I. Introduction

The 1997 financial crisis has proved to be a turning point for regionalism in Asia. As Higgott astutely observed soon after the crisis, “the political manifestations of these events [the financial crises] will linger long after the necessary reforms have been introduced to return at least a semblance of economic normalcy to the region.”1 One significant political manifestation has been the emergence of a new form of regionalism in Asia as evidenced by new forms of regional monetary cooperation and proposed sub-regional trade agreements, developments which signal sharp changes in direction for the region. Chameleon-like in its qualities throughout the past century, regionalism has been transformed once more; it has again demonstrated itself to be a flexible policy tool which can used to meet a variety of objectives, economic and political.2

It is the argument of this paper that regionalism in Asia after the financial crisis departs significantly from its pre-crisis incarnation. Specifically, an understanding of the post-crisis regionalism requires a state-centric 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, which underlay much visioning of the ‘Pacific Rim’ in the 1990s, is now untenable. The contours of post-financial crisis regionalism are, by state design, aimed at restoring to Asia a greater degree of political power and autonomy vis-a-vis the rest of the world, and the United States and the international financial institutions it controls, in particular. The implications of this are profound, not only for our understanding of ‘the region’, but also for our analysis of the current phase of the global economy.3

In the next section, a brief description is given of the characteristics and analysis of regionalism in pre-financial crisis Asia. Section III analyses in more detail the emergence of a new post-crisis regionalism and examines the reasons for its emergence. Particular attention is paid to the motives of the two most significant powers in East Asia, China and Japan. The implications of this regionalism for theoretical analysis of the global economy is discussed in the concluding section.

Ii. Asian Regionalism Prior to the Financial Crisis

The countries of Asia did not participate in the wave of regionalism which proved popular with other developing countries in the 1950s and 1960s. When regionalism re-emerged as a preferred economic policy in the 1980s and 1990s, Asia again lagged behind the rest of the world in terms of the formal political institutionalisation of regionalism. Indeed, a distinguishing feature of Asian regionalism for many scholars was precisely the fact that the ‘region’ itself was ill-defined (or capable of multiple definitions) and that the ‘regionalism’ that was taking place was doing so through market-led, rather than government-led, integration processes. As Stubbs, for example, has argued “although the state has been instrumental in nurturing business growth, regionalization in the Asia-Pacific region - unlike the other major regions of the world - has been driven by the private sector not by governments. Hence, the boundaries of the region do not coincide neatly with state boundaries. In many ways the region’s governments are still trying to come to grips with the rapid economic changes that swirl around them.”4

Regional integration processes therefore led to the identification by economists and policy analysts of a “regional economy” within Asia as well as in a number of sub-regions. Throughout the region, the activities of Japanese multinationals and of overseas Chinese businesses were highlighted as operating on the basis of a series of “networks” based on the production prerequisites of post-Fordism and the personal connections which facilitated and characterised much of the overseas Chinese diaspora. It was these business networks, rather than the existence of supra-national political institutions, which led to the identification and integration of ‘regional economy’.5 This was also true at the sub-regional level. For example, “Greater China” was identified as one such sub-region, comprising of an international division of labour which integrated production in parts of mainland China and companies in Taiwan and Hong Kong. Here, too, the impetus for economic integration was identified as largely business driven rather than as state driven. As Naughton writes, “firms, especially small and medium-size family firms, play central roles in the story, with government policies playing secondary, reactive roles.”6

These analyses tended to overstate the role of ‘the market’ in fostering integration in the region. They present us with something of a paradox in that most of them accept that national economies can be described as ‘developmental states’ where governments play key roles in ‘guiding the market’ but where, it seems, inter-national and inter-regional integration are played out beyond the reach of the state. Such a paradox is, in fact, a false one and is solved by a better appreciation of the role that the state played in fostering inter-regional trade and capital flows. For example, Japan’s policy with regard to foreign direct investment (FDI) changed critically during the post-war decades to one favourable to, and supportive of, FDI during the 1980s. The emergence of a hierarchical division of labour in the region fostered by Japanese multinationals was not a chance occurrence but one premised in no small part on Japanese policy.7 Similarly, the emergence of the “China Circle” was not entirely an accident in which states were only “reactive”; in particular, China’s initial choice of venue for its four Special Economic Zones (SEZs) in 1984 was based on exploiting cultural and geographic links between the SEZs and the overseas Chinese communities in Taiwan and Hong Kong. The subsequent growth of the four cities initially chosen as SEZs and the subsequent spread of investment into other parts of Guangdong and Fujian Provinces could not have been predicted by Chinese policy-makers but the emergence of a “Greater China” economic zone certainly owes something to their policies. However, while the above analyses may underestimate the role of the state in promoting regional economic integration, they do have make the valid point that Asian regionalism was based on a lower level of formal 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 United States was abandoning its traditional sole reliance on multilateralism as a route to free trade and signing free trade agreements first with Canada and then with Canada and Mexico, Asia remained reluctant to join in. The initial response to the emergence of North American and European ‘blocs’ included calls, made particularly loudly by Malaysia’s Prime Minister Mahathir, for an East Asian Economic Group. This idea was, however, stillborn and Asian countries settled for the different version of regionalism embodied in APEC.8 This body is much looser in regulatory design that the other ‘blocs’, operates by consensus and voluntary action (or inaction) rather than by legal stricture. APEC’s formation in 1989 owed as much to the perceived political need to ensure that trade across the Pacific remained open and to prevent the emergence of three closed blocs as to any substantive trade liberalisation initiatives. As the fear of the emergence of three protectionist blocs receded, APEC formed, in 1993, an Eminent Person’s Group under the Chairmanship of Fred Bergsten to devise a ‘Vision’ for APEC which would justify its continued existence. This group came up with the idea of ‘open regionalism’ and the goal of establishing a free trade area in region by 2010 for developed country members and 2020 for developing country members, a goal which was subsequently adopted at the APEC meeting held in Bogor, Indonesia in 1994. This ‘vision’ represented a victory for the pro-globalist thinkers and established for the institution a framework which stressed the interdependence of economies, the mutual advantages which existed for all in trade liberalisation, and which minimised the differences between developed and developing country members.9 In establishing this framework, APEC was simply following, and contributing to, the ways in which the ideological construction of the ‘Pacific Rim’ was being pursued in the wider intellectual and policy community.10 The boundaries of the ‘region’, at this level, were ever- expanding.11

The idea of ‘open regionalism’ - of using regionalism to further integration into the global economy - was also central to Asia’s most deliberate attempt at formal economic regionalism, the ASEAN Free Trade Area (AFTA).12 The formation of AFTA, proposed in 1991 and coming into effect on January 1st 1993, marked ASEAN’s most ambitious attempt at regional economic cooperation since its formation in 1967 and, indeed, put ASEAN on a path which it had rejected several times in the 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 response 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 collectively, 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 foreign capital needed to spur continued industrialization.

