27 June 2018

The Economic Balance of Power in Asia

As Asia becomes the center of the world economy, the balance of economic power within Asia will be one of the most important factors in determining the direction of the global economy in the coming years and decades.  Until the Industrial Revolution, there was little or no balance of economic power in Asia, as China dominated the region’s economy, in one form or another, for the better part of 2,000 years.  For the century lasting from the late 1800s until the late 1900s, Japan assumed the mantle of economic leadership in Asia thanks to its ability to become the first Asian state to develop a modern industrial economy after the Meiji Restoration.  Following Japan’s lead, a number of economies along Asia’s Pacific Coast, including South Korea, Taiwan and Singapore, also made giant strides in terms of economic development, and, for a few decades, it was a combination of Japan and these Asian “tigers” that dominated the region economically. 

Now, four decades of remarkable economic growth and development have returned China to its top spot among Asian economies.  Due to its size and its rapid growth, China is now the dominant economic power in Asia, and this is once again raising concerns about the balance of economic power in the region.  How this situation develops will play a major role in how the global economy performs in the coming decades, and whether or not stability will remain in this most important of regions. 

China was the dominant economy in Asia, and the largest economy in the world, by a wide margin until the Industrial Revolution.  In fact, for much of the past 2,000 years, a large number of Asia’s other states were merely economic satellites of China.  However, while Japan and other Asian states unified and modernized their economies in the period after the Industrial Revolution, China found itself with a deeply divided state and a backwards economy, leaving it almost powerless to stop foreign intervention in its affairs, and foreign domination of its economy. 

However, since the massive economic reforms undertaken by Deng Xiaoping, China has enjoyed nearly four decades of unprecedented growth, with China’s economy expanding by nearly 10% per year since 1980.  As a result, China’s economy today is 40 times larger than it was four decades ago, transforming the country from an economic backwater to the second-largest economy in the world.  As late as 1990, Japan’s economy was nearly eight times larger than China’s, but today, China’s economy is nearly 2.5 times larger than that of Japan, one of the most dramatic shifts in the economic balance of power in history.  In fact, China’s total economic output is now nearly as large as that of the rest of East and South Asia combined.  As a result, Chinese economic influence is felt across the region, whether it is in terms of the quest to secure natural resources or access to export markets, or whether it is the growing importance of China as an export market for the rest of Asia.

Of course, China’s economic transformation has been remarkable, but this has overshadowed the fact that Asia is home to a number of other formidable economies.  First and foremost, despite its struggles over the past 25 years, Japan remains the world’s third-largest economy, as well as a major force in Asia’s economy.  Likewise, other developed economies in the region such as South Korea and Taiwan have also become some of the region’s more powerful economies, with an export footprint that stretches around the global. 

As a whole, the ten Southeast Asian countries that comprise ASEAN have a total population of nearly 660 million and a total economic output of $2.8 trillion (larger than all but four countries in the world).  Meanwhile, India is the only country that can match China in terms of demographic power, and, while India remains much poorer than China, its economy is forecast to grow at nearly 8% per year for the foreseeable future, something that will allow India to become the third-largest economy in the world towards the middle of this century.  Altogether, while China is clearly the region’s economic giant, the countries that surround it have a great deal of economic power of their own.

As long as the countries of Asia remain divided politically and economically, China will be able to dominate the region as there is no individual country in the region with the size and influence of China.  However, if Asia’s other large economies can move to integrate their economies and establish closer political ties, they will have a chance to avoid falling completely into China’s economic orbit.  In terms of population, economic output and per capita GDP, a combined Asia could compete with China on more or less equal terms, thanks in large part to the wealth of Japan and some East Asian countries, and the vast populations of India, Indonesia and other large countries in the region. 

Of course, it is hard to imagine the vast array of Asian countries unifying to a significant degree over the near-term, given the vast disparities in the region in terms of economic development, political outlook and a host of other issues that have kept the region largely divided.  Moreover, whereas continental Europe shared the collective experience of losing the Second World War in one form or another, leading to the creation of today’s European Union, there is no such shared experience among Asia’s leading powers.  Nevertheless, it might be the rising power of China that proves to be the region’s shared experience, one that eventually leads to a greater level of integration among the countries of the region.

China’s rise from the ashes has dramatically altered the economic balance of power in Asia.  As China’s economy grows larger, wealthier and more technologically-advanced, it threatens to pull many other Asian economies into its orbit, either as markets for Chinese exports, sources for needed natural resources, or as exporters that are increasingly dependent upon the Chinese market for their growth.  This, in turn, would reduce the strategic independence of many countries in the region, leaving them economically, politically and militarily reliant upon China. 

In order to avoid such a turn of events, the remaining countries of Asia will have to work much closer together to offset the threat of Chinese domination of the region.  There have been some moves in this direction already, whether it be in the form of regional organizations such as ASEAN, increasing defense ties, or regional trade agreements.  Of course, there have been setbacks too, none greater than the United States’ withdrawal from the Trans-Pacific Partnership (TPP), a trade deal that was designed to offset China’ rising economic power and influence in Asia and the Pacific. 

Still, much more must be done in order to preserve the strategic and economic independence of much of the region, and it will take all of the region’s larger economic powers to prevent China from dominating Asia in the future.  How this situation develops will go a long way towards shaping Asia’s future and will play a major role in determining the shape of the global economy in the 21st century.