premised onthe need to defend human rights in a sovereign state, deeply worriedthe Chinese leadership. The bombing of the Chinese Embassy in Belgrade,and the 'wrong map' explanation, led to anti-US riots in China much asthere had been similar riots in South Korea, Thailand and Indonesiaagainst IMF/U.S. economic policy earlier. The Cox Report and the 'demo-

nization' of China in the US meant that China's 'responsible image'disappeared; by mid-1999 Sino-US relations had turned irrevocably forthe worse. China's post-crisis policy had not reaped the political gainsthat it had hoped for; put simply, China had backed the wrong horse.

Faced with this changed international situation, China joined othersin the region as seeing the US as the main threat to its interests andChina moved to view regional solutions as more valuable in this changed

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context. In reporting on the currency swap agreement, reached in May2000, China's awakened interest in regional economic solutions was

clearly shown. Thus, the EconomicDaily reported the agreement in the

following terms:

In the past, the importance of economic co-operation was not fullyrealized. Compared with other parts of the world, especially NorthAmerica and Europe, economic co-operation within Asia lagged inthe past 10 years. Asia-Pacific Economic Cooperation, a regionalorganization, is only a forum; it lacks binding force. However, thefinancial crisis that devastated the region three years ago has madeAsian countries realize the pressing need for working together.

Many Asian countries may still hold bitter memories of receivingloans from the International Monetary Fund . . . The combined for-eign exchange reserves of Japan, China, Singapore and South Korea,and Hong Kong and Taiwan regions is US$ 800 billion, money thatwill definitely promote the economy in Asia if managed well.41

China had joined ranks and become a member of the Asia-only move-ment, and Sino-Japanese relations have begun to show the signs ofimprovement which make such a movement possible.42

3.4 Japan's changed position on 'trade regionalism'

With respect to the second issue, the emergence of proposals for 'traderegionalism' in Asia, it is interesting to wonder why Japan, an initiatorof many of these proposals, should embark upon such a path. Japanesepolicy had for years been to support the overseas investment activi-ties of its MNCs and to fashion a regional division of labour in Asia

based on the so-called 'flying geese' model of economic integration. Sucha policy had been reasonably successful and, indeed, was one of the fac-tors which many analysts had pointed to as constituting an emergingintegrated regional economy led by the activities of businesses in theregion. To push this integration into the realm of formal free tradearrangements was a major initiative with debatable pay-offs. For exam-ple, in pursuing a bilateral trade agreement with Singapore, there wasmuch more to be gained by the small, close to free trade, economy ofSingapore by having improved access to the Japanese market than vice

versa. In the case of the bilateral discussions with South Korea, there isthe tricky question of the agricultural sector. Should this be includedwith the risks that this might have of a political backlash from agricul-tural interests in both countries or should it be excluded at the risk, asNoland (2000: 7) points out, of inviting WTO investigation of compliancewith Article XXIV of the GATT?43 ncluding China in with South Koreaopens up even more problems with countries at vastly different levels

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of economic development and with different political systems. Clearly,

there are many stumbling blocks on the road to trade agreements in the

region and Japan's decision to travel down this particular road is in need

of explanation.The answer that the explanation is to be found in Japan's, and Asia's,

disappointment following the fallout of the failed Seattle WTO talks isnot convincing. For one thing, the trade initiatives predate the Seattle

conference. More fundamentally, while Japan has always been a central

supporter of the multilateral trade liberalization process, its commitment

to liberalization has always been practical and strategic rather than ideo-

logical. That is, trade liberalization has been an important policy goal of

Japan but this has been conditioned by its pursuit of the developmen-

talist model in which free trade is not presumed to be the most desirable

policy in all circumstances and, in a non-insignificant number of cases,is actually a clearly undesirable policy. In initiating regional trade liber-

alization, the question that must be asked is whether this also impliesa rejection of the developmentalist view. That is, the place of regionalfree trade initiatives must be analysed within the wider context ofJapanese economic policy objectives.

A more convincing explanation for the trade initiatives is to be found,

I suggest, in (1) the benefits which regional economic arrangements mighthave in terms of spurring regional economic growth within the context

of Japan's long standing support for a developmentalist structuring of

the regional economy, and (2) equally importantly, increasing Japan's

(and Asia's) political bargaining power at the international level.