These policies were fortuitous in that Japanese firms were expanding overseas rapidly in response to the massive appreciation of the yen which followed the Plaza Accord in 1985. Japan’s FDI grew at an annual average rate of 62 percent over the 1985-89 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, the former Soviet bloc following the dramatic events of 1989-91, the potential 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, from the 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”13 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. This is further confirmed by official pronouncements at the time. For example, Singapore’s Prime Minister Goh Chok Tong commented that “unless ASEAN can match the other regions in attractiveness both as a base for investments and as a market for their products, investments by multinational companies are likely to flow away from our part of the world to the S[ingle] E[uropean] M[arket] and NAFTA.”14

To summarize, regionalism in Asia in the early-mid 1990s was premised on the emergence of an economic region increasingly integrated by the activities of multinational corporations, particularly Japanese MNCs, and by the network capitalism epitomized by the Chinese diaspora. This process was undoubtedly a more market driven process than that in evidence in other regions, although even in Asia state policies played important roles in shaping the kind of regional economic integration that took place. At the level of formal regional economic institutions, the ‘region’ was more spatially ambiguous with APEC acting as a loose consortia of countries notionally acting to preserve open trade across the Pacific. The most concrete form of regional economic arrangement was provided by the AFTA, an arrangement premised on the need of ASEAN countries to remain competitive in attracting investment in the changed post-Cold War international political economy. The use of trade and investment liberalization agreements to promote integration into the international economy was supplemented with the domestic liberalization of financial markets with the result that financial capital also poured into ASEAN and other Asian countries in the 1990s. However, this was to lay the seeds for the financial crisis of 1997, as the money which poured into the region equally quickly poured out, and led to a crisis which profoundly altered the economic landscape in Asia and which has changed the basis for regional economic cooperation.15

Iii. Asia’S Post-Financial Crisis Regionalism

The events of the Asian financial crisis are well know and will be summarized only briefly here.16 The main focus in this section will be on the response to the crisis and the implications of this for our understanding of regionalism in Asia. The Asian crisis was triggered by the decision of the Thai central bank to float the baht on July 2, 1997. The Thai government decided that it could no longer defend the currency and announced a managed float and called upon the IMF for technical assistance. The ‘contagion’ spread to other countries in the region including the Philippines, Malaysia, Indonesia, South Korea, Hong Kong, and Vietnam. By the time the dust had settled, the IMF had instituted the largest bailout in its history with the US$ 54 billion loan to South Korea. Indonesia received US$ 40 billion, Thailand US$17.2 billion and the Philippines US$1 billion.17

While the facts of the crisis are well known, the causes of the crisis remain disputed. For some, financial panic provides the most plausible explanation with the irrational behaviour of foreign investors to blame for the sudden dramatic reversal in capital flows to the region.18 For others, the weakness of domestic financial institutions, their lack of regulation, and the general malaise of ‘crony capitalism’ was to blame.19 It is clear that one of the critical actors in the drama, the IMF, saw the cause of the crisis as emanating from essentially domestic factors which required the tried and trusted methods associated with the stabilization and structural adjustment programs which the IMF and World Bank had been applying to other developing countries since the early 1980s.

As MacLean, Bowles and Croci noted, the IMF intervened in Asia both at the macroeconomic and structural levels.20 The policies recommended at the macroeconomic level were, by and large, the typical ones that characterized IMF interventions in the past. To stop currency depreciation and restore confidence, the IMF prescribed its traditional austerity medicine. This involved, first of all, a tight monetary policy, i.e. an increase in 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 (achieved mainly through the reduction of social programs, the scrapping of large public infrastructure projects and the elimination of subsidies). These fiscal measures have been criticized since none of the countries in question 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 budget surpluses of 2.3 and 1.2 per cent of GDP respectively.

Critics argued that the tightening of state budgets would inevitably worsen the recession brought about by the crisis and it did. The recognition that these policies were not bringing about the desired effects (exchange rates continued to slide, the outflow of capital worsened and output fell more than projected), and the perception that they might trigger social unrest, led the IMF to modify some aspects of its program. However, the damage caused by the financial crisis and, in the view of many in Asia, exacerbated by the policies of IMF had been done as economic crisis followed the financial crisis and brought with it unprecedented output declines (see Figure 1 below) after a decade or more of rapid growth.

Source: R. Ferguson, “Tale of Two Continents: A Comparison of Asia and Latin American Experiences during Recent Financial Turmoil”, remarks before the National Economic Association, Boston, Massachusetts, January 7, 2000 available at http://www.federalreserve.gov/boarddocs/speeches/2000/20000107.htm#exhibits

A noticeable recovery in output and the trade account has taken place since the depth of the crisis. However, the cost has been high in terms of the development objectives of the countries concerned and have been achieved almost entirely through deflation. For example, in the ASEAN-4 and South Korea the change in the current account went from a cumulative deficit of US$ 54 billion in 1996 to a cumulative surplus of US$ 69.2 billion in 1998, a total adjustment of US$ 123.2 billion. However, as Table 1 below indicates, a full US$ 116.6 billion of this adjustment was due to a fall in imports and only US$ 6.6 billion was due to increased exports.

Table 1 - External Adjustment

(US$ Billions)

 

 

Current Account

Merchandise Imports

1996

1998

Adjustment 1996-1998

1996

1998

Adjustment 1996-1998

Thailand

-14.7

14.2

28.9

63.9

36.5

-27.4

Malaysia

-4.6

9.1

13.7

78.4

58.3

-20.1

Indonesia

-7.7

4.0

11.7

44.2

31.9

-12.3

Philippines

-4.0

1.3

5.3

31.9

29.5

-2.4

Korea

-23.0

40.6

63.6

144.9

90.5

-54.4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Adjustment

 

 

 

 

123.2

 

 

 

 

-116.6

Source: R. Ferguson, “Tale of Two Continents: A Comparison of Asia and Latin American Experiences during Recent Financial Turmoil”, remarks before the National Economic Association, Boston, Massachusetts, January 7, 2000 available at http://www.federalreserve.gov/boarddocs/speeches/2000/20000107.htm#exhibits

As Table 1 shows, the restriction of domestic demand caused by the financial crisis and the IMF imposed austerity measures was sufficiently large to cause a dramatic decrease in imports and thereby lead to a turn around in the trade balance. Thailand, for example, went from having a current account deficit equal to 8 per cent of GDP in 1996 to a surplus of 12 per cent of GDP just two years later - a staggering change brought about 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 especially criticized in Asia. Policies under his heading can be divided into two categories: (i) those designed to reform the financial system and (ii) those aiming at open up the economies of the crisis countries. Under the first category, the IMF pushed for the closure of insolvent - and, in some cases, simply illiquid - banks, the enforcement of capital adequacy standards and the adaption of Western accounting practices and disclosure rules. Bank closures in the midst of financial panic, however, invited even greater panic, while the hasty enforcement of capital adequacy standards, in conjunction with the general credit squeeze, contributed to recession by making it impossible for many companies to obtain even working capital.

