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Nos.13-15 ,Diplomacy  Mar 03, 2013

(NO CONFLICTS DESIRED) Toward Peace, Security, and Prosperity in East Asia

Photo : kawai Masahiro

kawai Masahiro

1. Introduction

The security situation in East Asia is becoming unstable. The People’s Republic of China (PRC), with its continuing military build-up, has increased its maritime presence and heightened tensions with neighboring countries in the East China Sea and the South China Sea. In particular, since the Japanese government nationalized the Senkaku Islands (called Diaoyu Islands in the PRC) in the East China Sea in September 2012, the PRC has frequently sent government ships to waters near the islands. In January 2013, a PRC navy warship directed fire-control radar at a Japanese Maritime Self-Defense Force destroyer in these waters, causing tensions to escalate. The PRC has also taken a hard-line stance on territorial disputes over the Spratly Islands and the Paracel Islands, both in the South China Sea, exacerbating friction and conflict with countries such as Vietnam and the Philippines.

Amid rising tensions over these territorial issues, the Democratic People’s Republic of Korea (DPRK) successfully launched a long-range ballistic missile in December 2012 and conducted a third nuclear test in February 2013 (See Note), seriously threatening peace and security not only on the Korean Peninsula but in the whole of East Asia. The DPRK’s nuclear weapons can now potentially reach the continental United States and pose direct threats to the Republic of Korea (ROK) and Japan. A localized skirmish between the DPRK and the ROK could develop into a major military conflict on the Korean Peninsula.
(Note: Earlier, the DPRK tested nuclear bombs in October 2006 and in May 2009)

East Asia’s peace, security, and prosperity would be damaged if open warfare–possibly involving a nuclear attack by the DPRK–occurs on the Korean Peninsula, or if the confrontation between Japan and the PRC over the Senkaku Islands escalates into an accidental arms clash and subsequently military warfare. It is absolutely necessary to avoid such catastrophic events if the 21st century is to be an “Asian century.”

In this paper, I argue that the PRC and Japan have no time to quarrel over the small, uninhabited islands but instead should work together to deal with the DPRK’s nuclear and missile threats for the benefit of not only their own countries but East Asia as a whole and the rest of the Asia-Pacific region. At the same time, the two countries are advised to strengthen bilateral cooperation on trade, financial, environmental, and other issues, jointly lead the East Asian regional economic cooperation and integration initiatives, and address the respective domestic challenges.

2. Will the 21st Century Be an “Asian Century” or an “Asian Catastrophe?”

In its commissioned report, Asia 2050: Realizing the Asian Century (2011), the Asian Development Bank analyzed two different scenarios for Asia up to 2050. One is optimistic, the other pessimistic. The optimistic scenario expects the 21st century to be an “Asian century,” while the pessimistic one sees the century as one of the “middle-income trap.”

Figure 1: Two Scenarios for Asia in 2050
1A: Asian Century 1B: Middle-Income Trap

Note: These data are projections based on market exchange rates. The pie for 1A is larger than that for 1B, reflecting the larger size of GDP.
Source: Centennial Group International (2011).

Under the Asian century scenario, Asian countries would continue to experience dynamic economic growth, boosting many middle-income countries, including the PRC, to high-income country status by 2050. According to the report, Asia’s gross domestic product (GDP) would become as large as 174 trillion dollars in 2050 (based on market exchange rates), its share of the global economy would reach 52 percent (Figure 1), and Asia’s per capita GDP would grow to 40,800 dollars (based on purchasing power parity). This scenario is one of the best for Asia as it would become a rich region equal to North America and Europe today. Some 3 billion people would join the wealthy class by 2050 and their standard of living would dramatically improve.

In contrast, under the middle-income trap scenario, the region’s economic growth would slow down significantly in the next five to 10 years in major countries, including the PRC, which have so far achieved dynamic growth. Asia’s GDP would be small at 65 trillion dollars, its global share would stay low at 31 percent, and Asia’s per capita GDP would remain low at 20,800 dollars. Under this scenario, the Asian economies would not show much improvement, despite their high potential, and would not be able to emerge from the middle-income economy status.