Consider first how Japan's support for regional trade agreements maybe consistent with its longer-term strategy. Commenting on reactions tothe Asian financial crisis, Hughes (2000: 235-40) has noted that:

policy makers in Japan do not seem to see the [developmental] statemodel as a total write-off. The key to recovery is still the basic modelof the developmental state in the region and export growth on thedemand side. Export growth can be restarted through economicstimulus packages in Japan and continued growth in the USA, buteven more importantly through the promotion of the intra-regionalexports which accounted for so much growth in the region prior tothe currency crises and which could sustain growth long term.

It is in this context that Japan's turn to bilateral trade agreements mustbe understood. As a recent (then) MITI Report (2000b: ch. 3) indicates,bilateral and regional trade agreements are seen as key mechanisms forincreasing intra-regional exports; it notes that this has been the out-come of existing regional agreements such as the EU, NAFTA and theMERCOSUR. The Report further argues that the Asian economiescontinue to be integrated with Japan supplying the capital goods for

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Asian industrialization (with capital goods comprising between 40 to 60

percent of East Asia's imports) and the market for Asian exports, espe-cially those from Japanese affiliates in Asian countries whose exports

back to Japan now constitute 30 percent of Japan's total imports. Thispattern of regional integration, approximating the familiar 'flying geese'pattern, has helped, it is argued, to restore economic growth in both

Japan and the rest of East Asia following the financial crisis. The Report(2000b: ch. 3) notes that 'Japanese exports to East Asia recovered more

quickly than exports to other regions [and].... As the Japanese economyhas recovered, imports from Asia have recovered more rapidly than

those from other regions'. The implications of this are, in MITI's (2000b:ch. 3) view, that:

the Asian recovery set in motion a virtuous circle, boosting Japanese

exports, helping to place Japan on a recovery trajectory, and conse-

quently stimulating Asian exports to Japan. Further this stimulation

of East Asian export activities has produced considerable synergy,for example pushing regional trade toward recovery due to regional

specialization within East Asia. The deepening interdependence

between Japan and East Asia through trade has therefore helped

to accelerate recovery from the currency and economic crises.The new interest in regional trade initiatives therefore stems from a

desire to maintain the momentum of this 'virtuous circle' and to con-tinue to forge deeper patterns of regional economic specialization. Theshift towards bilateralism can be seen, therefore, as a change of policymechanism but not necessarily of policy objectives; the policy of forginga regional division of labour with Japanese capital and technology at the

centre of the integration process remains consistent with Japanese pol-

icy over the past two decades although the means of achieving it havenow broadened to include regional trading agreements as an important

post-crisis vehicle.44

With respect to the broader issue of promoting regional arrange-ments as a way of increasing bargaining power within the global econ-

omy, MITI's WhitePaperon InternationalTrade or 1999 (published beforethe Seattle meetings) gives an important clue to this. It argued for thecreation of a Northeast Asian trade bloc and recommended (MITI, 1999:46) that:

Japan should seek to deepen intra-regional exchange and under-

standing in Northeast Asia, the only area in the world which hasshown little interest in regional cohesion or integration, applyingitself with greater vigour to the development of regional cohesionand presenting a model to the world which will contribute posi-

tively to the strengthening of the multilateral trading system.

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The key point here is the last part of the sentence referring to the pre-

sentation of 'a model to the world'. Multilateral negotiations have in

important ways been directly shaped by regional agreements. That is,

the existing regional agreements have formed the basis of negotiation forsome parts of multilateral agreements. For example, the information tech-nology agreement adopted by the WTO in Singapore in 1996 was based

on a similar agreement adopted under US pressure in APEC a few months

earlier. Many of the provisions of the ill-fated MAI had as their startingpoint chapter 11 of the NAFTA. Thus, regional agreements have increas-ingly been used as the point of departure for multilateral negotiations.

Such agenda setting mechanisms clearly benefit the US and Europe both

of whom have reams of legal text to call upon as a result of their exist-

ing regional arrangements. Japan had none and, as a result, found itself

debating on other's chosen ground. The need to develop its own 'model'

of regional arrangements to 'present to the world' was therefore an impor-tant factor in persuading Japanese policy-makers of the need to go downthe potentially tortuous path of bilateral and regional trade agreements.