Under the second category, the IMF encouraged the dismantling of national monopolies, the sale of state assets to the private sector, the elimination of tariffs and non-tariff barriers to trade, and the opening of the financial and insurance sectors to foreign investors. These policies of “intrusive” or “deep” conditionality went well beyond what could be justified by economic theory alone. For example, countries have been pressured into accepting greater foreign ownership even though this runs counter to much of the literature on ‘firesale FDI’. As Bhagwati noted: “Economists have usually advised the exact opposite in such depressed circumstances: restricting foreign access to a country’s assets when its credit, but not that of others, has dried up.”21 In South Korea, the IMF also pushed for changes in the labour laws to make redundancies easier although it is difficult to argue that this was necessary to solve the financial crisis and was seen as having more to do with effecting a transition to Anglo-American style capitalism than with solving South Korea’s crisis.

The perception that the IMF was acting to protect the interests of Western lending institutions and to open Asian markets for Western firms at the expense of Asian workers and the sovereignty of Asian countries was widely held in the region. As Walden Bello noted at the time “never has the IMF’s connection to its principal stockholder been displayed so prominently.”22 This view was not restricted to leftist critiques either. Prominent neoliberal Jagdish Bhagwati also argued that what he termed the “Wall Street-Treasury complex” had got it all wrong in pushing for capital account liberalisation in Asia.23 The Wall Street-Treasury complex was not easily convinced of the error of its ways, however, and its leading exponents added insult to Asian injury by declaring, in triumphalist mood, that the Asian crisis proved the superiority of American free market capitalism over Asia’s ‘managed capitalism’.24

In the face of these policies and perceptions, it is not surprising to find that this has led, in Higgott’s words, to the “politics of resentment.”25 One manifestation of this resentment is that Asian countries have embarked on a new path of regional cooperation. The idea of establishing an US$ 100 billion Asian Monetary Fund (AMF), more attuned to the needs of Asian economies and less bent on imposing Anglo-American style capitalism on the region, was initially proposed by Japan at the height of the crisis. This received support from some of the countries in Southeast Asia who were shocked by the initial refusal of the U.S. to support Thailand in its crisis and by the spectre of IMF conditionality. The proposal was rejected, however, by the U.S. as potentially undermining the role of the IMF and as being potentially too lax on conditionality, by the IMF itself, and by China which continued to oppose Japan’s leadership aspirations in Asia.26

Despite the immediate rejection of this plan, the failure of other regional institutions such as ASEAN and APEC to play any significant role in responding to the crisis and the widespread resentment at the imposition of conditions by a Washington-based, United States controlled, international institution, the IMF, laid the seeds for more concerted regional initiatives. Before proceeding to analyse these initiatives, it should first be noted that a regional response was neither guaranteed nor perhaps even probable. On the assumption that regional initiatives require a sufficiently powerful and/or respected regional 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 blamed for being partly for the crisis in the first place. As Higgott notes “Japanese capital created overcapacity in the region without fulfilling the role of a market of last resort to absorb it.”27 Furthermore, the willingness of the Japanese government to allow the yen to depreciate in the wake of the crisis led to accusations that japan was more interested in maintaining its own competitiveness than in solving Asia’s problems. Japan’s capitulation in the face of U.S. pressure over the initial proposal for an AMF did not enhance its leadership claims and neither did its continuing domestic economic malaise.28 China’s 1994 devaluation of the renmenbi was seen as a contributing factor to the current account deficits run up by the ASEAN-4 and South Korea which played a key role in triggering currency flight in 1997. Although China pointed to its maintenance of the value of the renmenbi during the crisis it continued to have less than cordial relations with its ASEAN neighbours on other issues such as the Spratlys and, of course, there were continuing cross-strait tensions with Taiwan. It is quite possible therefore, 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 fostered in the region; a new regionalism, geographically well-defined and located in East Asia, involving all of the major countries of this region, is now being forged.29 As Bergsten has noted, the East Asian Economic Group has held summit meetings for three consecutive years under the ASEAN+3 rubric (i.e. the ten ASEAN countries plus China, Japan and South Korea) and a “Vision Group” has been formed to advise on the future role and evolution of this group.30 Following rejection of the initial Japanese proposal for an AMF, Japan implemented the Miyazawa Plan which made available $30 billion to stabilize financial institutions in the region. This has subsequently, in May 2000, been used as the basis for a regional network of foreign currency swaps aimed at enabling Asian countries to address any future currency crises themselves without resort to the IMF. This development, a cooperation between central banks in the region, constitutes a de facto AMF, providing a mechanism to meet the aims of an AMF but avoiding the more politically difficult task of establishing a formal institution which might encounter U.S. 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 loans of up to $7.5 billion.31 While details of the expanded plan are still vague it is clear that Asia has the resources to finance such an initiative with the collective reserves of the ASEAN+3 countries being over $800 billion (over twice those of the Eurozone countries and close to ten times those of the U.S.).32 Officials from Japan’s Ministry of Finance will also be stationed in Thailand and Vietnam to provide advice on international debt management, the use of yen loans and other economic issues.33

At the same time as these developments in “monetary regionalism”, there have also been initiatives to create free trade pacts in the region. These include studies being conducted in China, Japan and South Korea examining the possibility for a North East Asian regional trade agreement raising the possibility that it could eventually link up with AFTA. There have also been important bilateral trade negotiations between Japan and Singapore and Japan and South Korea. This represents a considerable departure for Japanese trade policy, and in South Korea’s for that matter, as these two countries 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 reliance on multilateral trade agreements.