To escape from the middle-income trap and rise to high-income country status, today’s middle-income countries, such as the PRC, will have to address several important challenges. Most importantly, they need to: (i) adopt “inclusive growth” economic policies to reduce income disparities and assure equal opportunities for everyone; (ii) realize an efficient use of natural resources and energy and improve the quality of the environment; (iii) strengthen governance to enhance public service delivery and curb corruption among government officials; and (iv) build institutional and policy frameworks to promote economic, financial and fiscal stability.

However, the present geopolitical risks in East Asia suggest that a scenario much worse than the middle-income trap scenario is a distinct possibility. If a serious military conflict in East Asia–on the Korean Peninsula or in the Senkaku Islands’ waters–breaks out, Asia’s economic growth would be seriously damaged, possibly resulting in an “Asian catastrophe.” It is difficult to estimate the economic consequences of such a disastrous scenario quantitatively, but all Asian countries would be adversely affected and must therefore do whatever possible to avoid such a scenario. The PRC and Japan in particular need to restrain themselves over the islands, set aside their disputes, and focus on the mounting risks emanating from the DPRK’s unpredictable regime. They should cooperate with all other members of the Six-Party Talks to avert a calamity on the Korean Peninsula and support a peaceful reunification of the two Koreas (See Note). Through these efforts, the two countries arguably have the main responsibility for maintaining peace and security and nurturing the golden egg of the Asian century for the region’s enduring prosperity.
(Note: The Six-Party Talks aim to find a peaceful resolution to the security concerns resulting from the DPRK’s nuclear weapons program. The six members are the PRC, Japan, the DPRK, the ROK, the Russian Federation, and the United States.)

3. Building a Cooperative System in East Asia

There is no question that the PRC’s rapid economic growth and its rise as a major economic power have benefited, and will continue to benefit, most economies in Asia and around the world. But at the same time these developments have raised concerns over the political and geopolitical consequences in East Asia and North America and Europe. The impact of the PRC’s economic rise on the bilateral economic and political relationship with Japan has been no exception. The PRC is now Japan’s largest trading partner, and its trade and investment ties with Japan remain important for the PRC. On the other hand, rapid growth may have driven the PRC to be more assertive on sovereignty claims over the Senkaku Islands in relation to Japan and over the Spratly islands and Paracel Islands in relation to Vietnam and the Philippines.

Europe and North America, while gaining from the PRC’s growth, might also face other types of severe confrontation with the PRC in the future. Underlying this is the fact that the size of the PRC economy is quickly overtaking those of the United States and the European Union (Figure 2) and will eventually exceed them by a wide margin. They might wonder whether the PRC, backed by such economic power, is trying to build a hegemonic international order–where a hegemonic power subjugates neighboring countries through sticks (by applying pressure or threat) and carrots (by providing benefits)–rather than an international order based on the rule of law.

Figure 2: GDP for the PRC, Japan, the US and the EU
($ trillion at nominal PPP)

EU = European Union; PRC = Peoples’ Republic of China; US = United States
Source: IMF, World Economic Outlook (2013) database.

From this perspective, it is desirable not to attempt to besiege or contain the PRC, but to encourage it to be a responsible, cooperative member of the international community. Building a regional cooperative system in East Asia, where the PRC would play a responsible leadership role, would be the first step in this direction. Notably, East Asia’s two major economic powers, the PRC and Japan, could build a common framework for regional cooperation. For example, the following objectives could be pursued:

–Promotion of cooperation on resources, energy, and food security;

–Formation of the PRC-Japan-Republic of Korea Economic Partnership Agreement (CJK EPA), creation of the Regional Cooperative Economic Partnership (RCEP) among 16 countries in East Asia, and support for the PRC’s eventual participation in the Trans-Pacific Partnership;
–Enhancement of regional financial cooperation, such as the Chiang Mai Initiative, Asian bond market development, and exchange rate policy dialogue;

–Sharing of knowledge on managing urbanization, the environment, and population aging, on reducing economic disparities, and on improving institutional and policy capacity; and
–Helping the DPRK to denuclearize, reform its economy, and open up to the outside world.

