Economic interdependence and challenges to the nation-state: the emergence of natural economic territories in the Asia-Pacific.

Author:Jordan, Amos A.
Position:Transcending National Boundaries

The political economy of the Asia-Pacific region is undergoing momentous changes, including the advent of natural economic territories (NETS) that are springing to life throughout the region. Variously called "growth circles," "growth triangles" or "sub-regional economic zones," the phenomenon is marked by intensified trade, investment and technology flows among contiguous localities or territories of three or more countries. While trade among neighbors is certainly not new, the emerging breadth and depth of the economic interaction among these various sub-regions has led some to argue that trade boundaries are superseding political boundaries. Indeed, in some cases, sub-regions of nation-states are developing economic links with neighbors that may be more vital than links with the political centers of power that govern them. This has raised the question of whether there is an emerging disjuncture between economic relations generated "from below" and political authority administered "from above."

It is important to pause here to define "natural" since this terminology has caused debate and some confusion among scholars. The term NETs, as coined by Robert A. Scalapino, applies to natural economic complementarities that cross political boundaries; "natural" does not imply lack of government involvement but can include government action that removes barriers to realize pre-existing complementarities.(2) In each case, however, the private sector plays the major role. The corollary of this thesis is that government action or political will alone cannot create or halt border-area interactions; it can only enhance market conditions that are rooted in natural complementarities.(3)

A recent confluence of domestic, regional and international factors have made NETS a viable mechanism for economic growth and integration. The economic maturation of a number of Asia-Pacific economies in the 1980s meant, for the first time, that there were increased complementarities among them to exploit.' The failure of command economies, worldwide and regionally, led to market liberalization policies that created more opportunities at the local level, in contrast to policies that were previously highly regulatory and state-centric. The reduction in political tensions in the post-Cold War era has also altered the foreign policy calculus in the region, resolving border conflicts and easing apprehension from cross-border trade and investment. Domestic trends toward democratization and/or political decentralization have also helped to create a favorable trade environment.

These factors, combined, have led to the development of some nine de facto or nascent NETS in the region, at various stages of development and with differing degrees of public- and private-sector involvement; yet all are generating innovative means of economic interaction that have limited consonance with traditional economic controls and political arrangements. It is a phenomenon particularly suited to the Asian context, where there is a strong predilection for informal agreements rather than legalistic and binding treaties, and for incremental rather than bold systemic change. NETS are emerging in Asia because they allow states to experiment with economic reform policies and to gradually expand them if successful. NETS also allow states to experiment with cooperating with each other, which they approach cautiously given the region's varying levels of economic development, its different socio-political systems and its complex security and political relationships. As a result, Asian states may find NET cooperation particularly attractive at a time when official mechanisms for economic cooperation - such as the Asia-Pacific Economic Cooperation (APEC), the East Asia Economic Caucus (EAEC) and the World Trade Organization (WTO) - are proving slow to achieve consensus on a regional (or global) economic framework for trade and investment.(5) Thus, the use of NETs allows states to proceed along their own paths of economic growth and development without the need to agree on overarching regional goals.

It is important to emphasize, however, that NETs are only one factor among many which are affecting the evolution of economic development and the nation-state. The globalization of national economies, the decline of ideology and traditional value systems to provide social cohesion and an increase in ethnic conflict are occurring in areas totally unaffected by NETs. The emergence of NETs should be viewed as one mechanism through which these dynamics may be occurring, but often not the principal one.(6)

While current research on NETS has contributed to an understanding of the motivations and patterns of trade and investment flows that create NETs, research has only tangentially addressed the political and security questions that arise from these economic relations. Are there significant internal tensions, such as strains between a NET province and the "center" or among provinces, particularly as a "netting" province increases its economic ties with an external actor? What leverage do governments have to address these strains, as well as social problems such as unequal distribution of gains, new labor mobility and imported versus traditional values? Do governments possess adequate tools to channel, speed or slow the pace of sub-regional economic interaction if they so choose? Of equal or greater importance, how do NETs affect relations among NET states? Does intensified economic interdependence reduce political conflict or create new sources of conflict?

In the sections that follow, a number of these questions will be addressed in a regional framework: first, by examining the Southern China NET (the most mature and distinct of the NET cases); second, by analyzing NETS in Northeast Asia; and third, by evaluating NETS in Southeast Asia. Given the relatively abundant literature on the economic aspects of these NETs, the focus here will be on their political and security implications, incorporating economic analysis where appropriate. Finally, we will posit some conclusions about the impact of NETs on the viability of the nation-state and on the economic, political and security life of the region.


The impressive economic growth along China's southeastern coast has received widespread attention since Special Economic Zones (SEZs) first started to fuel growth in this area in the early 1980s. As the decade ended, capital and other inputs from Taiwan and Hong Kong (as well as from other overseas Chinese communities) had created an economic boom that thoroughly swept across political borders. As one observer has noted, it is striking that a market of such huge proportions has developed without a single meeting, discussion or negotiation about its growth among officials of these areas.(7)

Yet the absence of a coordinated policy framework among the governments of this NET reflects the underlying political and security agendas of each entity in pursuing the NET: for China, reunification with Taiwan and the assertion of its interests in Hong Kong leading up to 1997; for Taiwan, de facto independence from China and a legitimate and autonomous international role; and for Hong Kong, maximization of its importance to the Chinese economy in order to deter political or economic retrenchment by Beijing, post-1997. This NET has thus progressed through a series of unilateral economic policies that seek to advance and protect the individual political and security agendas of each of the three entities.

Clearly, increased economic interdependence has helped to modernize each of these economies, thereby enhancing state power. Yet ultimately this interdependence may have exacerbated rather than lessened security concerns: the governments of the People's Republic of China (PRC) and Taiwan are each particularly wary of its economy becoming "hostage" to the other's political goals. In part, this wariness is because economic ties have resulted in an unanticipated compromise of central policy control over increasing segments of their respective economies. This trend is less of a concern in Hong Kong than in China and Taiwan.

Internal tensions on the Mainland over the development of the Greater China NET are illustrated by the ongoing struggle between Beijing and Guangdong Province over autonomy and control issues, by provincial demands for favorable economic privileges and benefits and by Beijing's concern over growing linkages between Guangdong and Hong Kong, and Fujian and Taiwan. This interplay of center-province, intra-province and provincial relations with external actors has become increasingly complex in the evolution of the PRC's 15-year experiment with economic reform.

The 1979 devolution of many economic powers from the PRC central government to Guangdong Province saw a renewal of Guangdong's historical role as a gateway to the south, which had long inspired a local spirit and identity that Beijing had sought to subjugate. This reform marked a departure from decades of tight political control, invested in trusted officials appointed from the center. It also represented a central government policy of allocating little investment to the province as a result of its security-driven shift of industrial production from the coastal areas to the interior following the Korean War. Thus it was Guangdong's minor importance to the national economy, as well as its historical gateway role, that made it an attractive arena in which to experiment with risky economic reforms, where damage could be limited if reform failed.(8)

Thus, Deng Xiao-ping chose Guangdong as the initial focus of his 1979 economic reforms and his plans to develop economic ties with Hong Kong and Taiwan - with the tacit goal of preparing them for reunification. Guangdong's three-decade subjugation to national priorities had generated a pent-up demand for economic betterment, reflected in the statement of one...

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