East Asia in the 21st Century

38.3: East Asia in the 21st Century

38.3.1: The Rising Economies of East Asia

East Asia is home to some of the world’s most prosperous economies while Southeast Asia witnesses the growth of some of the world’s fastest growing emerging economies, with favorable political-legal environments for industry and commerce, abundant natural resources, and adaptable labor determined to be the main factors of the success.

Learning Objective

Explain how East Asian economies have been increasing their share of the global economy.

Key Points

  • East Asian countries’ various reforms resulted in “economic miracles,” making East Asia home to some of the world’s largest and most prosperous economies, including Mainland China, Hong Kong, Macau, Taiwan, Japan, and South Korea. Major growth factors have ranged from favorable political and legal environments for industry and commerce, through abundant natural resources, to plentiful supplies of relatively low-cost, skilled, and adaptable labor. The region’s economic success has led the World Bank to dub it an East Asian Renaissance.
  • The economy of Japan is the third-largest in the world by nominal GDP, the fourth-largest by purchasing power parity (PPP), and the world’s second largest developed economy. Japan is the world’s third largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries. The Japanese economy faces considerable challenges posed by a dramatically declining population.
  • China’s socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by PPP according to the IMF. China is a global hub for manufacturing and the largest manufacturing economy in the world as well as the largest exporter of goods in the world. China’s unequal transportation system—combined with important differences in the availability of natural and human resources and in industrial infrastructure—has produced significant variations in the regional economies. More recently, the government has struggled to contain the social strife and environmental damage related to the economy’s rapid transformation.
  • In accordance with the One Country, Two Systems policy, the economies of the former British colony of Hong Kong and Portuguese colony of Macau are separate from the rest of China and each other. Both Hong Kong and Macau are free to conduct and engage in economic negotiations with foreign countries as well as participate as full members in various international economic organizations.
  • The Four Asian Tigers are the economies of Hong Kong, Singapore, South Korea, and Taiwan, which underwent rapid industrialization and maintained exceptionally high growth rates between the early 1960s (mid-1950s for Hong Kong) and 1990s. By the 21st century, all four had developed into advanced and high-income economies, specializing in areas of competitive advantage. Export policies have been the de facto reason for the rise of the Four Asian Tiger economies although te approach taken has been different among the four nations.
  • The term Tiger Cub Economies collectively refers to the economies of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Four countries are included in HSBC’s list of top 50 economies in 2050, while Vietnam, Indonesia, and the Philippines are included in Goldman Sachs’s Next Eleven list of economies because of their rapid growth and large population. Out of these, Vietnam has been determined to become possibly the fastest-growing of the world’s emerging economies by 2020. The so-called “bamboo network” – a network of overseas Chinese businesses operating in these markets – has been critical to the countries’ economic growth.

Key Terms

G7
A group consisting of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. These countries are the seven major advanced economies as reported by the International Monetary Fund and represent more than 64% of the net global wealth ($263 trillion).
socialist market economy
The economic model employed by the People’s Republic of China. It is based on the dominance of the state-owned sector and an open-market economy and has its origins in the Chinese economic reforms introduced under Deng Xiaoping. The ideological rationale is that China is in the primary stage of socialism, an early stage within the socialist mode of production and therefore has to adapt capitalist techniques to thrive. Despite this, the system has widely been cited as a form of state capitalism.
Four Asian Tigers
A collective name used to refer to the economies of Hong Kong, Singapore, South Korea, and Taiwan, which underwent rapid industrialization and maintained exceptionally high growth rates (in excess of 7 percent a year) between the early 1960s (mid-1950s for Hong Kong) and 1990s.
Tiger Cub Economies
A collective term used to refer to the economies of Indonesia, Malaysia, the Philippines, Thailand and Vietnam, the five dominant countries in Southeast Asia. They are so named because they follow the same export-driven model of economic development pursued by the Four Asian Tigers.
bamboo network
A term used to conceptualize connections between certain businesses operated by overseas Chinese in Southeast Asia. It links the overseas Chinese community of Southeast Asia (Malaysia, Indonesia, Thailand, Vietnam, the Philippines, and Singapore) with the economies of Greater China (mainland China, Hong Kong, Macau, and Taiwan). Overseas Chinese companies have a prominent role in the private sector of Southeast Asia and are usually managed as family businesses with a centralized bureaucracy.
One Country, Two Systems
A constitutional principle formulated by Deng Xiaoping, the Paramount Leader of the People’s Republic of China (PRC), for the reunification of China during the early 1980s. He suggested that there would be only one China, but distinct Chinese regions such as Hong Kong and Macau could retain their own capitalist economic and political systems, while the rest of China uses the socialist system.

 

 

East Asian Renaissance

The economy of East Asia is one of the most successful regional economies of the world. The changes that turned the area into the economic power began with the Meiji Restoration in the late 19th century, when Japan rapidly transformed into the only industrial power outside Europe and the United States. Japan’s early industrial economy reached its height during World War II and its eventual defeat in the war slowed down economic development for a relatively short period of time. Japan’s economy recovered already in the 1950s and by the 1980s, the country was the world’s second largest economy.

