China’s Contribution to Recent Convergence and Integration among the Asian Economies

Abstract

I. IntroductionTwo relevant and interrelated economic realities are as follows: First, the People's Republic of China (hereinafter China) in 2013 is a large economy in both absolute and relative terms. Over the three decades of macroeconomic reforms and the resulting dynamism turned it into the largest regional economy in mid-2010. Second, the recent economic transformations in China and the surrounding dynamic Asian economies have been nothing short of thoroughgoing. This group of Asian economies has turned into the most rapidly growing in the global economy. During and after the global financial crisis (2008-09), Asian economy proved to be a compelling and credible force in the global economy. It not only led the global economic recovery from what is being termed the Great Recession but also contributed to it (Das, 2011a). According to Shinohara (2010) it provided a pull force to the global recovery. Asia emerged from the global financial crisis as a growth driver and an anchor of stability of the global economy.Over the preceding three decades, the mutual relationship of China and surrounding Asian countries has evolved in a pragmatic and synergetic manner. This article delves into their process of progressive economic interaction. The objective of this article is to examine how China is influencing its neighboring Asian economies and to see how their economic relationship is developing into a market-led, private sector driven symbiosis. The principal issue that is being addressed in this article is how private business firms and multinational enterprises (MNEs) in the region, driven basically by profit maximizing motives, are interacting with each other and in the process bringing the economies close together and integrating Asia. Trade, foreign direct investment (FDI) and regional and global production networks has been operating as the principal channels of market-driven or de facto regional integration among the Asian and Chinese economies. In this kind of regional integration business firms reach across national boundaries, expand and coordinate trade and investment, creating larger and integrated markets. No formal or officious agreements are required for de facto regional integration.II. Asian Crisis Causing China's Strategic Policy ShiftThe Asian crisis that started in July 1997 was a watershed point in China's relationship with its Asian neighbors. This was a learning-by-doing phase for the apex Chinese hierarchy, and they treated economic growth and security related issues separately. The Asian crisis was a revelation to the Chinese policy makers revealing that economic wellbeing of China and domestic economic stability were intertwined with what would happen to the surrounding Asian economies (Zhengyi, 2004). This revelation turned policy makers' attention towards its dynamic Asian neighbors and strengthened the national and regional link. Their understanding regarding the significance of engagement with the regional economies grew.In general, this was a period when a sense of regional identity and seeking efforts for regional resolutions to regional problems became strong among the Asian economies. A clear evidence of this fact was the informal Kuala Lumpur meeting of the ASEAN leaders with the top political leaders of China, Japan and Korea in December 1997. This was the genesis of the concept of the ASEAN-Plus-Three (APT). This was the newest idea in the regional economic governance.The APT concept progressed further, and in May 2000 during the Finance Ministers' meeting of the APT countries held in Chiang Mai, Thailand, the Chiang Mai Initiative (CMI) was put together. This was an innovative initiative of a network of bilateral swaps intended for mutual assistance at the time of any future crises. The APT countries agreed to draw on each other's reserves to cover sudden outflows of foreign currency. The regional economies concurred to help and support each other through a network of currency swaps. …