In analyzing the emergence of Asia’s new monetary regionalism, the disenchantment with the IMF and the United States has been widely recognized and accepted. However, two important issues remain in need in further analysis which require a closer analysis 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 is simply a lacunae in the existing literature, namely, why did China oppose the proposal for an AMF in the immediate post-crisis period but support the currency swap arrangement some three years later, and what, if anything, do the reasons for this change of position tell us about Asian regionalism now? The second issue concerns the emergence of proposals for regional trading arrangements, proposals which analysts such as Bergsten and Noland have attributed mainly to Asian frustration at the ineffectiveness of trade liberalization through APEC and the uncertainties facing the new Millennium Round of the WTO after the debacle in Seattle.34 Thus, much as the U.S. was argued to have departed from its sole reliance on the multilateral trade track in frustration at the slow pace of the Uruguay Round in the late 1980s, now history is argued to be repeating itself with Japan showing a similar interest in regional liberalization initiatives in response to the frustrations over the slowness of the Millennium Round in Seattle a decade later. In advancing such an analysis, it is implicitly being argued that the monetary and the trade dimensions 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.

Let us first consider China’s position. Put simply, why should China, which initially opposed the creation of an AMF for fear of Japanese domination, and which has sufficient foreign exchange reserves (in excess of US$ 200 billion) and capital controls to ward off any speculative currency attacks, now back an Asian only currency swap arrangement? To understand this requires an analysis of the shifting sands of wider Sino-US and Sino-Japanese relations. Although China’s was not directly affected by the Asian financial crisis, indirectly the crisis posed significant challenges for China and its response to the crisis offered some opportunities. The immediate challenge was how to respond to the crisis affecting neighbouring countries. China’s response was to provide financial resources to the region through the IMF and to pledge not to devalue the 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 the international community, a responsibility which it hoped would be recognised and acknowledged by a strengthening of Sino-US relations. To this end, China committed US$ 4.5 billion to the operational budget of the IMF to support financial packages to Thailand and Indonesia.35 Thus, China opposed the initial proposal for a Japan-led AMF and threw in its lot with the IMF and made its first financial contributions to IMF packages since 1949. The second part of the strategy for demonstrating its international responsibility was the pledge not to devalue the renmenbi. This undoubtedly had some domestic advantages; China’s weak banking system was sitting on deposits in excess of 500 trillion yuan and any devaluation which might spark a run on the banks could have potentially serious consequences for economic and social stability.36 Furthermore, Hong Kong had just be returned to China and the leadership in Beijing was keen to provide economic stability in the new ‘Special Administrative Region’. However, there is no doubt that the ‘no devaluation’ policy also had risks in that the painful process of state owned enterprise reform had been begun and, in the leadership’s view, needed to be accompanied by an economic growth rate of at least 8 per cent in order to alleviate a potential social backlash. The policy of maintaining the value of the renmenbi made such a growth target difficult to meet in the light of falling regional trade volumes and depreciating currencies in competitor economies in ASEAN and South Korea. Nevertheless, the Chinese leadership decided to maintain the exchange rate and to inject additional demand into the domestic economy through a massive infrastructure spending program.

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 Vancouver 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. On 24 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.”37

China’s feeling that its “constructive strategic partnership relationship” (jianshexing zhanlue hezuo houban guanxi) with the U.S. 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 dollar prompting fears of a new round of financial turmoil in Asia and was also the month when President Clinton made an official visit to China when the Chinese side at least expected some breakthrough on China’s WTO accession process.38 The 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.”39 In the end, Japan and the U.S. were forced to intervene to support the yen although not before concerns were expressed about why the two countries had taken so long to undertake such intervention. 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 U.S. 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.40

China did nevertheless have the pleasure of drawing President Clinton on his official visit into criticism of Japan’s exchange rate policy.41 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 superpower and many great powers’, China, as one of the great powers, is still not powerful enough. This crisis has conspicuously shown that China has taken a step forward on the path to becoming a major power in the world structure.”42 Chinese sensitivities were assuaged at the December 1998 APEC Meeting where, in contrast to the neglect of China’s role by President Clinton in Vancouver a year earlier, the Chinese press reported that “the ‘Kuala Lumpur declaration’ fully affirmed the ‘mainstay’ role played by China in stabilizing the Asian economy during this financial crisis. The document used the English word ‘anchor’ to describe the role played by China in stabilizing the Asian financial crisis.”43

Thus, for the year and half after the outbreak of the financial crisis China had followed a consistent policy of supporting the IMF (and its policies)44 and of maintaining a ‘no devaluation’ policy for the renmenbi, a policy which it contrasted sharply with that of Japan. China did participate 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 major power that could be trusted and which acted responsibly.45 The expected gains from this policy were not only economic - an economic recovery in the region - but also political in terms of an enhanced role and status for China in regional and international affairs. These gains were slow in coming as China met with what it perceived as U.S. indifference and a lack of understanding of the strains that the ‘no devaluation’ policy was placing on its economy while Japan and the U.S. moved only slowly to resolve their exchange rate imbalances.

Despite the expectations that the U.S. would offer some WTO concessions this did not occur and it was left to Chinese Premier Zhu Rongji to visit the U.S. in early 1999 to offer more concessions to kickstart the negotiations. However, the policy of seeking to strengthen the Sino-U.S. relationship was soon to come to an end not because of economic issues but because of the U.S.-led NATO war in Kosovo. This war, premised on the need to defend human rights in a sovereign state, deeply worried to Chinese leadership. The bombing of the Chinese Embassy in Belgrade, and the “wrong map” explanation, led to anti-U.S. riots in China much as there had been similar riots in South Korea, Thailand and Indonesia against IMF/U.S. economic policy earlier. The Cox Report and the ‘demonisation’ of China in the U.S. meant that China’s “responsible image” disappeared; by mid-1999 Sino-U.S. relations had turned irrevocably for the worse. China’s post-crisis policy had not reaped the political gains that it had hoped for; put simply, China had backed the wrong horse.

