.a_wrap {font-size:14px; font-family:Nanum Gothic, Sans-serif, Arial; line-height:20px;} li {margin:8px 0;} Editor's Note Unlike other papers analyzing China’s economic policy in line with its broader national strategy, Junwei Liang narrows his focus down to China’s trade policy and trends. He offers a comprehensive overview of China’s trade balances, product varieties, trade partners, regional characteristics, and trade in commodities and services, arguing that China should make more of an effort to use its domestic market and the rising social challenges of a decreasing labor force. Despite global concerns about China’s return to a more statist and developmentalist approach, the author offers assurance that China will continue to pursue opening up and deepen its reforms.      Quotes from the paper  Introduction Since the reform and opening-up in 1978, China has witnessed an explosive growth in trade, especially in export of commodity. After the accession to the WTO, the linkage of “Made in China” to the international market has boosted competitiveness of China’s products, while more and more conflicts and contradictions between China and trade partners have been emerging vastly and vigorously. The trade policy of the Trump administration against China is quite non-political-friendly, more importantly, a very awful and frightful signal to the global free trade regime. This will pose great challenges on Chinese authorities and companies, even individuals. China will, in the foreseeable future, be continuing implementing reform and opening-up and some critical transformations will be made in a larger and deeper sense, although it might be a long way to go.   China’s Trade Development    Figure 1  Trade Value and Share of China: 1950-2017 Source: UNCTAD, Billion USD, %.      Figure 2  Trade Balance of China: 1978-2017 Source: UNCTAD, Billion USD.      Figure 3  Product Varieties of China’s Export: 1995-2017 Source: UNCTAD, Billion USD.   Figure 4    Product Varieties of China’s Import: 1995-2017 Source: UNCTAD, Billion USD.   Figure 17   Partners of China’s Export: Number and Average Value Source: UNCTAD, Billion USD.      Figure 18   Partners of China’s Import: Number and Average Value Source: UNCTAD, Billion USD.       Conflicts, Contradictions and Challenges of China’s trade   Figure 26  Frequencies and Percentages of Global Antidumping Initiations and Measures Source: UNCTAD, Billion USD.      Figure 27  The Share of AD Initiations and Measures against China Filed by the World and the U.S. Source: WTO (%)   Figure 28  337 investigation the U.S. has initiated on China and the rest of the World Source: WTO (%)   China’s Coming Transformations in Trade Reform and opening-up is a great process that has helped China and the rest of the world achieve development and progress together. Opening-up is the path China must take to achieve prosperity and development. President Xi Jinping pointed out that “What has happened proves that opening-up was key to China’s economic growth over the past 40 years and in the same vein, high-quality development of China’s economy in the future can only be achieved with greater openness.” At present, the world is undergoing great development, transformation and adjustment. The road to world economic recovery is hard and tortuous; economic globalization experiences twists and turns; and unilateralism and protectionism are on the rise. These are the challenges that all of the countries are facing. Under the new conditions, China will adhere to its fundamental national policy of opening-up, actively promoting international cooperation under the Belt and Road Initiative, and striving to create a future that is open, innovative, inclusive and mutually beneficial. China will unswervingly promote opening-up on a higher level, significantly relax access to markets, create a more attractive environment to investment, implement high-standard policies of trade and investment liberalization and facilitation, build free trade ports with Chinese characteristics, and make a new ground to pursue opening-up on all fronts.       Author’s Biography Junwei Liang was granted a PhD degree from Nanjing University in 2009 and is now an associate Professor at Shandong University. His research is focusing on International Political Economics, including welfare analysis of trade policies and NTMs on China’s innovation on firm level. His findings have been published on both Chinese and English journals, such as World Economy, Journal of Quantitative and Technical Economics, etc. He is now the peer reviewer of several leading journals in China.  