Through such regional cooperative mechanisms, the PRC and Japan can work with each other and with other East Asian economies on issues common to the region’s collective interests. This cooperative framework may also facilitate the PRC’s efforts to deal with various domestic issues, such as worsening environmental damage, widening income gaps, and mounting corruption among public servants. Successful tackling of these issues could result in a large and stable middle class and a more mature, open society that provides ordinary people with a greater voice and respects the rule of law. Then, the PRC may be able to dispel the widely held view that the country’s political leaders attempt to deflect popular dissatisfaction and criticisms over domestic issues toward foreign countries (such as Japan) in a narrow-minded nationalistic manner. All this could strengthen the realization in the PRC that it cannot rise peacefully or harmoniously as a major global power without international cooperation and respect for international rules. Regional cooperation is an important step in this direction.

4. What Should Japan Do?

The most urgent task for Japan is to revive sustainable economic growth and strengthen the economic fundamentals of the country, and then to adopt a multifaceted strategy to mend political ties with the PRC (and the ROK). The launch of so-called Abenomics is the key to restoring Japanese economic health (See Note). I argue that Japan should pursue the following three approaches towards the PRC (and the ROK):
(Note: Abenomics consists of three pillars: aggressive monetary policy easing to lift Japan out of deflation; flexible fiscal policy stimulus to support aggregate demand; and growth-oriented policies to raise Japan’s long-term labor productivity and competitiveness.)

The first approach is to reduce the relative weight of tensions over the Senkaku Islands by boosting common benefits with the PRC through the promotion of various types of cooperation. Fortunately, the PRC has not closed the windows for talks on the CJK EPA or on bilateral financial cooperation including the mutual holdings of government bonds as foreign exchange reserves. The CJK EPA will be a significant agreement that could lead to the RCEP. On environmental issues, the worsening air pollution in the PRC–such as the spread of particulate matter 2.5 thousandths of a millimeter or smaller in diameter (PM2.5), which frequently reaches Japan–provides Japan with an opportunity to work with the PRC through the transfer of environmental technologies and exchange of knowledge accumulated from its own experience of pollution management. Concerning disparities in income distribution, Japan can share lessons with the PRC as the income gap during Japan’s high economic growth period did not worsen due to the efficient management of urbanization, the growth of small and medium-sized enterprises, and the introduction of universal health insurance and pension schemes.

The second approach is to take history issues seriously and build forward-looking ties with the PRC (and the ROK). There are differences over interpretations of history issues between Japan and the PRC (and the ROK) that lie behind the strains over the Senkaku Islands (and Takeshima or Dokdo Island in the Sea of Japan). Japan needs to make efforts to narrow these differences by making it clear that it will: (i) follow the 1995 statement issued by Prime Minister Tomiichi Murayama; (ii) avoid visits by the prime minister and cabinet ministers to Yasukuni Shrine; (iii) avert reversals of the 1993 statement by Chief Cabinet Secretary Yohei Kono; and (iv) prevent dispatches of government officials to the Senkaku Islands. In 2005, Prime Minister Junichiro Koizumi vowed to honor Murayama’s statement, and this should be maintained (See Note 1). Likewise, Japan should not deny Kono’s 1993 statement on the “comfort women” issue, which is one of the last and biggest history recognition issues (See Note 2). These are the only way for Japan to be able to re-establish forward-looking relationships with the PRC (and the ROK).
(Note 1: In his 1995 statement, Murayama expressed remorse and apologized for Japan’s colonial rule and aggression.)
(Note 2: In his 1993 statement, Kono acknowledged the involvement of Japan’s military in establishing and managing wartime brothels and in sending women to them. Kono also expressed remorse and apologies over the matter. It is noted that Japan established a private fund for Korean victims.)