Faced with this changed international situation, China joined others in the region as seeing the U.S. as the main threat to its interests and China moved to view regional solutions as more valuable in this changed context. In reporting on the currency swap agreement, reached in May 2000, China’s awakened interest in regional economic solutions was clearly shown. Thus, the Economic Daily reported the agreement in the following terms: “In the past, the importance of economic co-operation was not fully realized. Compared with other parts of the world, especially North America and Europe, economic co-operation within Asia lagged in the past 10 years. Asia-Pacific Economic Cooperation, a regional organization, is only a forum; it lacks binding force. However, the financial crisis that devastated the region three years ago has made Asian countries realize the pressing need for working together. Many Asian countries may still hold bitter memories of receiving loans from the International Monetary Fund ... The combined foreign exchange reserves of Japan, China, Singapore and South Korea, and Hong Kong and Taiwan regions is US$ 800 billion, money that will definitely promote the economy in Asia if managed well.”46 China had joined ranks and become a member of the Asia-only movement, and Sino-Japanese relations began to improve to make such a movement possible.47

With respect to the second issue, namely, emergence of proposals for ‘trade regionalism’ in Asia, it is interesting to wonder why Japan, an initiator of many of these proposals, should embark upon such a path. Japanese policy had for years been to support the overseas investment activities of its MNCs and to fashion a regional division of labour in Asia based on the so-called flying geese model of economic integration. Such a policy had been reasonably successful and, indeed, was one the factors which many analysts had pointed to as constituting an emerging integrated regional economy led by the activities of businesses in the region. To push this integration into the realm of formal free trade arrangements was a major initiative with debatable pay-offs. For example, in pursuing a bilateral trade agreement with Singapore, there was much more to be gained by the small, close to free trade, economy of Singapore by having improved to the Japanese market than vice versa. In the case of the bilateral discussions with South Korea, there is the tricky question of the agricultural sector. Should this be included with the risks that this might have of a political backlash from agricultural interests in both countries or should it be excluded at the risk, as Noland points out, of inviting WTO investigation of compliance with Article XXIV of the GATT?48 Including China in with South Korea opens up even more problems with countries at vastly different levels of economic development and with different political systems. Clearly, there are many stumbling blocks on the road to trade agreements in the region and so 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 from the fallout of the failed Seattle WTO talks is not 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 liberalisation process, its commitment to liberalisation has always been practical and strategic rather than ideological. That is, trade liberalisation has been an important policy goal of Japan but this has been conditioned by its pursuit of the developmentalist 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 liberalisation, the question that must be asked is whether also this implies a rejection of this developmentalist view. That is, we need to ask whether the purpose of the new trade policy is to meet existing objectives by different means or whether it is to redefine those objectives.

A more convincing explanation for Japan’s regional trade initiatives is to be found, I suggest, in (i) the benefits which regional economic arrangements might have 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 (ii) equally importantly, increasing political bargaining power at the international level.

Consider first how Japan’s support for regional trade agreements may be consistent with its longer term strategy. Commenting on reactions to the Asian financial crisis, Hughes has noted that “policy makers in Japan do not seem to see the [developmental] state model as a total write-off. The key to recovery is still the basic model of the developmental state in the region and export growth on the demand side. Export growth can be restarted through economic stimulus packages in Japan and continued growth in the USA, but even more importantly through the promotion of the intra-regional exports which accounted for so much growth in the region prior to the currency crises and which could sustain growth long term.”49 It is this context that Japan’s turn to bilateral trade agreements must be understood. As a recent MITI’s Report indicates, bilateral and regional trade agreements are seen as key mechanisms for increasing intra-regional exports; it notes that this has been the outcome of existing regional agreements such as the EU, NAFTA and the MERCOSUR. The Report further argues that the Asian economies continue to be integrated with Japan supplying the capital goods for Asian industrialisation (with capital goods comprising between 40 to 60 per cent of East Asia’s imports) and the market for Asian exports, especially those from Japanese affiliates in Asian countries whose exports back to Japan now constitute 30 per cent of Japan’s total imports.50 This pattern 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 notes that “Japanese exports to East Asia recovered more quickly than exports to other regions [and] .... As the Japanese economy has recovered, imports from Asia have recovered more rapidly than those from other regions.”51 The implications of this are, in MITI’s view, that “the Asian recovery set in motion a virtuous circle, boosting Japanese exports, helping to place Japan on a recovery trajectory, and consequently 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.”52 The new interest in regional trade initiatives therefore stem from a desire to keep the momentum behind this ‘virtuous circle’ and to continue to forge deeper patterns of regional economic specialization. The shift towards bilateralism can be seen therefore as a change of policy mechanism but not necessarily of policy objectives; the policy of forging of a regional division of labour with Japanese capital and technology at the centre of the integration process remains in consistent with Japanese policy over the past two decades although the means of achieving it have now broadened to include regional trading agreements as an important post-crisis vehicle.53

With respect to (ii), the broader issue of promoting regional arrangements as a way of increasing bargaining power within the global economy, MITI’s White Paper on International Trade for 1999 (published before the Seattle meetings) gives an important clue to this. It argued for the creation of a Northeast Asian trade bloc and recommended that “Japan should seek to deepen intra-regional exchange and understanding in Northeast Asia, the only area in the world which has shown little interest in regional cohesion or integration, applying itself with greater vigour to the development of regional cohesion and presenting a model to the world which will contribute positively to the strengthening of the multilateral trading system.”54 The key point here is the last part of the sentence referring to the presentation 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 for some parts of multilateral agreements. For example, the information technology agreement adopted by the WTO in Singapore in 1996 was based on a similar agreement adopted under U.S. pressure in APEC a few months earlier. Many of the provisions of the ill-fated MAI had as their starting point Chapter 11 of the NAFTA. Thus, regional agreements have increasingly been used as the point of departure for multilateral negotiations. Such agenda setting mechanisms clearly benefit the U.S. and the Europeans both of whom have reams of legal text to call upon as a result of their existing 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 important factor in persuading Japan policy-makers of the need to go down the potentially tortuous path of bilateral and regional trade agreements.

The importance of regional economic arrangements as having political pay-offs is also evident from MITI’s subsequent analysis. Here Japan’s “multi-layered” approach is justified on the grounds that “recently, interest has emerged in trade liberalization beyond traditional regional frameworks, namely the strengthening of links between regional groupings. Example include the Free Trade Area of the Americas (FTAA), designed to link the US and Latin America, the Trans-Atlantic Free Trade Area (TAFTA) between the US and the EU, moves to conclude a free trade agreement between Mexico and 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 creation of frameworks beyond traditional regional groupings; (2) promotion of access to extra-regional markets; and (3) the desire to strengthen influence over other regional groupings and negotiating power with these.” Japan, as noted, operating without membership of a regional trade agreement, is unable to play and must stand by as the U.S. and Europe “strengthen [their] influence over other regional groupings.”55 Japan has signaled that it, too, wishes to enter this game.