The importance of regional economic arrangements as having polit-ical pay-offs is also evident from MITI's subsequent analysis. HereJapan's 'multi-layered' approach is justified (MITI, 2000b: ch.2, p.9) on

the grounds that:

recently, interest has emerged in trade liberalization beyond tradi-tional regional frameworks, namely the strengthening of linksbetween regional groupings. Examples include the Free Trade Areaof the Americas (FTAA), designed to link the US and Latin America,the Trans-Atlantic Free Trade Area (TAFTA) between the US andthe EU, moves to conclude a free trade agreement between Mexicoand MERCOSUR,and consensus on a free trade agreement between

Mexico and EU. Factors behind this new trend are as follows:(1) further promotion of free trade liberalization through the cre-ation of frameworks beyond traditional regional groupings; (2) pro-motion of access to extra-regional markets; and (3) the desire tostrengthen influence over other regional groupings and negotiatingpower with these.

Japan, as noted, operating without membership of a regional tradeagreement, is unable to play and must stand by as the US and Europe

'strengthen [their] influence over other regional groupings' (MITI, 2000b:ch.2, p.9). Japan has signalled that it, too, wishes to enter this game.

Further evidence can be found in the September 2000 Report of theJoint Japan-Singapore Study Group. This Group (2000a: ch 1, p.2),set up in December 1999 to look at a possible FTA between the twocountries, noted that

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4 CONCLUSIONS

If, as has been advanced in this paper, Asia's post-crisis regionalismis qualitatively different from that which preceded the crisis, and is

premised on an Asia-only vision of economic cooperation forged to coun-ter the power of the US and Europe, then there a number of importantimplications. One concerns whether the regional initiatives now under-

way in Asia will reach fruition or whether external opposition from the

US or internal rivalries between Japan and China will intensify and

thereby threaten to derail the regional project.46Another issue concerns

the emergence of a 'three bloc world', a development which has already

been noted by Bergsten (2000a). Important as these issues are, our atten-

tion here is focused on the implications of Asia's post-crisis regionalismfor our understanding of the dynamics of the contemporary international

political economy.The widely preferred term of analysis to describe the contemporary

world has been that of 'globalization'. While this has spawned an entire

academic and popular industry, it can be summarized for our purposesas an analysis of the world which views the current phase of international

capitalism as being qualitatively different from earlier phases and as beingcharacterized by a shift in power from nation states to transnational eco-

nomic actors and forces. It is a story of 'markets' gaining at the expence

of 'states'. For pro-globalists this offers the prospect of a more efficient

global allocation of resources and of more effective constraints on inter-ventionist and arbitrary state action. For anti-globalists it offers the

prospect of the erosion of sovereignty and the levelling down of socialand environmental standards as global corporations gain greater powerat the expense of ordinary citizens and their elected representatives. Whilethese two groups may disagree about the desirability of the changes, they

agree on the basic dynamics at work. Seen through this lens, the Asianfinancial crisis can be interpreted, as Price (2000) has argued, as 'a crisisof globalisation'. It is about states losing too much power to internationalfinancial markets and about the attempts of nation states to regain lost

controls. Certainly, the monetary regionalism of the post-crisis period canbe seen exactly in this light, as an attempt by nation states to re-regulateglobal finance. This is also evident from MITI's (1999: 32) analysis:

Because the Asian currency crisis shares more of the characteris-

tics of 1990s-style currency crises, which are generally sparked bymassive capital movements, the usual measures will be inadequatein preventing a recurrence. Rather, consideration of new interna-tional financial system reforms (taxes on capital inflows and out-flows, etc.) should be promoted in order to open the way for stablereal economy development in developing countries, which lack the

resilience and flexibility of developed countries.

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Aside from the support for international capital taxes, this analysis isinteresting precisely for its conceptualization of the problem as one of

insufficient state power, particularly in the case of developing country

states. Regional and international regulations are therefore necessary tostrengthen the ability of states to confront destabilizing global marketforces.

