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The Power Struggle of Japan and China:
The Case Study of Chiang Mai Initiative
Dyah Ayunico Ramadhani (0706291230)
Erika (0706291243)
Muti Dewitari (0706165570)
Rindo Sai’o (0706165584)
Tri Andriyanto (070629
DEPARTMENT OF INTERNATIONAL RELATIONS STUDIES
FACULTY OF SOCIAL AND POLITICAL SCIENCE
UNIVERSITY OF INDONESIA
2009
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CHAPTER 1
INTRODUCTION
1.1. Background of the Issue
The Northeast region is indeed a complex region. The historical background among
the four countries—namely China, Japan, South Korea, and North Korea—has never been in
a pleasant situation. Japan used to be a great power in the world, before it was defeated by the
United States and its allies on World War II. Japan colonized nearly all the countries in East
Asia, including China. The relationship between the two has never been in good terms ever
since, considering the cruelty and immoral acts Japan did to Chinese people and towards the
rest of the region itself at that time. Historical perspective has in fact enormously been a
significant aspect in dominating the relationship pattern within the region. Furthermore, since
China and Japan are in fact imminent powers among the region, the relationship between
them determine the situation in Northeast Asia region.
The tense situation between China and Japan remain exist until the Asian Crisis
1997-1998. After that period, the relationship is getting better which is proved by the
increasing agreements between them, mostly on economy agreement. Currency and financial
crisis that happened on 1997 changed the whole situation in East Asia region dramatically.
During and after this crises, East Asians could not but identified themselves as those in a
same boat1. The Asian financial crisis drove East Asian economic growth to negative or very
low in 19982. The currency crisis in East Asia prompted foreign banks to call in short-term
loans and foreign investors to pull their money out of the region3. East Asian countries were
all forced to turn to the IMF for financial support and in an effort to restore investors‘
1 Accessed from http://homepage3.nifty.com/tkinoshita/research/pdf/2004/cei0624transcript.pdf , on October 1,
2009, 11.19 PM. 2 Ibid.
3 Shaun Narine, The Idea of ―Asian Monetary Fund‖: The Problems of Financial Institutionalism in
Asia-Pacific, accessed from http://www.asianperspective.org/articles/v27n2-c.pdf, on October 1, 2009, 11.12
PM.
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confidence in their respective economies4.
At that time, IMF was the only possible solution to solve the problem, yet IMF
remains unable to fix the after crisis condition of East Asian countries. The failure of IMF
then created a greater awareness of the region‘s shared interests and vulnerabilities. In
particular, it created a greater need for financial cooperation—prompting the establishment of
the ASEAN+3 Finance Ministers‘ Process and several related structures such as the Chiang
Mai Initiative and the Asian Bond Markets Initiative—at an earlier stage of integration than
in Europe5.
1.2. Research Question
This paper will try to answer this specific question: How does the power struggle
between China and Japan happen in the case of Chiang Mai Initiative?
1.3. Theoretical Framework
Great Powers Struggle in International System: Gilpin Model
To speak of the international system is to speak of transitions of great powers in it.