Further evidence can be found in the September 2000 Report of the Joint Japan-Singapore Study Group. This Group, set up in December 1999 to look at a possible FTA between the two countries, noted that “there are different motivations for the pursuit of regional economic integration. Some countries see such agreements as strategic alliances, while others leverage on them to obtain more secure and favourable access to important markets. In some cases, they have also helped to promote policy reforms.”56 Again the importance of FTAs as bargaining tools with other countries/regions is evident. Furthermore, the Study Group argued that “FTAs can be a testbed for new and innovative models of rules governing economic activity. These can subsequently be adapted for global use. FTAs can therefore provide positive complementary pressure for the evolution of WTO agreements.”57 The Study Group therefore deliberately proposed an approach that went beyond traditional free trade agreements and which could influence the WTO in areas “where either there are no rules yet in the WTO or the existing WTO rules can be further improved upon: a)electronic commerce; b) definition of service providers; c) non-tariff measures; d) investment; e) mutual recognition; f) anti-dumping; and g) consultation and dispute settlement.”58 The intention to use a bilateral agreement as a springboard for multilateral negotiations is again in evidence with Japan, in consort with other Asian countries, serving notice that they wish to play a larger role in determining the rules which govern the global economy, rules which have been to date relied excessively on the U.S. and Europe for their formulation.

Thus, the view has emerged, stemming directly from the experience of Asian countries in the wake of the finaincial crisis, that the existing international institutions and the balance of power of power within the global economy leave Asia vulnerable to the interests of the West, especially the U.S. Enhanced regional initiatives offer Asia the possibility to counter these interests. This has been expressed forcefully by the ASEAN Secretary-General who has argued that “a new world order has not yet arrived, in which the interests are balanced and disputes adjudicated fairly under benign rules that are impartially applied and effectively enforced upon all. It is all too clear that such a utopia remains far from being upon us. Until it arrives, a long, long time from now, if ever, economic power, whether of states or of corporations, will continue to have preponderant advantage. In the face of this, weaker states must band together regionally, strengthening their solidarity and advancing their common interests.”59 In other words, ‘the rules of the game’ reflect the interests of those who wrote them and have more the character of ‘promoting Empire’ rather than ‘acting as umpire’; post-crisis Asian regionalism is the response to this.

Iv. Conclusions

If, as has been advanced in this paper, Asia’s post-crisis regionalism is qualitatively different and is premised on an Asian only vision of economic cooperation forged to counter the power of the United States and Europe, then there a number of important implications. One concerns the emergence of a “three bloc world”, a development which has already been noted by Bergsten.60 Another concerns the likelihood of such a bloc remaining coherent over the medium term if rivalries between Japan and China resurface and threaten to derail the regional project. Important as these issues are, our attention here is focused on the implications of Asia’s post-crisis regionalism for 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 ‘globalisation’. While this has spawned an entire academic and popular industry, it can be summarised for our purposes as an analysis of the world which views the current phase of international capitalism as being qualitatively different from earlier phases and as being characterised by a shift in power from nation states to transnational economic actors and forces. It is a story of “markets” gaining at the expences of “states”. For pro-globalists this offers the prospect of a more efficient global allocation of resources and of more effective constraints on interventionist and arbitrary state action. For anti-globalists it offers the prospect of the erosion of sovereignty and the leveling down of social and environmental standards as global corporations gain greater power at the expense of ordinary citizens. While, these two groups may disagree about the desirability of the changes, they agree on the basic dynamics at work. Seen through this lens, the Asian financial crisis can be seen, as Price has argued, as “a crisis of globalisation.”61 It is about states losing too much power to international financial markets and about the attempts of nation states to regain lost controls. Certainly, the monetary regionalism of the post-crisis period can be seen exactly in this light, as an attempt by nation states to re-regulate global finance. This is also evident from MITI’s analysis: “Because the Asian currency crisis shares more of the characteristics of 1990s-style currency crises, which are generally sparked by massive capital movements, the usual measures will be inadequate in preventing a recurrence. Rather, consideration of new international financial system reforms (taxes on capital inflows and outflows, etc.) Should be promoted in order to open the way for stable real economy development in developing countries, which lack the resilience and flexibility of developed countries.”62 Apart from the support for international capital taxes, this analysis is interesting precisely for its conceptualisation of the problem as one of insufficient state power, particularly, in the case of developing country states. Regional and international regulations are therefore necessary to strengthen the ability of states to confront destabilising global market forces.

However, this is not the only analytical framework on offer. The sub-title of this paper refers not simply to bringing the state back in to the analysis of regional integration in the Asian region. It also refers more broadly for 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 has preferred the term ‘globalism’ to ‘globalisation’, stressing that globalism is an ideology, one that is based on neoliberalism and the Washington consensus as integral parts of U.S. foreign policy.63 This theme is developed further by Petras and Veltmeyer who prefer the term ‘imperialism’ to ‘globalisation’ as a more accurate description of the contemporary world.64 In this analysis it is not the interdependence of economies and the erosion of state power vis-a-vis markets which are the relevant points of reference but the continued domination of global markets by the major powers, most notably the U.S. but also Europe, the use of international financial institutions as tools in the hands of these powers and the market-opening strategies of the imperialist powers that are the focus of attention.65 Asia’s post-crisis regionalism also finds resonance with this analysis in the sense that regionalism is being forged to prevent the U.S. and the international financial institutions from exercising their power and shaping Asian economies 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 state back in to the discussion of Asian regionalism is precisely because power relations between states are critical to understanding that an important part of the post-crisis regionalism project is to keep the (United) States out.

Endnotes

1. R. Higgott, "The Asian Economic Crisis: A Study in the Politics of Resentment", New Political Economy, 3, 3, November 1998, p. 333

2. For discussion of the ways in which regionalism has been adapted to meet different objectives see, for example, R. Lawrence, "Regionalism: An Overview", Journal of Japanese and International Economics, 8, 4, 1994.

3. The importance of this emergence has also been remarked upon by Fred Bergsten, Director of the Institute for International Economics in Washington D.C., who, writing from a different perspective, has argued "the most striking changes in the world trading system, especially in the short-run, are not likely to flow from the World Trade Organisation or the proposed mega-regional arrangements, such as the Free Trade Area of the Americas or an expanded European Union. Instead, they will probably come from the host of sub-regional trade agreements now being busily negotiated by Japan, South Korea, Singapore and other countries in East Asia. Virtually unnoticed by the rest of the world, East Asian countries are getting together to make their own economic arrangements." (F. Bergsten, "Towards a Tripartite World", The Economist, July 15th-21st, 2000, p.23).

4. R. Stubbs, "Asia-Pacific Regionalization and The Global Economy: A Third Form of Capitalism?", Asian Survey, XXXV, 9, September, 1995, p. 786.