However, this is not the only analytical framework on offer. Thesubtitle of this paper refers not simply to bringing the state back in tothe analysis of regional integration in the Asian region. It also refers

more broadly to the need to locate the state centrally in any analysis of

the dynamics of the current phase of international capitalism, a phase

in which some states have lost power to markets but in which, crucially,some states have not. Laxer (n.d.) has preferred the term 'globalism' to'globalization', stressing that globalism is an ideology, one that is basedon neoliberalism and the Washington consensus as integral parts of USforeign policy. This theme is developed further by Petras and Veltmeyer(2000) who prefer the term 'imperialism' to 'globalization' as a moreaccurate description of the contemporary world. In this analysis, it isnot the interdependence of economies and the erosion of state powervis-d-vis markets which are the relevant points of reference but the

continued domination of global markets by the major powers, mostnotably the US but also Europe, the use of international financial insti-

tutions as tools in the hands of these powers and the market-openingstrategies of the imperialist powers that are the focus of attention.47Asia'spost-crisis regionalism also finds resonance with this analysis in the sensethat regionalism is being forged to prevent the US and the internationalfinancial institutions from exercising their power and shaping Asianeconomies in their interests as they did in the aftermath of the currency

crises. That is, a central reason why it is necessary to bring the stateback in to the discussion is precisely because power relations betweenstates are critical to understanding that an important part of Asia's post-crisis regional project is to keep the United States out.

NOTE S

1 I am grateful to the Social Sciences and Humanities Research Council ofCanada for the funding which made this research possible. I am also gratefulto Osvaldo Croci, Satoshi Ikeda and Brian MacLean for their comments onthe paper.

2 'Asia' refers here to the countries of East and Southeast Asia. For consis-tency, the term 'Asia' is therefore used in the same way that it has typicallybe used in analyses of the 'Asian financial crisis'. South Asian countries donot, therefore, form part of the analysis presented here.

3 For discussion of the ways in which regionalism has been adapted to meetdifferent objectives see, for example, Lawrence (1994).

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4 The importance of this emergence has also been remarked upon by FredBergsten, Director of the Institute for International Economics in WashingtonD.C., who, writing from a different perspective, has argued (2000b: 23) that'the most striking changes in the world trading system, especially in theshort-run, are not likely to flow from the World Trade Organisation orthe proposed mega-regional arrangements, such as the Free Trade Areaof the Americas or an expanded European Union. Instead, they will proba-bly come from the host of sub-regional trade agreements now being busilynegotiated by Japan, South Korea, Singapore and other countries in East Asia.Virtually unnoticed by the rest of the world, East Asian countries are gettingtogether to make their own economic arrangements'.

5 Some of the evidence in favour of the emergence of a regional economy,indeed, was based on the use of gravity models of trade which analysedregional trade bias and ignored state sponsored initiatives all together;regions were viewed as 'natural', derived from trade data alone. For anexample of this type of analysis, see Frankel (1991). For a critique of thisapproach see Bowles and MacLean (1996b).

6 For a discussion of the changing of FDI role in Japan's economic policy see,for example, Bowles and MacLean (1996a).

7 On the differences between APEC and the EAEG as conceptions of the 'Asianregion', see Higgott and Stubbs (1995).

8 For discussion of these characteristics as typical of regionalism during thelate 1980s-mid 1990s see Bowles (2000).

9 For an analysis of this process, and its ideological underpinnings, seeCumings (1993) and Woodside (1993).

10 APEC's originally had 12 members at its formation in 1989 (Australia,Canada, Japan, New Zealand, South Korea, the US and the six members ofASEAN). Since then China, Taiwan, Hong Kong, Mexico, Papua New Guinea,Chile, Vietnam, Peru and Russia have also joined bringing membership to21 'economies'.

11 This discussion of AFTA's origins draws on Bowles (1997).12 Quoted from the Joint Communique of the ASEAN Ministerial Meeting

(1991).13 This is further confirmed by official pronouncements at the time. For example,

Singapore's Prime Minister Goh Chok Tong commented that 'unless ASEANcan match the other regions in attractiveness both as a base for investmentsand as a market for their products, investments by multinational companiesare likely to flow away from our part of the world to the S[ingle] E[uropean]M[arket] and NAFTA'. Quoted in the Straits Times, Singapore, 28 January,(1992), p. 22.