The form of relationship between those great powers clearly reflects their basic
characteristics as international actors. This assumption could be explicated by how the
anarchical system of international relations generates states who seek security and wealth
through means available. In Waltz‘s eye these logic of anarchy will always subsist and remain
unaltered due to the absence of a higher authority that can guarantee the security problem
which then forced the states to continuously follow adaptive `self-help'. These suggest that
two out of the three elements of political structures which are an ordering principle (anarchic
or hierarchical) and the character of the units (functionally alike or differentiated) are
constant. Hence, the distribution of capabilities as the third element is the only structural
variable in determining the political structure.6
4 Hal Hill, ―An Overview of the Issues‖, in. H.W. Arndt and Hal Hill, eds., Southeast Asia‘s Economic Crisis:
Origins, Lessons, and the Way Forward, (Singapore: Institute of Southeast Asian Studies), pg. 1-15. 5
Giovanni Capannelli, Asian Regionalism: How Does It Compare to Europe‘s, accessed from
http://www.eastasiaforum.org/2009/04/21/asian-regionalism-how-does-it-compare-to-europes/, on October 1,
2009, 05.18 AM. 6 Read Colin Elman, ―Realism‖, Marthin Griffiths (ed), International Theory for the Twenty-First Century,
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In line with Waltz‘s view, Gilpin considers states can still be understood as
self-regarding entities within an anarchic international realm. Robert Gilpin, as an important
exponent of the idea that international systems tend to be dominated by a materially
hegemonic Great Power, the rise and fall of which drives systemic evolution, believed the
international relations continue to be a recurring struggle for wealth and power among
independent actors in a state of anarchy.7 When linked to the notion of how domestic and
international developments lead to states growing at different rates, these assumptions
contributes to relative rise and fall of state to one another which furthermore cause conflict
ensues. States choose to engage in conflict because they calculate that the benefits of doing so
exceed its costs. In particular, because the international system is created by and for the
leading power in the system, changes in power lead to conflict over system leadership.8
Furthermore, Gilpin's idea of change is precisely equivalent to Waltz's. For both
theorists, change refers to surface changes within the system—changes in the distribution of
power or changes of the units—rather than to changes of the deep structure of the system
(transition from anarchy to hierarchy). They both disregarded the possibility of a fundamental
change in the system's ordering principle. In referring to the domestic agential state power,
Gilpin modified Waltz‘s approach by adding two hindering factors which are varying
domestic agential state power and socio-economic fetters. It denies the absolute domestic
agential power to the state and embraces varying or potential autonomy of state by adapting
to the international political structure. Assuming both structure domestic interest groups and
domestic state weakness can only constrain the ability of the state to conform to anarchy;
they cannot fundamentally affect the structure of the international system and the logic of
anarchy, nor change the rules of state behavior under anarchy namely following self-help
policies of adaptation.
(New York: Routledge, 2007), pg.19 7 Alexander Wendt, Social Theory of International Politics, (Cambridge: Cambridge University Press, 2003),
pg.97 8 Colin Elman, op.cit., pg. 15
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Scheme of Gilpin’s Systemic `Cyclical' Theory 9
How a certain country develop its power is then depend rely upon the conditions of
domestic agency and the existence of the socio-economic fetters. If the domestic agential
power were low, then state will not be able to prevail over these non-political fetters and
furthermore undermine the state's position in the system; while under conditions of high
domestic agency such restraints can be overcome, enabling the state to expand its power base.
These fetters comprise technological diffusion, internal social fetters and high international
military costs10
:
1. Technological diffusion which refers also to changes in the distribution of
economic power is based on the logic: when a society harnesses a high rate of technological
and productive innovation it expands. However with the rate of technological innovation
slowing down and the locus of innovation shifts to more adaptive rival states, eventually the
economy inevitably goes into decline. Therefore the more adaptive states who are awarded
with relatively high levels of domestic agential power are, most likely, capable to triumph
9 Based on John M. Hobson, The State and International Relations, (Cambridge : CAMBRIDGE
UNIVERSITY PRESS, 2003), pg. 35 10
Taken from John M. Hobson, The State and International Relations, (Cambridge : CAMBRIDGE
UNIVERSITY PRESS, 2003), pg. 35, pg.33
Resolution of
Systemic crisis
through
‘Hegemonic war’
Redistribution of Power
Capabilities
(Phase of Disequilibrium)
Socio-Economic Fetter :
Distribution of Economic
Power
Technological Diffusion
Social Fetters
High Military Costs
Adaptive Rival
States(High Domestic
Agential power)
Variations in Domestic
Agential State Power
(High/Low)
International Political
Structure:
1st Tier: Logic of Anarchy +
3rd Tier: Power Differentiation
(States have NO agency to
shape the IPS nor resists or
Buck its constraining logic)
Maladaptive
System’s Leader
(Low Domestic Agential
power)
Emergence of New
Leading Power or
Powers
(Equilibrium Phase)
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over fetters or obstacles; in this manner they will successfully imitate and improve upon the
leading technologies of the innovating states, enabling them to catch up and take the lead.