.a_wrap {font-size:14px; font-family:Nanum Gothic, Sans-serif, Arial; line-height:20px;} li {margin:8px 0;} Editor's Note The high technology industry has become a new growth engine for many countries. China, the second largest economy in the world, has also been playing catch up to close the technology gap. However, it still lags behind its neighboring countries, such as South Korea and Taiwan, which achieved economic miracles well before China. Douglas Fuller examines the reasons behind this, asking why China has far fewer tech giants compared to South Korea and Taiwan despite its unprecedented economic success. Fuller concludes that it was China’s ineffective pursuit of industrial policy and excessive state regulation of the market that have impeded the development of the tech industry.      Quotes from the paper  Introduction This report attempts to explain the limited emergence of Chinese technology titans. The first section examines the structural reasons there has not been great success in pro-active (as opposed to passive, tariff-driven infant industry protection) industrial policy in building technology-intensive firms in China. The second section turns to look at how sectoral characteristics shape the opportunities for technological upgrading among Chinese firms given the state’s policies outlined in the first section. The third section addresses the important issue of market regulation and how that has impacted upgrading in various industries. The fourth section examines the critical role that foreign venture capital has played in China’s technology sector, and the implications of the current surge of domestic venture capital. The final section will address continuities and departures with China’s past industrial development in Xi’s industrial policies.   The Sorrows of Industrial Policy In the case of China, there are four serious constraints to the effective pursuit of industrial policy: (1) the structure of the state apparatus, (2) the bias of credit allocation toward SOEs/state-favored firms and the resulting managerial deficiencies of these firms (3) the information asymmetries due to sheer geographic size and population of China and (4) the balance of exports vis-à-vis procurement. These obstacles are in addition to the incentives for local officials that prioritize investment and land grabs over implementing upgrading of local firms and multinationals within their jurisdictions discussed by Fuller (2016, Chapter 2).   Sectoral Characteristics and Success There has been variation in technological catch-up across sectors in China’s economy. For more medium-tech technology, machinery-based sectors, China has experienced a fair amount of upgrading among domestic firms (Brandt and Thun 2010, 2016). For many high-technology sectors, China’s record of catch-up among domestic firms has been weak, and hybrid firms located in China but financed from outside of China have driven technologically upgrading. And in most be noted that for even the mature, medium-technology industries, Brandt and Thun (2010, 2016) find little evidence for effective industrial policy beyond the tariff barriers that encourage multinational corporations (MNCs) in these industries to set up factories in China. There would be no problem with such a hybrid model of high technology development except for two issues.  First, industrial policy has wasted a tremendous amount of resources on the domestic firms in high-technology areas. Second, the hybrid model itself is under threat as will be discussed later in this report.     Regulation of Competition Brandt and Thun (2016) in revisiting the machine sectors they analyzed over time have concluded that some sectors were much less successful than others even though they shared the benefit of MNC suppliers investing in China. They concluded that the state regulation of market competition to keep out rather than encourage competition was holding back those sectors that achieved less upgrading. The auto industry is a case in point.  The state kept primarily private firms from entering into this market for decades, and consequently, the local state champions, despite benefitting from being the partners of the joint-ventures (JVs) required for MNCs entry, failed to upgrade effectively. In contrast, construction equipment, where there was a veritable free-for-all of foreign, state-owned, private, and other firms in the gray corporate area between state-owned and truly private, witnessed impressive upgrading. To underline Brandt and Thun’s point, the most promising domestic carmaker today is a late arriving (due to state barriers to entry), private firm, Geely.   