The Rise of China and Its Significance for East Asia

How is the rise of China changing East Asia? In order to understand what is happening, we need to consider the impact of China’s growing influence from a number of different perspectives. In this article, I want to look at some of the ways in which an increasingly assertive China is shaping the regional order in East Asia, how other countries in the region are reacting to China’s rise, and the ways Chinese economic cooperation is changing the overall situation in East Asia.

Changes in the Regional Order

Let us start by taking a look at the changes underway in the regional order. The regional structure in East Asia differs from that in Europe in an important way, as will become clear if we consider the security and trade systems in place in each region.

East Asian regional security is based on the US-led hub-and-spokes system. It is composed of a set of bilateral security treaties and base agreements between the United States and Japan, South Korea, the Philippines, Thailand, and other countries. This system has remained basically unchanged since the Cold War era.

The trade system is quite different. This was built in the 1960s on a triangular trade system consisting of Japan, the other countries of “Free Asia,” and the United States. But this system has undergone major changes since the mid-1980s for two main reasons. The first was the Plaza accord of 1985, which prompted many companies in Japan and other countries to shift from a domestic to a regional production model. One practical effect of this was that national economies in the region became increasingly integrated with each other. The second was the shift that took place in China from a socialist economy to a socialist market economy, following the reform and opening-up of 1978. China’s integration into the wider regional economy took place alongside this shift. These developments meant that when the Cold War came to an end, developments in East Asia followed a very different path from those in Europe.

In Europe, the breakup of the Soviet Union and the collapse of the Eastern Bloc was followed by the eastward expansion first of the North Atlantic Treaty Organization and then of the European Union. As a result, there emerged no tension between the security system (NATO) and the regional framework for political and economic cooperation (the EU). In East Asia, on the other hand, the socialist states in China, Vietnam, and other countries did not collapse when the Cold War ended. As a result, there was no westward expansion of the US-led security system. As these countries switched from a full socialist economy to a socialist market model, however, they did become economically integrated with East Asia and the rest of the world. This produced structural tensions in East Asia between the security system and the trade system. These tensions tend to increase as China rises in wealth and power.

Yet, East Asia’s regional systems have remained relatively stable in spite of these tensions, for two main reasons. The first was China’s decision to pursue a politics of economic growth in order to keep one-party rule alive. As part of this approach, and in order to ensure stability in its vicinity, it adopted as the key strand of its foreign policy a position summarized by Deng Xiaoping’s famous aphorism: “Hide Your Strength, Bide Your Time.” The second is that Japan and the United States have responded by engaging positively with China. This is based on a strategic calculation that Chinese economic development and integration into the East Asian and global economies is in the best interests of long-term stability in East Asia and the rest of the world. At the same time, Japan and the United States have redefined their alliance as a way of hedging against China’s rise.

These characteristics of East Asia’s regional structure remain fundamentally unchanged. In recent years, however, China’s growing prosperity has made many of its citizens very confident, and the system in the country has not so much matured as become increasingly chauvinistic. The party state has also experienced a decline in its strategically rational decision-making capability due to the rise of “special interest” groups. Other countries in the region increasingly view China’s rise as a threat. This can be seen clearly in the recent series of territorial disputes in the South China Sea. As a result, the dyanamism of regional cooperation has shifted, particularly in tandem with the Obama Administration’s policy of reengagement with Asia. Since 2010 a new kind of regional cooperation has become more important, with the United States firmly included in a new Asia-Pacific framework. This new framework constrasts with the East Asian framework that had been in place since the Asian economic crisis of 1997–98, which excluded the United States. Evidence of this shift can be seen in several moves toward multilateralism in the region. The East Asia Summit has grown from a forum of the Association of Southeast Asian Nations Plus Six (ASEAN+6) to include the United States and Russia in a large ASEAN+8 grouping, for example; while the TPP (Trans-Pacific Strategic Economic Partnership Agreement) has assumed increasing importance over ASEAN+3 and ASEAN+6 as a path toward a Free Trade Area of the Asia-Pacific (FTAAP). Disputes over competing territorial claims in the South China Sea are also becoming internationalized—although China continues to insist on resolving disputes on a bilateral basis; these issues have been raised at such regional forums as the ARF (ASEAN Regional Forum) and the East Asia Summit. The increasing importance of the ASEAN Defence Ministers’ Meeting Plus (ADMM+) as a regional venue for dialogue on security issues is another example of this tendency.

All these phenomena point to the same conclusion: the regional cooperation framework is being reorganized into a network model. In the case of ASEAN+1, ASEAN+3, ASEAN+8, and the ARF, it is ASEAN that acts as the hub. In the case of the US-based hub-and-spokes security network, obviously the United States acts as the hub. When these two hubs work together, a new kind of dynamism is born. This is what is happening now.

How Are States Reacting?

In the context of this new environment, what actions are East Asian countries taking in response to China’s rise? Let us look at examples from four countries: Thailand, Indonesia, Vietnam, and Myanmar.

Since the end of the Cold War, Thailand has consistently pushed for greater market integration in Indochina and continental East Asia, and has looked to position Bangkok as a major hub within this regional market. In this sense, developing the Greater Mekong Subregion is of great strategic importance to Thailand. It is therefore not surprising that Thailand has been quite enthusiastic about the economic rise of China and the development of infrastructure within the GMS with Chinese economic cooperation.