2. Internal social fetters as countervailing forces: This factor is referring to
conditions where internal environment actually hampers the process of gaining more power.
There are often moments where domestic social arrangements thwart the introduction of
new forms of technology or where social forces successfully push for higher taxation for
public welfare consumption that in effect reduce investment; thereby undermining national
economic growth. In the end, low domestic agential power of the state will hinder it from
overcoming these obstacles to economic expansion.
3. High international military costs ± foreign policy costs exceed domestic
revenues: This specifically addressed the conditions for great powers or `hegemons' that
spill out high defense expenditures such as welfare spending or `crowd out' investment and
thereby leading to economic slowdown and in turn undermine the state's military base.
Gilpin argues that a great power can maintain its power only by keeping its resources in
balance with its military commitments. Whereas rival states can `free-ride' on the
international public goods which the leading state exclusively provides and in turn promote
their own growth at the hegemon's expense.
Adaptive and successful states with high domestic agential power will be gain
noteworthy place in the international system and vice versa. The critical point brought by
Gilpin is the ability of a state -through high domestic agential power- to control through
superior adaptation in terms of economic, fiscal, social and military means which enable it to
move towards the top of the structure or keep it there. Thus it is also the adaptability of rival
states and maladaptability of the leading state that accounts for international change or at
least shifts in the international distribution of power. Through the scheme above Gilpin has
shown the dynamics that lead to the rise and decline of great powers.
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CHAPTER 2
2.1 Chiang Mai Initiatives (CMI) Description
The Asian Crisis in 1997-1998 convinced East Asian countries that countries within a
region had been dependence and vulnerable to one another. On September 1997, as the
response of the Asian Crisis occurred in the same year, The Japanese Ministry of Finance was
proposing the emergence of Asian Monetary Fund, which the reaction came from the idea
that individual countries must self-insured with large holdings of foreign exchange reserves.11
Therefore the idea of Asian Monetary Fund was rejected by the International Monetary Fund
(IMF), the United States and the rest of The Group of Seven (G-7). In period 1997-2000, in
each year there were three meetings that were attended by the ASEAN+3 countries. On the
second meeting held in Hanoi, China proposed that deputies from finance ministries and
central banks should meet on a regular basis to explore possibilities for cooperation.12
On
May 2000, the fourth meeting held in Chiang Mai, under the ASEAN+3 meeting determined
to stipulate cooperation in 4 aspects, monitoring capital flows, regional surveillance, swap
networks and training personnel13
. The result of fourth ASEAN+3 meeting after the crisis was
known as the Chiang Mai Initiative.
2.1.1 Bilateral Swap Agreements
Bilateral Swap Agreements (BSAs) have been the most successful and significance
aspect of the CMI that has been achieved by member countries, particularly in relationship
between Japan and China. Bilateral currency swap agreement is an agreement to exchange
one currency for another to reverse the transaction at a date in the future14
, which is regularly
signed among private sectors and central banks, in particular cases. This is unable to be
categorized as loans since it refers to exchange assets which are recorded as foreign exchange
reserves. The specific agreements between countries are going to be negotiated bilaterally in
11
C. Randall Henning, ―The Future of Chiang Mai Initiative: An Asian Monetary Fund?‖, accessed from
http://www.petersoninstitute.org/publications/pb/pb09-5.pdf, on October 1st, at 04.52 AM
12 ―Chapter 3: Chiang Mai Initiative‖ accessed from
http://www.iie.com/publications/chapters_preview/345/3iie3381.pdf, on October 1st 2009, at 04.51 AM.
13 Ibid.
14 Ibid.
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the Asian BSAs framework.