Domesticating Venture Capital Virtually every big name in technological or business model innovation in China that emerged out of the start-up scene over the last two decades received the majority of its funding from overseas venture capital (VC). From the triumvirate of Baidu, Alibaba and Tencent (BAT) to more recent success stories, such as Xiaomi, foreign venture capital has played a critical role in China’s start-up scene. In short, VC was the main conduit for creating the hybrid firms driving China’s technology development. Why has foreign venture capital played such an outsized role? Prior to 2007, one could point to the fact that China did not have the legal framework for general-limited partnership structures commonly used for venture capital in the U.S., U.K. and elsewhere. However, even after this problem was resolved through revisions in China’s Partnership Law, foreign venture capital has still played an outsized role in China’s financing of technological entrepreneurship. One way to understand why this has been the case is the bridging function foreign venture capital plays in linking Chinese entrepreneurs to institutions abroad better able to support technological entrepreneurship.  Whereas the domestic stock markets remain unattractive due to its speculative nature (due largely to the dearth of large institutional investors) and the state’s slow and biased process of deciding which firms can list, foreign venture capital has deep experience in listing start-ups on stock markets abroad   Continuities and Departures in Industrial Policy under Xi The MiC 2025 builds upon previous announced policies of the past ten years, and not surprisingly exhibits some of the flaws of past industrial policymaking. First and foremost, too many state-owned firms are the vehicles of choice for pursuing these industrial policies. Second, and worse still, the funds provided for these industrial policies are often used to spur the state takeover of private (often nominally foreign) companies and assets. Third, state procurement appears once again to be one of the preferred means of supporting these industries. Given that such procurement is not typically distributed to the most capable firms, much of the spending on these various industries may prove to be both ineffective and wasteful. Understandably, the scale of the proposed plans has alarmed foreign companies and countries alike. Even if China’s flawed industrial policymaking process does not lead to success, it may still lead to adding large amounts of capacity in various sectors. In other words, there is the possibility that relatively ineffective industrial policy could create a lose-lose situation in which inefficient Chinese capacity crashes the global market in a certain good (e.g. DRAM) without actually spurring sustainable development in China. However, I expect going forward that these industrial policies will face both financial and human capital constraints that limit the effective added capacity in some of these sectors. Of course, these industrial policy limitations are unlikely to alleviate the American government’s concerns about loss of intellectual property via forced transfer or theft as outlined in USTR’s 2018 Section 301 report.     Author’s Biography Douglas B. Fuller is a professor at City University of Hong Kong. The focus of his research is innovation, technology policy and international business. He has previously taught at Zhejiang University, King’s College London, Chinese University of Hong Kong and American University in Washington D.C. He has led research projects sponsored by the Alfred P. Sloan Foundation and the Savantas Policy Institute of Hong Kong. Fuller is the author of Paper Tigers, Hidden Dragons: Firms and the Political Economy of China’s Technological Development, and a co-organizer of Network B (Globalization and Socio-economic Development) of the Society for the Advancement of Socio-Economics.   

.a_wrap {font-size:14px; font-family:Nanum Gothic, Sans-serif, Arial; line-height:20px;} li {margin:8px 0;} Editor's Note China is the world’s biggest producer and consumer of coals as well as the largest greenhouse gas emitter. Surprisingly, China is also the global leader in clean energy development. Unfortunately, however, this embrace of green energy has not extended to China’s overseas energy infrastructure development projects. Instead, China continues to push forward with building inefficient subcritical coal plants in the less-developed regions rather than helping those nations move toward a low-carbon economy. Melanie Hart uses the Indonesian case to illustrate why China must reconsider its current approach before it becomes a less attractive development partner in the long term.     Quotes from the paper  Introduction Chinese companies and development banks are playing an increasingly impactful role in global infrastructure development. Domestically, China is reaching the point where economic growth rates are slowing and Chinese firms can often find better infrastructure investment opportunities abroad than they can at home. Through the Belt and Road Initiative, Beijing is providing a mix of diplomatic and financial aid to help Chinese firms find those opportunities in nations ranging from Southeast Asia to Africa to Europe. The types of technologies and projects China brings to those nations will have an outsized impact on the global economy for decades to come. Chinese firms are particularly active in energy infrastructure. China is the world’s biggest energy consumer, and it is undergoing a massive domestic transition toward cleaner energy sources (Hart, Bassett, and Johnson 