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 analysed regional trade bias and ignored state sponsored initiatives all together; regions were viewed as "natural", derived from trade data alone. For an example of this type of analysis, see J. Frankel, "Is Japan creating a yen bloc in East Asia and the Pacific?" paper presented to the NBER conference on 'Japan and the U.S. in Pacific Asia', Del Mar, California, 3-5 April, 1991. For a critique of this approach see P. Bowles and . MacLean, "Understanding Trade Bloc Formation: The Case of the ASEAN Free Trade Area", Review of International Political Economy, 3, 2, Summer, 1996, pp. 319-348.

6. B. Naughton, (ed.), The China Circle: Economics and Technology in the PRC, Taiwan and Hong Kong, Washington DC: Brookings Institution Press, 1997, p. v

7. For a discussion of the changing of FDI role in Japan's economic policy see, for example, P. Bowles and B. MacLean, "Regional Blocs: Will East Asia Be Next?", Cambridge Journal of Economics, 20, 1996, pp. 393-412.

8. On the differences between APEC and the EAEG as conceptions of the 'Asian region', see R. Higgott and R. Stubbs, "Competing Conceptions of Economic Regionalism: APEC Versus EAEC in the Asia Pacific", Review of International Political Economy, 2, 2, Summer, 1995.

9. For discussion of these characteristics as typical of regionalism during the late 1980s-mid 1990s see P. Bowles, "Regionalism and Development After(?) the Global Financial Crisis", New Political Economy, 5, 3, 2000, pp. 433-455.

10. For ana analysis of this process, and its ideological underpinnings, see B. Cumings, "Rimspeak; or, The Discourse of the 'Pacific Rim'", A. Dirlik, (ed.), What's In a Rim? Critical Perspectives on the Pacific Region Idea, Boulder, Colorado: Westview Press, 1993, pp. 29-47 and A. Woodside, "The Asia-Pacific Idea as a Mobilization Myth", in A. Dirlik (ed.), ibid., pp. 13-28.

11. APEC's originally had 12 members at its formation in 1989 (Australia, Canada, Japan, New Zealand, South Korea, the United States and the six members of ASEAN ). Since then China, Taiwan, Hong Kong, Mexico, Papua New Guinea, Chile, Vietnam, Peru and Russia have also joined bringing membership to 21 "economies".

12. This discussion of AFTA's origins draws on P. Bowles, "ASEAN, AFTA, and the 'New Regionalism'", Pacific Affairs, 70, 2, Summer, 1997, pp. 219-233.

13. Quoted from the Joint Communique of the ASEAN Ministerial Meeting, 1991.

14. Quoted in the Straits Times, Singapore, 28 January, 1992, p. 22

15. It is estimated that private capital flows to the ASEAN-4 plus South Korea went from a net inflow of US$ 93.8 billion in 1996 to a net outflow of US$ 6 billion in 1997. See MITI, White Paper on International Trade 1999, English Executive Summary, 1999, p. 3.

16. For the most comprehensive set of materials on the financial crisis, see the website put together by N. Roubini, http://www.stern.nyu.edu/globalmacro/ The discussion here draws upon B. MacLean, P. Bowles, and O. Croci, "East Asian Crises and Regional Economic Integration", in A. Rugman and G. Boyd, (eds.), Deepening Integration in the Pacific Economies, Cheltenham: Edward Elgar, 1999, pp. 19-54.

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

18. See S. Radelet and J. Sachs, "The East Asian Financial Crisis: Diagnosis, Remedies, Prospects", Brookings Papers on Economic Activity, vol. 1, Washington, DC, 1998, pp. 1-90.

19. See P. Krugman, "What happened to Asia?" available at http://web.mit.edu/krugman/www/DISINTER.html. For an analysis of how Krugman's 'crony capitalis' hypothesis emerged and became the dominant explanation of the crisis see B. MacLean, "The Transformation of International Economic Policy Debate 1997-98" in B. MacLean (ed.), Out Of Control, James Lorimer: Toronto, 1999, pp. 67-94. In general, there has been a intellectual appeal to viewing the Asian crisis as caused by a single dominant factor. This overlooks the fact that the crisis may have different causes in different countries and, in particular between those countries in Southeast Asia and that of South Korea in North Asia. For a country-specific analysis of South Korea see, for example, S. Haggard and J. Mo, "The Political Economy of the Korean Financial Crisis", Review of International Political Economy, 7, 2, Summer 2000, pp. 197-218.

20. See MacLean, Bowles and Croci, op. cit.

21. J. Bhagwati, "The Capital Myth: The Difference Between Trade in Widgets and Trade in Dollars", Foreign Affairs, 77, 3, May/June, 1998, p. 9

22. Bello as quoted in Higgott, op. cit., p. 345

23. Bhagwati, op. cit.

24. As an example of such triumphalism see, for example, Federal Reserve Chairman Alan Greenspan's comments in "The Ascendancy of Market Capitalism", Remarks before the Annual Convention of American Society of Newspaper Editors, Washington D.C., 2 April 1998 available at http://www.bog.frb.fed.us/boarddocs/speeches/19980402.htm

25. See Higgott, op. cit.

26. For opposition to the AMF see M. Noland, " Japan and the International Economic Institutions", paper prepared for the Centre for Japanese Studies (Macquarie University) Fifth Biennial Conference, Can the Japanese Change? Economic Reform in Japan, Sydney Australia, 6-7 July, p.7, available at http://www.iie.com/TESTIMONY/noljapan.html

27. Higgott, op. cit., p. 336.

28. For discussion of Japan's role in the crisis - as seen by both Japan and other countries - see C. Hughes, "Japanese Policy and the East Asian Currency Crisis: Abject Defeat of Quiet Victory?", Review of International Political Economy, 7, 2, 2000, pp. 219-253.

29. The position of Taiwan does, however, remain ambiguous.

30. See, F. Bergsten , "The New Asian Challenge", Institute for International Economics, Working Paper 00-4, March 2000, available at http://www.iie.com/CATALOG/WP/2000/00-4.html

31. See, "E Asia Nations to Agree to Swap Currency Reserves", Nihon Keizai Shimbun, April 29, 2000.

32. See, Bergsten , "The New Asian Challenge", op. cit., and H. Dieter, "Asia's Monetary Regionalism", Far Eastern Economic Review, July 6, 2000, p. 30.