The basic principle of BSAs is to provide ―short-term‖ financial assistance in the form
of swaps for members in need. It is used by the members in order to stabilize the balance of
payment if economic crisis hits. In its relation with the IMF, this framework is built in
addition to supplement the financial facilities that are already provided by the world financial
institution. This simply means that agreements shall be approved by the IMF itself and it is
allowed to ruling the policy conditionally for most of the swaps within region.
There are two forms of arrangements in CMI, which consists of ―one-way‖ arrangements
and ―two-way‖ arrangements. ―One-way‖ arrangements refer to situation where only one
party has the right to draw dollars. This form of arrangement occurred in between Japan and
South Korea. In the mean time, ―two-way‖ arrangements refer to situation in which either
party can draw dollars, similar to BSAs happen in between Japan and China as well as China
and South Korea.15
Countries come to decision whether they would arrange themselves on
―one-way‖ or ―two-way‖ agreement in fact is based on the ability of the country itself,
whether it is a strong borrower or creditor, or neither both.
2.2.2 “Multilateralisation” of CMI
The discourse of the multilateralisation of CMI first declared in May 2005 in Istanbul
meeting. CMI multilateralisation essentially refers to the collectivization of common fund on
a regional basis among the members of ASEAN+3, which refers to something that more than
―bilateral‖ but less than ―global‖. The main objectives of this multilateralisation in fact are
enhancement of surveillance, clarification of activation process, adoption of common
decision making, doubling the size of the swaps and reducing the IMF link to 80%.16
The
discourse was developed when they met in Kyoto, Japan, in 2007, where the finance
ministers of member countries proclaimed that a self-managed pooling arrangement governed
by a single contractual agreement was an appropriate form of multilateralisation.17
The
15
―Chapter 3: Chiang Mai Initiative‖, loc.cit. 16
C. Randall Henning, loc.cit. 17
―The Joint Ministerial Statement of the 10th
ASEAN+3 Finance Ministers‘ Meeting, 5 May 2007, Kyoto,
Japan‖, accessed from http://www.aseansec.org/JMS_AFMM3_Kyoto_final.pdf, on October 6th
2009, at 05.41
AM.
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discussion on the multilateralisation of CMI have been there from year to year, until in 2009,
the meeting has finally decided on how much each Asian country, which refers to +3
countries, ought to reserve.
2.2. Political Interest of China and Japan in Chiang Mai Initiative: Hegemonic Pursuit
2.2.1. China’s Ambition of Being the Great Power in East Asia
Throughout the years, China has tried to exercise its own power to become the great
power18
in East Asia region. China has been a skillful participant in regional forums; its
diplomacy has without question become more and more dexterous in recent times. Since the
time of the 1997-98 Asian financial crisis, China has come to be perceived as a more
responsible regional actor, it has appeared more willing to engage in multilateral activities19
.
China is also aggressively moving towards its stated long term strategic goals of national
dominance and influence on the world stage20
; its active participation in the creation and the
implementation of the CMI, as well as its massive contribution in BSA (which for the most
part be done in a one-way BSA method) has gone some way to raise fears of a hegemonic
China dominant over Southeast and Northeast Asian countries. China‘s sheer size, its
proximity, and its authoritarian character make it hard to dispel all these fears21
. The main
reason why China really wants to be dominant in East Asia region is, in fact, because China
sees its own preeminence in Asia as a safeguarding world peace by its opposition hegemonic
nations such as the US and in the past Japan, India, and Russia22
2.2.2. Japan’s Intention to Resist China’s Hegemonic Ambition
While China has its own ambition in becoming the great power in East Asia region,
18
Cari definisi great power 19
Brendan Taylor, Towards hegemony, Assessing China‘s Asian Ambition, accessed from
http://www.securitychallenges.org.au/ArticlePDFs/vol1no1Taylor.pdf, on October 1, 2009, 10.36 PM. 20
Lynn A. Stover, Chinese ambition, accessed from http://www.au.af.mil/au/awc/awcgate/acsc/00-171.pdf, on
October 1, 2009, 10.54 PM. 21
David Capie, Rival Regions? East Asian Regionalism and Its Challenge to the Asia-Pacific, accessed from
http://www.apcss.org/Publications/Edited%20Volumes/RegionalFinal%20chapters/Chapter10Capie.pdf, on
October 1, 2009, 11.09 PM. 22
Colonel Hong Baoxiu, Deng Xiaoping‘s Theory of War and Peace in The Chinese View of Future Warfare,
edited by Michael Pillsbury, 1997, page 8. Available on the Internet, accessed from
http://www.ndu.edu/inss/books/books.html
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Japan also has its own intention regarding its participation in CMI: Japan was attempted to
resist China‘s growing influence, which was seen as detrimental to Japanese interest23
. The
rise of China as a potential superpower, whose political influence is now also backed by
continuous high economic growth, as well as its leadership in regional financial
cooperation—a position that used to be occupied by Japan—encourage Japan to increase its
participation and contribution in East Asia region, so that it could gain as much attention and
domination as China in the region. The rapid growth of China also makes Japan anxious.