Indonesia is different. For Indonesia, non-alignment and neutrality are key aspects of the national creed. But throughout modern history, Indonesian “neutrality” has tended to tilt somewhat to one side or the other. Recently, there has been a quiet but unmistakable tendency for the country to align itself with the Japan–United States–Australia configuration. One reason is that Indonesia feels threatened by China’s growing naval power as well as the decline of its manufacturing sector in competition with China.

For Vietnam, China is an overwhelmingly richer and more powerful neighbor. China has a population that is approximately 15 times larger than Vietnam’s, and its economy is roughly 60 times larger. Managing this asymmetic relationship is the key to Vietnam’s China policy. Vietnam’s answer has been to bridge the gulf by leverage—putting itself on a more equal footing by dealing with China as a member of ASEAN, buying submarines from Russia, inviting the United States and India to participate in wargames to counterbalance China, and signing infrastructure development agreements with Japan. These are all aspects of the same basic approach.

For Myanmar, by contrast, the biggest threat since the end of the 1980s has been the United States, not China. Myanmar has survived the effects of sanctions imposed by the United States and Europe by relying on Thailand, China, and India as its main trading partners. Its increasing dependence on China is the price it paid to defend itself against the threat from the United States. Since the shift to civilian rule in 2011, however, the new government has made national reconciliation and economic growth the main priorities of national policy. To achieve these aims, the government has been pushing an aggressive program of political and economic reforms (liberalization) and trying to bring its international isolation to an end. Another advantage of this approach, if successful, will be to avoid becoming excessively dependent on China. How much maneuverability Myanmar can gain for itself by this policy in the medium to long term depends to a great extent on the success of its economic growth strategy in the years to come.

This brief survey reveals three factors that are crucial to any attempt to explain how East Asian countries are reacting to China’s rise and the policies they are pursuing as a result. The first is that their behavior differs dramatically depending on a country’s geopolitical position within the East Asian security system. There is a huge difference between countries that take the US-led hub-and-spokes security system as a given, and can build their own security policies on the basis of that framework, and countries that perceive the presence of the United States in the region as a threat. Another factor is the extent to which countries are integrated into the wider East Asian and global economies. The better integrated countries are likelier to be able to operate without worrying about economic dependence on China. A further factor is the demands of domestic politics. In places where there is a broad public consensus that the purpose of poitics should be to achieve economic growth, there will obviously be more incentive to engage with an economically dynamic China.

Transnational Effects

What is the significance of China’s rise for East Asia? In considering this question, another factor we need to consider is what might be termed the “transnational” effect. To put it in slightly more concrete terms: How is the movement of people, materials, money, and companies out of China across borders changing East Asia? Let us look at economic cooperation as an example. In this case, medium- to long-term stability varies to a considerable extent depending on the political system in place and the circulation of the elite, in terms of whether there are regular changeovers at the top or not. In countries with authoritarian regimes like Laos, Cambodia, and Myanmar, a quite stable transnational alliance links China with the political and business elites in these countries. This in turn becomes another reason why these countries have tended to adopt a different set of rules from the sort of economic cooperation and government procurement models that Japan, the United States, and Europe have played a key role in creating up to now.

Between 2007 and 2009, Chinese assistance to Myanmar was worth somewhere between $400 million and $800 million. In 2010, for example, 43 Chinese state-owned enterprises were building or planning to build 63 hydroelectric power stations in Myanmar. Economic cooperation is taking place across an extremely wide range of projects, including gas and oil pipelines from Kunming to the Indian Ocean port of Kyaukpyu, and development projects for highways, high-speed rail links, and ports. In theory, this cooperation is supposed to be for the “mutual benefit” of both countries, but in fact it works more to China’s advantage than Myanmar’s. Many of the hydroelectric projects, for example, are being built to supply power to China.

In Laos, new-town developments outside Vientiane are taking place with economic assistance from China. Chinese state-owned banks provide the Laotian government with low-interest loans. The government then uses this funding to hire Chinese state-owned enterprises to develop real estate on the outskirts of Vientiane. In practice, the Chinese model of infrastructure development has been introduced to Laos. This involves local governments in China engaging in “third-sector” real-estate development, then using the resulting income to fund infrastructure development. In Indonesia, a crash program to expand the country’s power generation capacity through low-interest loans from China between 2005 and 2008 saw Japanese, American, and European competitors completely shut out of the Indonesian electricity sector.

The total amount of development funding provided by China worldwide already outstrips that provided by the World Bank. Despite this, China is not a member of the Development Assistance Committee at the Organization for Economic Cooperation and Development. This leaves China free to combine untrammeled ODA, direct investment, export credit, technological cooperation, and service and labor provisions, thereby supporting the expansion of Chinese corporations overseas under the name of economic cooperation. It is not entirely clear whether China’s party state has a grand design to create a new order through economic cooperation. But it is important to note that the Chinese model of economic cooperation is leading the political and economic systems of a number of countries in the region, especially those less integrated into the regional and global economies, to become increasingly “Sinified.”

In sum, my argument comes down to one key point: We need to consider the rise of China from a number of different perspectives. Fears that China will take over the world or turn the whole of East Asia into its own sphere of influence will not help us understand the changes now underway. Only by systematically considering the various effects of China’s rise on the regional order, on the policy and behavior of neighboring countries, and on transnational relations will we succeed in understanding the significance of China’s rise for the region as a whole.