2017). Chinese firms are global leaders across multiple renewable energy sectors—particularly wind and solar—as well as in next-generation clean coal technologies. If China leverages its domestic energy innovations to help other nations avoid installing low-efficiency, pollution-intensive coal, that will enable recipient nations to avoid the high economic, social, environmental, and climate costs associated with those projects. At a global level, if China pushes the next wave of energy infrastructure expansion toward more sustainable technologies, that will help the planet avoid some of the most disastrous impacts from global climate change. Unfortunately, this is not the approach China is taking today. Instead of helping developing nations acquire, install, and operate innovative cleaner energy technologies, China is driving a massive build-out of high-emission subcritical coal plants. Instead of pulling other developing nations up to help them achieve China’s own domestic standards, China is treating many nations as a dumping ground, offloading outdated coal generation technologies that are too inefficient and pollution-intensive to use at home. Chinese officials and development experts often argue that China is providing the cheapest alternatives because that is what lower-income nations want. That approach is short-sighted. It fails to account for the mid- and longer-term costs associated with sub-standard projects. Indonesia’s experience should serve as a warning for Beijing. After purchasing a first wave of sub-critical coal plants from China, Indonesia is now looking to other nations to support future energy infrastructure expansion. If China does not change its approach, negative impacts from the first wave of Belt and Road energy investments could outweigh the positive impacts. That could be particularly consequential in Southeast Asia, which is one of the fastest-growing energy consuming regions in the world and a key focus for China’s Belt and Road Initiative. This paper will describe China’s current approach to energy development in Southeast Asia and the downside risks associated with that approach.   China’s Approach to Coal-Fired Power Development Domestically, China is transitioning its coal-fired power fleet from older, high-polluting subcritical coal-fired power units to newer and cleaner supercritical and ultra-supercritical units (Hart, Bassett, and Johnson 2017). Chinese regulators are using a mix of efficiency standards, emission regulations, and mandatory subcritical plant retirements to drive this shift. The regulatory measures are impressive. By 2020, all existing Chinese coal-fired power units must meet an efficiency standard of 310 gce per kilowatt-hour. To put that in comparison with the U.S. coal fleet: no existing U.S. coal-fired power unit is performing at those efficiency levels today (Hart, Bassett, and Johnson 2017). China’s domestic coal transition is making the nation a world leader in supercritical and ultra-supercritical coal-fired power technologies. If China leverages its growing international role to bring those technologies to other nations, that could help other nations avoid building out more pollution- and carbon-intensive coal plants. China is particularly active in developing nations that are unable to meet the high project standards required to obtain financing from the World Bank and other western-led development banks (IMF 2018). Many of those lower-income nations are currently experiencing the rapid growth rates associated with early-stage economic development and, in order to fuel that growth, rapid energy infrastructure expansion. The generation technologies these nations choose will have an outsized impact on their local environmental conditions and the global climate for decades to come. China is well-placed to push that expansion in a sustainable direction. Unfortunately, Beijing is thus far taking a different approach. When Chinese banks and firms go abroad, they tend to follow a bifurcated strategy: they bring cutting-edge energy technologies to developed markets and cheap, outdated technologies to developing markets. In the energy sector, that strategy risks saddling developing regions with severe local environmental pollution and skyrocketing carbon emissions. As Beijing tightens China’s domestic coal-fired power standards, Chinese firms can no longer build subcritical plants at home so many of them are sending those technologies abroad. In some cases Chinese firms are actually dismantling outdated coal-fired power plants and exporting them to developing nations. At a global level, if China continues to export outdated energy technologies that will make it harder to slow and reduce global climate change.   