Japan afraid if it did not do anything, China will become the leading power in East Asia
region. Japan needs to do something in order to limit China‘s deed, which is why Japan
decided (also) to increase its participation in CMI.
Despite the intention to resist China‘s ambition of being the great power in East Asia
region, Japan actually has another motive in its participation in CMI: Japan wants to increase
their power in East Asia region by making ASEAN countries more dependent with it. This is
shown by the evidence that Japan has provided Yen funds, equivalent to up to 60 billion US
dollars24
, in order to address short-term liquidity difficulties in Asia as a supplement to IMF
lending. As there is no free lunch, this help also does not come without charge. With its huge
loan, Japan wants to make the other East Asian countries dependent on it. We could say that,
behind the motive to resist China‘s ambition of becoming the great power in East Asia, Japan
actually also has ambition to become a great power in East Asia region.
2.3. CMI Influence in economic and political dynamics in Northeast Asia region
2.3.1. Bilateral Swap Agreement between Japan-China
It has been clearly defined that the objective of CMI is indeed aimed to create a
network of bilateral swap arrangements (BSAs) among ASEAN+3 countries to address
short-term liquidity difficulties in the region and to supplement the existing international
23
Brendan Taylor, op.cit. 24
See ―Japan‘s Contribution in Response to the Current Crisis‖, a speech by Mr. Tatsuya Tanimoto, on 8 June
2009. Available on the internet, accessed from http://www.fsa.go.jp/en/announce/state/20090608.html, on
October 1, 2009, 08.38 PM.
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financial arrangements.25
Particularly concerning BSA, it is then deemed essential to prevent
resurgence of devastating crisis like the one in 1997, to attain stable economic growth, and to
promptly provide funds for all member nations if the crisis eventually happens. These
expectations of maintaining domestic and regional economic stability further become the
main motivation for all member nations to actively involve in BSA. This spirit of propagating
BSA under the framework of CMI does not merely apply to member nations of ASEAN but
also to the other three countries; Japan, China and South Korea. On this section, the writer
will chronologically illustrate BSAs conducted between Japan and China and profoundly
analyze the role of CMI through BSA in promoting economic relation and good willing
between Japan and China.
Since the establishment of CMI in May 2000, Japan and China have been reported to
involve in only one periods of BSA. It was initiated on March 28, 2002 where Japan and
China signed a Yen-Yuan swap agreement as part of an Asian-wide currency safety net
designed to boost regional cooperation and ward off future financial crises.26
Remarkably,
this BSA, worth $3 billion, was characterized as a two-way BSA, thus it merely had symbolic
role. This can be further understood by the simple logic that both Japan and China was at that
time unlikely to face liquidity or balance of payment crisis in the short term. This likely logic,
considering both their external reserves, was indeed also realized by Chinese central bank
governor, Dai Xianglong, who stated that it was hard to imagine a situation in which China
and Japan would need to use the swap scheme.27
However then, the writer perceives that this only BSA has indicated a positive gesture
where Japan and China was willing to promote good relation in regional cooperation. Here it
can be clearly interpreted that the role of CMI with its beneficial prospects offered, is fairly
essential in ameliorating relational climate between Japan and China, considering the earlier
tension related to Beijing opposition to Japanese proposal of Asian Monetary Fund (AMF) in
25
Regional Financial Cooperation among ASEAN+3, accessed from http://www.mof.go.jp/english/if/regional_financial_cooperation.htm , 5 October 2009 17.34 26 Japan, China Sign $3-Bn Yen-yuan Swap Deal To Avert Future Crises, accessed from
http://www.financialexpress.com/news/japan-china-sign-3bn-yenyuan-swap-deal-to-avert-futu
re-crises/41744/, 5 October 2009 13.45 27
Ibid.