The third approach is to establish a well-balanced security system in response to the DPRK’s nuclear and ballistic missile programs and the PRC’s escalating maritime activities (in the East China Sea and the South China Sea). A realistic approach for Japan would be to balance three practical points: strengthening its alliance with the United States, furthering mutually beneficial relations with the PRC and tightening coordination with other Asian countries. One of the key contentious issues in strengthening the Japan-US alliance is whether to allow Japan to exercise its right to collective defense. Japan should find a way to strengthen its alliance with the United States in accordance with the country’s pacifist Constitution. While coordinating with the United States in the political and security fields, Japan needs to deepen mutually beneficial ties with the PRC in the economic field. The reason is that most East Asian economies–the ROK and members of the Association of Southeast Asian Nations (ASEAN)–would not support the idea of Japan “besieging” or “containing” the PRC. By deepening ties with other Asian countries such as the members of ASEAN, India, and Australia, Japan would more easily be able to build constructive and mutually beneficial relations with the PRC.

5. Conclusion

Strains between the PRC and Japan are rising due to the worsening Senkaku Islands situation, and could possibly result in accidental arms clashes and escalate further. The Senkaku episode may reflect a global structural change, such as the PRC’s rapid and persistent rise and Japan’s relative decline in the global economy, and suggests the risk of the PRC and the United States clashing over other issues in Asia in the future. Whatever the reason, it is desirable that the PRC and Japan manage the situation and reduce the tensions.

As the DPRK’s nuclear and ballistic missile programs threaten the security of East Asia, the PRC and Japan should not waste any time quarreling over the small islands. It is in the best interest of the two countries to work together and with other stakeholder nations–the rest of the Six-Party Talks members–to maintain stability in East Asia. They should share a firm belief that realizing an Asian century–rather than risking an Asian catastrophe–would bring ultimate benefits to all countries concerned.

For East Asia’s peace, security, and prosperity, political leaders in the region, notably those in the PRC and Japan, need to work out strategies based on a long-term perspective rather than pursuing short-term and narrow-minded national interests. Moreover, it is desirable for the two countries to promote regional cooperation in various fields–such as trade, finance, the environment, and energy–and maintain the region’s dynamic growth by creating tangible benefits as part of efforts to nurture mutual trust. By achieving these targets, they would be able to reduce the relative weight of tensions over the Senkaku Islands. It would also be useful to discuss how to bring the DPRK into the realm of East Asian economic growth.

In the meantime, Japan must face history issues squarely and responsibly and not retreat from the Murayama and Kono statements. The PRC must tackle a variety of domestic issues–such as widespread corruption among government officials, environmental degradation, and the widening income gap–so that a stable society and an open political structure, rooted in a large middle class, can be created. While supporting such reforms, it is vital for Japan and the international community to encourage the PRC to rise to be a responsible major nation that firmly abides by international rules.


Translation of a contribution to Discuss Japan-Japan Foreign Policy Forum (March 2013).

NOTE: The views expressed in this paper are the views of the author and do not necessarily reflect the views or policies of ADBI, the ADB, its Board of Directors, or the governments they represent.

Masahiro Kawai graduated from the University of Tokyo’s Faculty of Economics in 1971, and received his PhD in economics at Stanford University in 1978. After serving as a research fellow at the Brookings Institution, he taught economics as associate professor at the Johns Hopkins University’s Department of Political Economy (1978-1986) and as professor at the University of Tokyo’s Institute of Social Science (1986-2008). He also served as chief economist for the World Bank’s East Asia and Pacific Region (1998-2001), and as Japan’s deputy vice minister of finance for international affairs and president of the Finance Ministry’s Policy Research Institute (2001-2003). He became a special adviser to the president of the Asian Development Bank in 2005. He has been dean of the Asian Development Bank Institute since 2007.