33. See "IMF to send Finance Advisors to SE Asian Nations", Nihon Keizai Shimbun, July 2, 2000.

34. See Bergsten, "The New Asian Challenge", op. cit and Noland, op. cit.

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

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

37. See "Article on Sino-US Financial Cooperation", Zhongguo Tongxun She, Hong Kong, 3 June 1998 as in FBIS-CHI-98-154.

38. This expectation was noted in an interview by China's chief WTO negotiator, Long Yongtu. See "CRI Interview With Long Yongtu on WTO", China Radio International, 8 January 1999 as in FBIS-CHI-99-008.

39. See "Japan Should Shoulder the Responsibility of a Major Power", Renmin Ribao, 29 July 1998 as in FBIS-CHI-98-225.

40. See, for example, Wang Dajun, "'Doing Harm to Neighbours' or 'Pulling Together in Times of Trouble'?", Liaowang, Beijing, No. 26, 29 June 1998 as in FBIS-CHI-98-195.

41. As Hughes notes, "Japan's sense of humiliation was ... compounded during the US-China summit ... when Presidents Bill Clinton and Jiang Zemin took the extraordinary step of commenting in a bilatreal setting on the deficient management of the yen and Japan's economy." Huhges, op. cit., p. 233.

42. See "China Makes Preparations for Introduction of Euro; Wang Mengkui Analyzes 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 the time of President Clinton's June 1998 state visit to China. For example, an article in Shijie Zhishi argues that "President Jiang Zemin's successful visit to the United States last year caused Sino-US relations, whcih had been at a crossroads, to make a directional change ... Now, eight months later, US President Clinton will also make a visit to China. This not only indicates that the United States hopes to maintain the momentum of improvement and development in Sino-US relations, but also that there is a deeper consideration, namely that while 'structurallu' adjusting its Asia strategy, the United States 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 any major problem within the Asian region, it is first necessary to have China's understanding and co-operation. The Asian financial crisis has further strengthened this realization of the US government." Li Zhengxin, "Focus on China - My Views on the United States' Adjustments to its Asia Strategy", Shijie Zhishi, 16 May 1998, as in FBIS-CHI-98-159.

43. See "Subject of Talks Brought About by Financial Crisis - Senior Official Zhang Yan on '98 APEC Kuala Lumpur Conference", Shijie Zhishi, Beijing, 1 January 1999, p. 33

44. China's central bank Governor Dai Xianglong declared in November 1998 that Thailand and South Korea had "adopted and properly implemented many of the reform measures recommended by the IMF, which have produced positive results. Besides, the governments' actions have won the understanding and support of the public. In particular, I saw many civilians in the ROK donating their gold rings. This is why the conditions in these two countries are turning for the better." ("China's Policy on Asian Financial Crisis - Interviewing Dai Xianglong, Governor of the People's Bank of China", Ta Kung Pao, 4 November 1998, as in FBIS-CHI-98-313). Presumably, these were not the same members of the public interviewed one month later by a survey team in South Korea. This poll found that "over half of the people have a negative view of the IMF, for example perceiving it simply as 'an international organization representing the interests of advanced countries,' rather than as an 'international financial organisation that is helping us.' Moreover, 57 percent gave a dissatisfied response concerning the IMF's ROK-related activities over the last year. Concerning our government's diplomacy with the IMF, over half consider it inappropriate and humiliating." (Chong Chae-yong, "An Opinion Poll on IMF Activities - 49.4 percent Say the 'IMF Is a Mouthpiece of Advanced Countries' Interests'", WIN, Seoul, December 1999, as in FBIS-EAS-98-356).

45. China's diplomatic efforts also included a framework for long-term cooperation between China and Thailand, the first time such a framework had been established with an ASEAN country. See K. Chongkittavorn, "Thai Policy Meets China Challenge", The Nation, Bangkok, 2 February 1999, as in FBIS-EAS-99-033.

46. Economic Daily, 14 May, 2000.

47. As an example of this improvement, contrast the visits of senior Chinese leaders to Japan. In December 1998 President Jiang Zemin's visit was punctuated with the Premier informing his hosts of their need to acknowledge and apologise for their wartime atrocities in China. When Chinese Premier Premier Zhu Rongji visited in October 2000, however, this long-standing thorn in the side of improving Sino-Japanese relations was apparently downplayed. In Japan, this was interpreted in the press as indicating that "China desires cooperation between the two nations in order to survive the century as a major economic power capable of challenging the U.S. The possibility of riding such a wave as a leading partner is an irresistible draw for Japan." M. Hasegawa, "Sino-Japanese Ties on the Mend", Nikkei Weekly, October 16, 2000.

48. Noland, op.cit, p.7. Article XXIV of the GATT requires that regional trade agreements cover "substantially all sectors".

49. Hughes, op. cit, pp. 235-240.

50. See MITI, The Economic Foundations of Japanese Trade Policy - Promoting a Multi-Layered Trade Policy, White Paper, Tokyo, Released August 22, 2000, Chapter 3. Available at http//:www.miti.go.jp/english/report/index.html

51. ibid.

52. ibid.

53. If this policy is successful then, as Hughes notes, "the actual outcome of the East Asian currency crisis may not be to undermine Japanese leadership and the model of the developmental state in the region, but, against all expectations, actually to consolidate them." Hughes, op. cit., p. 251.

54. MITI, White Paper on International Trade 1999, Executive Summary, Tokyo, 1999, p. 46.

55. MITI, The Economic Foundations of Japanese Trade Policy, Chapter 2, p. 9.

56. Japan-Singapore Economic Agreement for a New Age Partnership, September 29, 2000, Chapter 1, p. 2, available at http://www.miti.go.jp/english/index.html

57. ibid, Chapter 1 , p. 3.

58. ibid., Chapter 3, p. 8.

59. H. E. Rodolfo C Severinto, Secretary-General of ASEAN, "Regionalism: The Stakes for South-East Asia", Address delivered in Singapore, 24 May 1999, at ASEANWEB.

60. See Bergsten, "The New Asian Challenge", op. cit.

61. J. Price, "Economic Turmoil in Asia: A Crisis of Globalization" in S. McBride and J. Wiseman, (eds.), Globalization and Its Discontents, London: Macmillan, 2000, pp. 187-199.

62. MITI, White Paper on International Trade 1999, p. 32.

63. G. Laxer,

64. J. Petras and H. Veltmeyer, Globalisation Unmasked, London: Zed Books, 2001.

65. As Higgott, notes "the utilisation of 'impartial' multilateral agencies has long been seen as an important way to 'put at one remove' or 'depoliticise' US policy interests in the imposition of economic conditions on developing countries." (Higgott, op. cit. p. 345).

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