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1997.
2.3.2. Struggle of Power Analysis in CMI case
It is surely pleasant to know that CMI through BSA has brought about the positive
impact toward relational climate between Japan and China. But as BSA is simply
implemented in a larger framework engaging even more countries including South Korea and
other ten member nations in ASEAN, it is then not enough to analyze the resulted effect of
CMI only from the perspective of both Japan and China. Thus evolving the former
explanation and correlating it with the basic question proposed, this section will further
analyze the comparison of involvements from each Japan and China toward other member
nations of APT which then indicate and perfectly portray Japan and China efforts in pursuing
and struggling for the considerable power in broader region of APT.
While South Korea involvements remain firm, Japan and China, since the
establishment of CMI, have been noted to undergo some spurs highlighting the competitive
spirit of both in evolving involvements with other member nations. The prominent indication
of these spurred involvements can be primarily viewed from the dynamics of their BSAs with
others. Here, the writer will present two statistical data comparing each China and Japan
involvements on BSA in 2004 and the recently renewed 2009.
Table 1. Progress of Chiang Mai Initiative (as of May 2004)28
BSA CURRENCIES CONCLUSION
DATES
SIZE
Japan-Korea $/Won (one way) 4 July 2000 $7 billion
Japan-Thailand $/Baht (one Way) 30 July 2001 $3 billion
Japan-Philippines $/Peso (one way) 27 August 2001 $3 billion
Japan-Malaysia $/Ringgit (one way) 5 October 2000 $3,5 billion
28
The model is accessed from http://www.g24.org/ychp0904.pdf
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Japan-PRC Yen/Renminbi (two
way)
28 March 2002 $3 billion
Japan-Indonesia $/Rupiah (one way) 17 February 2003 $3 billion
Korea-PRC Won/Renminbi (two
way)
24 June 2002 $2 billion
Korea-Thailand $/local (two way) 25 June 2002 $1 billion
Korea-Malaysia $/local (two way) 26 July 2002 $1 billion
Korea-Philippines $/local (two way) 9 August 2002 $1 billion
PRC-Thailand $/Baht (one way) 6 December 2000 $2 billion
PRC-Malaysia $/Ringgit (one way) 9 October 2002 $2 billion
PRC-Philippines $/Peso (one way) 20 August 2003 $1 billion
Japan-Singapore $/Sing $ (one way) 10 November 2003 $1 billion
PRC-Indonesia Renminbi/Rupiah
(one way)
30 December 2003 $1 billion
Korea-Indonesia $/local (two way) 3 December 2003 $1 billion
Table 2. Progress of BSAs up to 2009
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The interpretation of the data above is indeed interesting. As for the first data, the
involvement of Japan is obviously dominant. While China only involved in total 6 BSAs,
Japan then engaged in total 7 BSAs. Of all the total BSAs involved, China only conducted 4
one-way BSAs whereas Japan conducted 6 one way BSAs. The total funds allocated by Japan
even reached $ 20,5 billion, far greater than $ 6 billion of China. However then, the second
data greatly indicate how China endeavors to crucify Japan. The increased number of Japan
involvements and allocated funds seem massive. Until this April 2009, under the renewed
BSAs, China then actively involve in 4 one way BSAs while Japan only conducts 2 one way
BSAs with the decreased funds allocated. It‘s also interesting to quote an article written on
JoongAng Daily stating that China has jumped to equal status with Japan on the Asian
financial market; Japan is struggling to maintain its leadership; for more room between the
two biggest economies of Asia.29
Analyzing this condition, the distinct efforts of Japan to overbear the land of APT
particularly during 2004 is a clear sign to culminate its influence as respective nation and
29 Korea, China, Japan Reach a DiffIcult Truce on CMI, accessed from
http://joongangdaily.joins.com/article/view.asp?aid=2904791, 5 October 2009, 17.09
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gather larger power exceeding the ASEAN border. But on the intention of power
accumulation, Japan is not alone. The previous less active influence of China on BSAs
doesn‘t mean that China was unintentional. The intention was exist at the first place and still.
