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...In 2001 the Chinese authorities launched regional free trade areas with South and North East Asia, to be complete by 2010: negotiations over these continue. In contrast with sliding global trade, trade and investment flows between China and the rest of Asia have boomed. This has been a factor in South East Asian post-crisis recovery. Exports by the Association of South East Asian Nations to China rose 55% in the first half of 2003 to $20bn out of $70bn. In fact regional Asian trade with China has been growing far faster than Asian trade with the US. Japan's imports from China already exceed those from the US and Japanese exports to China have been steadily rising. This tendency is also apparent in South Korean, Thai, Malaysian, and Singaporean bilateral trade (16).
These trends imply that we are seeing the first steps in the construction of a Chinese regional political economy. For China, this has advantages: over time it will reduce trade dependency on the US market and decrease its vulnerability to external pressure or shocks. It also creates webs of interdependence between the rest of Asia and China, a buffer between China and the West.
For the rest of the region, the consequences are more ambiguous. Japan, by far the most technologically and economically advanced of the countries, is now in a race with China over regional economic influence, even as its multinationals invest ever more heavily in China. This competition may benefit South East Asian countries that hardly desire to trade a strategic dependency on the US for one with China. Given their productive profiles and narrow specialisation in low value-added sectors (electronics, textiles), China represents a major challenge for the developing countries of the region.
Japanese regionalism generated shallow rather than deep modernisation in South East Asia. Given the sharp differentials between developed countries (Japan, South Korea, Taiwan, Singapore) and less developed countries (Malaysia, Thailand, Indonesia, Vietnam), as well as interstate rivalries, a coherent Asian regional system is still a long way off. But longer-term trends point toward it. This is a structural phenomenon that can be compared to the rise of the US as a core economic power, a process that was interrupted but not stopped by the Great Depression. As the row about the yuan suggests, it will take a Copernican revolution in the West to accept this fact graciously.
http://mondediplo.com/2003/10/08china