Other East Asian countries followed with their own reforms and resulting “economic miracles” and today, East Asia is home of some of the world’s largest and most prosperous economies, including Mainland China, Hong Kong, Macau, Taiwan, Japan, and South Korea. Major growth factors have ranged from favorable political and legal environments for industry and commerce, through abundant natural resources, to plentiful supplies of relatively low-cost, skilled, and adaptable labor. Local populations have rapidly adjusted to the requirements of new technologies and scientific discoveries while also demonstrating exceptional work ethics. The region’s economic success has led the World Bank to dub it an East Asian Renaissance.

Although technically not seen as part of the East Asian Renaissance, India, associated more closely with the South Asian region, has become an equally thriving and critical Asian member of the global economy in the last several decades. For more information on India’s economic power see “India’s Growing Economy” module.

 

Japan

In the three decades of economic development following 1960, Japan ignored defense spending in favor of economic growth, thus allowing for a rapid economic growth referred to as the Japanese post-war economic miracle. With average growth rates of 10% in the 1960s, 5% in the 1970s, and 4% in the 1980s, Japan was able to establish and maintain itself as the world’s second largest economy from 1978 until 2010, when it was surpassed by the People’s Republic of China.

The economy of Japan is the third-largest in the world by nominal GDP, the fourth-largest by purchasing power parity (PPP), and the world’s second largest developed economy. Japan is a member of the G7. Due to a volatile currency exchange rate, Japan’s GDP as measured in dollars fluctuates widely. Accounting for these fluctuations, Japan is estimated to have a GDP per capita of around $38,490.

Japan is the world’s third largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings. Facing increasing competition from China and South Korea, manufacturing in Japan today focuses primarily on high-tech and precision goods, such as optical instruments, hybrid vehicles, and robotics. Japan is the world’s largest creditor nation. It generally runs an annual trade surplus and has a considerable net international investment surplus. In 2015, 54 of the Fortune Global 500 companies were based in Japan.

The Japanese economy faces considerable challenges posed by a dramatically declining population. Statistics showed an official decline for the first time in 2015, while projections suggest that it will continue to fall from 127 million down to below 100 million by the middle of the 21st century. A mountainous, volcanic island country, Japan has inadequate natural resources to support its growing economy and large population and therefore exports goods, in which it has a comparative advantage such as engineering-oriented, research, and development-led industrial products in exchange for the import of raw materials and petroleum. Japan is among the top-three importers for agricultural products in the world next to the European Union and United States in total volume for covering of its own domestic agricultural consumption.

 

China

China’s socialist market economy is the world’s second largest economy by nominal GDP and the world’s largest economy by PPP according to the IMF, although China’s National Bureau of Statistics rejects this claim. Until 2015, China was the world’s fastest-growing major economy, with growth rates averaging 10% over 30 years. Due to historical and political facts of China’s developing economy, China’s public sector accounts for a bigger share of the national economy than the burgeoning private sector.

China is a global hub for manufacturing and is the largest manufacturing economy in the world as well as the largest exporter of goods in the world. It is also the world’s fastest growing consumer market and second largest importer of goods in the world. It is a net importer of services products and the largest trading nation in the world, playing the most important role in international trade. However, Western media have criticized China for unfair trade practices, including artificial currency devaluation, intellectual property theft, protectionism, and local favoritism due to one-party oligopoly by the Communist Party of China and its socialist market economy.

China’s unequal transportation system—combined with important differences in the availability of natural and human resources and in industrial infrastructure—has produced significant variations in the regional economies of China. Economic development has generally been more rapid in coastal provinces than in the interior and there are large disparities in per capita income between regions. Three wealthiest regions are along the southeast coast. It is the rapid development of these areas that is expected to have the most significant effect on the Asian regional economy as a whole and Chinese government policy is designed to remove the obstacles to accelerated growth in these wealthier regions.

A Chinese coal miner at the Jin Hua Gong Mine, photo by Peter Van den Bossche.

A Chinese coal miner at the Jin Hua Gong Mine, photo by Peter Van den Bossche. One of the hallmarks of China’s socialist economy was its promise of employment to all able and willing to work and job-security with virtually lifelong tenure. Reformers targeted the labor market as unproductive because industries were frequently overstaffed to fulfill socialist goals and job-security reduced workers’ incentive to work. This socialist policy was pejoratively called the iron rice bowl.