The only logic that can explain the ever China inactivity is none other than the already
explained theory ―struggle of power‖. Both China and Japan eventually perceive themselves
as one over another as the leading nation on CMI. AS China then gains some sizable
developments in economy lately, it makes it even more possible for China to beat Japan. The
fact that they both have excess will continuously resume this competition till this mastery of
power is then won by one nation in absolute terms.
2.4. South Korea Reaction Towards Power Struggle between Japan and China
A progress of economic relations between Japan and China make a serious impact
on the dynamics of political economy in East Asia. The development of economic relations
was conducted by Japan and China become a phenomenon considering the hostilities between
them due to historical factors in the past. It can keep in mind that Japan is country highly
developed Asian economies since the defeat in World War II, while China was transformed
into one of the world‘s economic giants are even able to rival the economic hegemony of the
United States today.
South Korea, as one of the East Asian countries with advanced economies today tend
to have its own response associated with the phenomenon of Japanese economic relations
with China current. South Korea also one of the member ASEAN+3, in which Japan and
China are also included in it. It can‘t be denied, that among all the ASEAN+3 members,
Japan, China, and South Korea are the countries that are economically more powerful and
relatively big economic power, will and should be the main players.30
Korea has now surpassed Japan in terms of foreign direct investment (FDI) into
China. It‘s also true in terms of the index investment into ASEAN.31
It shows that Japan was
relatively not the center of integration East Asia miracle today. As share, in terms of Korean
30
Accessed from http://homepage3.nifty.com/tkinoshita/research/pdf/2004/cei0624transcript.pdf , on October 1,
2009, 11.19 PM. 31
Ibid.
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GDP, exports to Japan are actually lower in 2003 than they were in 1993, ten years earlier.32
If any country is the center, the East Asian dynamic is more complicated situation than
before.
Nevertheless, the big change that happens in Korea after the crisis at 1997 and
subprime mortgage couldn‘t separate from Japan. Korean society now become rich, when
they come to Japan frequently, Korean student stayed at homes of Japanese families, and then
they came to Korea to realize what happened and what is happening in Japan. The great
phenomenon that happen in Korea was convince will emerge sooner or later between Japan
and China. But, it will take a much more time than in Korea.
Proposals for trade liberalization among varying sub regional configurations have
proliferated. Some 170 regional trading arrangements including bilateral areas have been
registered with the WTO. The Japan-Singapore Free Trade Area (FTA) was signed recently.
Others being studied or negotiated in the Asian and Pacific region are Korea–Japan FTA,
Korea– PRC FTA, PRC–ASEAN FTA, Korea–ASEAN FTA, and ASEAN+3 FTA.33
Viewing financial agreements as complements to trade initiatives, and conscious of their
vulnerability to financial crisis, Korea will perceive benefits to financial cooperation, both
with Japan or China.