14 It is estimated that private capital flows to the ASEAN-4 plus South Koreawent from a net inflow of US$ 93.8 bn in 1996 to a net outflow of US$ 6 bnin 1997. See MITI (1999: 3).

15 For the most comprehensive set of materials on the financial crisis, seethe website put together by N. Roubini <http://www.stern.nyu.edu/globalmacro/>.The discussion here draws upon MacLean et al. (1999).

16 The financial package put together involved loans made by the IMF, theWorld Bank, the Asian Development Bank and by other countries.

17 See Radelet and Sachs (1998).18 See Krugman (1998). For an analysis of how Krugman's 'crony capitalism'

hypothesis emerged and became the dominant explanation of the crisis seeMacLean (1999). In general, there has been an intellectual appeal to viewing

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the Asian crisis as caused by a single dominant factor. This overlooks thefact that crises may have different causes in different countries and, in partic-ular, that there might be differences between those countries in SoutheastAsia and that of South Korea in North Asia. For a country specific analysisof South Korea see, for example, Haggard and Mo (2000).

19 See Ferguson (2000) for a useful compilation of statistics on the financialcrisis in Asia and on the relative magnitudes of the crises in Asia and LatinAmerica.

20 See also Gill (1999) who argues that 'the Asian crisis has been a means forthe United States to strengthen its strategic interests worldwide'.

21 As an example of such triumph see, for example, Federal Reserve ChairmanAlan Greenspan's (1998) comments.

22 The analysis is restricted here to state-level responses to the crisis, on thegrounds that this is most relevant for analysing the regional arrangementsdiscussed below. In other contexts, other levels of response might be moreappropriate to analyse. For discussion of working-class responses see, forexample, McNally (1998).

23 For opposition to the AMF see Noland (2000).24 For discussion of Japan's role in the crisis, as seen by both Japan and other

countries, see Hughes (2000).25 The position of Taiwan does, however, remain ambiguous.26 See, 'E Asia Nations to Agree to Swap Currency Reserves', Nihon Keizai

Shimbun, 29 April (2000).27 See Bergsten (2000a) and Dieter (2000).28 See 'IMF to send Finance Advisors to SEAsian Nations', Nihon KeizaiShimbun,

2 July (2000). A referee has contributed that, based on his/her interviewswith Japanese officials at the Ministry of Finance, Japan now supports a'region of financial stabilisation' and that 'the appointment of Japanese offi-cials in Thailand and Vietnam are the first moves to establishing the know-ledge network that will be required for this scheme to mature into an IMFequivalent'. I am grateful to the referee for passing on this information.

29 This raises the interesting possibility that any such Northeast Asia bloc couldeventually join up with AFTA thereby creating a full East Asia bloc.

30 See 'China's Policy on Asian Financial Crisis - Interviewing Dai Xianglong,Governor of the People's Bank of China', Ta Kung Pao, Hong Kong, 4November (1998), as in FBIS-CHI-98-313.

31 The social and political risks attached to a devaluation were acknowledgedby Li Ruihuan, a member of the CPC's Central Committee Political Bureau.See 'Beijing: Stability is First Priority; Currency Will Not Be Devalued', WenWei Po, Hong Kong, 27 January (1999) as in FBIS-CHI-99-027.

32 See 'Article on Sino-US Financial Cooperation', ZhongguoTongxun She, HongKong, 3 June 1998 as in FBIS-CHI-98-154.

33 This expectation was noted in an interview by China's chief WTO nego-tiator, Long Yongtu. See 'CRI Interview With Long

Yongtu on WTO', ChinaRadioInternational,8 January (1999) as in FBIS-CHI-99-008.34 See 'Japan Should Shoulder the Responsibility of a Major Power', Renmin

Ribao, 29 July (1998) as in FBIS-CHI-98-225.35 See, for example, Wang Dajun (1998).36 As Hughes (2000: 233) notes, 'Japan's sense of humiliation was ... com-

pounded during the US-China summit ... when Presidents Bill Clinton andJiang Zemin took the extraordinary step of commenting in a bilateral settingon the deficient management of the yen and Japan's economy'.