More recently, the government has struggled to contain the social strife and environmental damage related to the economy’s rapid transformation. Battling corruption and other economic crimes as well as sustaining adequate job growth for tens of millions of workers laid off from state-owned enterprises, migrants, and new entrants to the work force have also been some of the major challenges. From 50 to 100 million rural workers were adrift between the villages and the cities, many subsisting through part-time low-paying jobs. Although the economic growth has resulted in the creation of a strong middle class, hundreds of millions remain excluded from its benefits and inequalities persist. The large-scale underemployment in both urban and rural areas and changing price policies remain a source of concern for the government as potential causes of popular resistance. The prices of certain key commodities, especially of industrial raw materials and major industrial products, are determined by the state and large subsidies were built into the price structure. By the early 1990s, these subsidies began to be eliminated, in large part due to China’s admission into the World Trade Organization (WTO) in 2001, which carried with it requirements for further economic liberalization and deregulation. On a per capita income basis, China ranked 72nd by nominal GDP and 84th by GDP (PPP) in 2015, according to the IMF.

In accordance with the One Country, Two Systems policy, the economies of the former British colony of Hong Kong and Portuguese colony of Macau are separate from the rest of China and each other. Both Hong Kong and Macau are free to conduct and engage in economic negotiations with foreign countries as well as participate as full members in various international economic organizations, often under the names “Hong Kong, China” and “Macau, China.” Both regions retain their own capitalist economic and political systems.

 

Four Asian Tigers

The Four Asian Tigers are the economies of Hong Kong, Singapore, South Korea, and Taiwan, which underwent rapid industrialization and maintained exceptionally high growth rates (in excess of 7 percent a year) between the early 1960s (mid-1950s for Hong Kong) and 1990s. By the 21st century, all four had developed into advanced and high-income economies, specializing in areas of competitive advantage. For example, Hong Kong and Singapore have become world-leading international financial centers, whereas South Korea and Taiwan are world leaders in information technology manufacturing. Their economic success stories have served as role models for many developing countries, especially the Tiger Cub Economies (see below).

Export policies have been the de facto reason for the rise of the Four Asian Tiger economies. The approach taken has been different among the four nations. Hong Kong and Singapore introduced trade regimes that were neoliberal in nature and encouraged free trade, while South Korea and Taiwan adopted mixed regimes that accommodated their own export industries. In Hong Kong and Singapore, due to small domestic markets, domestic prices were linked to international prices. South Korea and Taiwan introduced export incentives for the traded-goods sector. The governments of Singapore, South Korea, and Taiwan also worked to promote specific exporting industries, which were termed as an export push strategy. All these policies helped these four nations to achieve a growth averaging 7.5% each year for three decades and as such they achieved developed country status.

A controversial World Bank report (see The East Asian Miracle 1993) credited neoliberal policies with the responsibility for the boom, including maintenance of export-led regimes, low taxes, and minimal welfare states. Some state intervention has been also admitted to be a factor. However, many have argued that industrial policy had a much greater influence than the World Bank report suggested. The World Bank report itself acknowledged benefits from policies of the repression of the financial sector, such as state-imposed below-market interest rates for loans to specific exporting industries. Other important aspects include major government investments in education, non-democratic and relatively authoritarian political systems during the early years of development, high levels of U.S. bond holdings, and high public and private savings rates.

 

Tiger Cub Economies

The term Tiger Cub Economies collectively refers to the economies of Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, the five dominant countries in Southeast Asia. They are so named because they follow the same export-driven model of economic development pursued by the Four Asian Tigers. Four countries are included in HSBC’s list of top 50 economies in 2050, while Vietnam, Indonesia and the Philippines are included in Goldman Sachs’s Next Eleven list of economies because of their rapid growth and large population. Out of these, Vietnam has been determined to become possibly the fastest-growing of the world’s emerging economies by 2020. Similarly to China, the country’s socialist-oriented market economy is a developing planned economy and market economy. In the 21st century, Vietnam is in a period of being integrated into the global economy. It has become a leading agricultural exporter and served as an attractive destination for foreign investment in Southeast Asia.

The Tiger Cub Economies (yellow) are five countries: Indonesia, Malaysia, Philippines, Thailand and Vietnam. Also shown are the Four Asian Tigers (red), source: Wikipedia.

The Tiger Cub Economies (yellow) are five countries: Indonesia, Malaysia, Philippines, Thailand and Vietnam. Also shown are the Four Asian Tigers (red), source: Wikipedia. The term “bamboo network” is used to conceptualize connections between certain businesses operated by overseas Chinese in Southeast Asia. It links the overseas Chinese community of Southeast Asia (Malaysia, Indonesia, Thailand, Vietnam, the Philippines, and Singapore) with the economies of Greater China (mainland China, Hong Kong, Macau, and Taiwan). Overseas Chinese companies have a prominent role in the private sector of Southeast Asia, and are usually managed as family businesses with a centralized bureaucracy.

Overseas Chinese entrepreneurs played a prominent role in the development of the region’s private sectors. These businesses are part of the larger “bamboo network,” a network of overseas Chinese businesses operating in the markets of Malaysia, Indonesia, Thailand, Vietnam, and the Philippines that share common family and cultural ties. China’s transformation into a major economic power in the 21st century has led to increasing investments in Southeast Asian countries where the bamboo network is present.

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