In terms of ASEAN, ASEAN is sort of the ball that the Japanese and the Koreans
and the Chinese are fighting over, in the sense that not that they‘re going to dominate it, but
the Chinese and the Japanese talk about an FTA because they are worried that the other one
will get the FTA with ASEAN and shut them out.34 China emerges as an important trading
partner for the many countries, include the members of ASEAN. Burma, Laos, and Cambodia
assume a vassal status, and other ASEAN members find their autonomy circumscribed by
policies emanating from Beijing. Likewise, China entices South Korea into its sphere.35
South Korea typically seek to involve both Japan and China in regional
arrangements in order to avoid choosing between the two powerful regional actors. Korea are
32
Ibid. 33
Pradumna B, Rana, ―Monetary and Financial Cooperation in East Asia: The Chiang Mai Initiative and
Beyond”, accessed from http://www.adb.org/Documents/ERD/Working_Papers/wp006.pdf on October 1st 2009,
at 04.51 PM. 34
Pradumna B. Rana, loc.cit., p. 23. 35
Hugh de Santis, ―People‘s China and the Asian Future‖, in JFQ Forum, p. 45-46.
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wary of Japanese economic dominance but are increasingly concerned about the economic
―threat‖ from China, particularly in the wake of Chinese accession to the World Trade
Organization (WTO).36
In conclusion, Korea will not make an economic cooperation just for
one of two countries, but to save their interest, both in Japan and in China.
2.5. Analysis
The anarchical logic of the international system is unmistakably portrayed in the
East Asian region via the relationship between Japan and China. Both countries as rival
powers are struggling for influence in other countries. This is specifically described in the
case of Chiang Mai Initiative in which both countries participated by committing to BSA
between countries in Northeast and Southeast Asia. CMI that involves the establishment of a
regional pooling fund gives chances for each country to contribute certain amount of money
to the reserves. The amount of money that varies between each country reflects their
capability and also their interest towards the pool of fund; the bigger the contributions the
bigger interests are at stake. With the existence of prerequisite made by donor countries
towards the recipients, it implies that the donors have the advantage to insert certain value or
influence implicitly in the requirements.
Historically, after the Meiji Restoration, Japan has increased its domestic agential
state power and therefore become a dominant power in East Asia region. But eventually after
the locus of production shifts to other countries—in this case, China—Japan‗s economic
growth has become stagnated. It goes accordingly to what Gilpin has predicted in its model.
In the other hand, China as the adaptive rival state challenges the current distribution of
power, creating a new hegemonic war in East Asia.
Assuming that countries are actors who seek security and wealth through means
available, CMI becomes one of the tools to gain those interests and maintain the distribution
of power according to their benefit. The CMI in particular represents the distribution of
economic power-as stated in Gilpin‘s Model- that could restrain or even boost the ownership
of power. Acknowledging how the distribution of power can always alter any time when they
36
―Chapter 3: Chiang Mai Initiative‖, loc.cit. p. 30
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could not adapt with the international political structure, Japan and China, shown by the
numbers of their contribution towards the pool, progressively maintain their domination of
fund contribution in the pool to ensure their influence inside the region. In conclusion, the
writers believe that in the case of CMI, Japan and China have demonstrated a struggle to
redistribute power in East Asia region as shown in Gilpin‘s Model.
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CHAPTER 3
CONCLUSION
The Northeast Asia region has shown unique characteristic upon the dynamics of
state behavior. No matter how interlink their economy, the members of this region keeps a
high tension upon their relationship. This condition is exacerbated by historical trauma
between two major powers in Northeast Asia region, China and Japan.
On the other hand, in 2000, the members of East Asia region has agreed to build an
integrated pool of funds, namely Chiang Mai Initiative, which could easily be used whenever
the crisis strikes. This agreement that supposedly could benefit all member countries had not
shown to be successful in building a more harmonic region. The Northeast region remains as
the stage of power struggle for dominating states.
This CMI agreement turns out to be used by China and Japan as a tool to pursuit
their interests. On the other, South Korea chooses not to compete in the power struggle but
maintain its active contribution in the region.
This condition proves Gilpin‘s theory that prescribe the need of countries to be
adaptive towards the anarchical nature of international system in order to maintain the
distribution of power.
In conclusion, the writers believe that in the case of CMI, Japan and China have
demonstrated a struggle to redistribute power in East Asia region as shown in Gilpin‘s Model.
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