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37 See 'China Makes Preparations for Introduction of Euro; Wang MengkuiAnalyzes Its Pros and Cons, Saying China Will Not Change All Its US Dollars

Into Euro', Ta King Pao, Hong Kong, 11 October (1998), as in FBIS-CHI-98-294. The presumed increased importance of China in U.S. policy as a

result of the Asian crisis is also highlighted in Chinese press articles at thetime of President Clinton's June 1998 state visit to China. For example, anarticle by Li Zhengxin (1998) argues that 'President Jiang Zemin's successfulvisit to the United States last year caused Sino-US relations, which had beenat a crossroads, to make a directional change ... Now, eight months later,US President Clinton will also make a visit to China. This not only indicatesthat the United States hopes to maintain the momentum of improvementand development in Sino-US relations, but also that there is a deeper consid-eration, namely that while 'structurally' adjusting its Asia strategy, the UnitedStates is elevating China's status in its Asia-Pacific formula ... In recent

years, the United States has begun to realize that in order to deal with anymajor problem within the Asian region, it is first necessary to have China'sunderstanding and co-operation. The Asian financial crisis has furtherstrengthened this realization of the US government'.

38 See 'Subject of Talks Brought About by Financial Crisis - Senior OfficialZhang Yan on '98 APEC Kuala Lumpur Conference', Shijie Zhishi, Beijing, 1January (1999), p. 33.

39 China's central bank Governor Dai Xianglong declared in November 1998that Thailand and South Korea had 'adopted and properly implementedmany of the reform measures recommended by the IMF, which have pro-

duced positive results. Besides, the governments' actions have won the under-standing and support of the public. In particular, I saw many civilians inthe ROK donating their gold rings. This is why the conditions in these twocountries are turning for the better'. ('China's Policy on Asian Financial Crisis- Interviewing Dai Xianglong, Governor of the People's Bank of China', TaKung Pao, 4 November 1998, as in FBIS-CHI-98-313.) Presumably, these werenot the same members of the public interviewed one month later by a surveyteam in South Korea. This poll (Chong Chae-yong, 1999) found that 'overhalf of the people have a negative view of the IMF, for example perceiv-ing it simply as an international organization representing the interests of

advanced countries, rather than as an international financial organisationthat is helping us . Moreover, 57 percent gave a dissatisfied response con-cerning the IMF's ROK-related activities over the last year. Concerning ourgovernment's diplomacy with the IMF, over half consider it inappropriateand humiliating'.

40 China's diplomatic efforts also included a framework for long-term cooper-ation between China and Thailand, the first time such a framework had beenestablished with an ASEAN country. See Chongkittavorn (1999).

41 EconomicDaily, 14 May (2000).42 As an example of this improvement, contrast the visits of senior Chinese

leaders to Japan. In December 1998 President Jiang Zemin's visit was punc-tuated with the Premier informing his hosts of their need to acknowledgeand apologize for their wartime atrocities in China. When Chinese PremierPremier Zhu Rongji visited in October 2000, however, this long-standingthorn in the side of improving Sino-Japanese relations was apparently down-played. In Japan, this was interpreted in the press (Hasegawa, 2000) asindicating that 'China desires cooperation between the two nations in orderto survive the century as a major economic power capable of challenging

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the US. The possibility of riding such a wave as a leading partner is an irre-sistible draw for Japan'.

43 Article XXIV of the GATT requires that regional trade agreements cover'substantially all sectors'.

44 If this policy is successful then, as Hughes (2000: 251) notes, 'the actualoutcome of the East Asian currency crisis may not be to undermine Japaneseleadership and the model of the developmental state in the region, but,against all expectations, actually to consolidate them'.

45 The areas identified in this context were electronic commerce, definition ofservice providers, non-tariff measures, investment, mutual recognition, anti-dumping and consultation and dispute settlement.

46 A referee suggests that, in addition to the reasons for the Japan-Singaporefree trade initiative outlined above, a further dimension may be Japan'sdesire to strengthen its position in Southeast Asia relative to China.

47 As Higgott (1998: 345) notes 'the utilisation of impartial multilateral agen-cies has long been seen as an important way to put at one remove or

depoliticise US policy interests in the imposition of economic conditionson developing countries'.

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