Southeast Asia’s Energy Expansion Southeast Asia is one of the fastest-growing energy consumption regions in the world and is launching a major energy infrastructure boom. The region’s per capita energy use is still relatively low, at 0.13 tons of oil equivalent as of 2013. That consumption rate is expected to more than double by 2035 as economic development expands energy access and consumption ability across the region (ASEAN Center for Energy 2015). Population is also projected to grow rapidly and that will further drive electricity consumption growth. Between 2015 and 2040, the region’s overall energy demand is projected to grow 80 percent and power consumption is projected to triple. By 2025, the region is expected to add around $1.5 trillion in new energy infrastructure to supply its growing demand. Energy technology choices made during this massive infrastructure expansion will have an outsized impact on the region’s energy efficiency, sustainability, and climate emissions for decades to come. As of 2013, the ASEAN region generates 821 TWh of electricity, of which natural gas accounts for 44 percent, coal 31.5 percent, and oil 4.16 percent (ASEAN Center for Energy 2015). Although natural gas dominates in installed capacity, the region is rapidly shifting toward coal, and coal already outpaces natural gas in new-builds. By 2035, coal is projected to account for around 55 percent of the region’s electricity generation (accounting for 30 percent of total global coal growth through 2035). By 2040, the region will likely consume as much coal as India today. As a result, the region’s energy-related carbon dioxide emissions are projected to double by 2035. Renewable energy is also growing – as of 2013, installed renewable energy generation capacity totaled 45.7 GW and accounted for around 21 percent of total electricity generation. All ASEAN nations have renewable energy targets and policies, but coal still enjoys substantial policy support, partly because the region is rich in coal resources and partly because coal production interests heavily influence energy policy in many ASEAN nations.   China’s Role in Southeast Asia’s Sub-Critical Coal Expansion Below, Table 1 tallies the number of coal-fired power units Chinese companies are supporting across all three Southeast Asian income tiers and over time. It is not surprising to see subcritical plants in the 1996-2005 time-frame because cleaner plants were less available. However, the post-2015 project pipeline is a concern, because those plants are under construction in an era when the Southeast Asian region is undergoing a major energy boom, cleaner options are more available, and Beijing is banning sub-critical technologies domestically. Chinese firms are beginning to bring some cleaner projects to the region. As of 2016, Chinese companies had participated in 4 cleaner-coal projects, with another 17 in the pipeline. However, China is much more active on the subcritical side, with 154 units completed and another 75 in pipeline as of 2016.                        Source: Center for American Progress analysis using data from S&P Global Platts. Note: The “post-2015” category includes plants operating in 2016 and early 2017 but is mostly composed of plants under construction or planned for 2017-2021. This chart does not include plants that were retired or canceled before 2016.   Chinese officials and development experts routinely claim Chinese firms are simply providing what the recipient nations can afford and once those nations can afford cleaner technologies, Chinese companies will be delighted to provide them. However, the reality is that other major development funders are already building cleaner projects in nations where China is still actively promoting subcritical coal. For example, Japan currently has sixteen ultra-supercritical coal-fired power projects underway in the region while China has only three.     Lessons from Indonesia Indonesian officials and energy experts admit that the Chinese firms who provided subcritical coal-fired power units for the 10,000 MW program were delivering what Indonesia was asking for, which was a low-cost solution. Indonesian officials report that Japanese and South Korean firms tend to walk away and refuse to build plants at ultra-low price points, but Chinese firms are more likely to try to make things work, which sometimes brings bad consequences. Today, Indonesia recognizes that subcritical coal technology is a bad investment, particularly when subcritical plants are manufactured using out-of-date and/or second-hand components. Under current Indonesian President Joko Widodo, Jakarta has announced a new planned 35,000 MW expansion in generation capacity, which is supposed to include cleaner coal technology as well as renewables. In theory, the 35,000 MW expansion would be great opportunity to bring in China’s more cutting-edge technology solutions. In reality, however, recent field interviews suggest that Indonesian officials are largely avoiding Chinese technology in this round due to the government’s experience with previous Chinese-financed and Chinese-manufactured subcritical coal-fired power expansions. Instead, local officials report that they are looking primarily to Japan and South Korea for cleaner alternatives. The Indonesian case suggests that when China provides low-cost, high-emission systems to developing markets, medium-to-longer term performance or sustainability problems may not only affect those nations’ climate and emission trajectories but also impact their openness to choosing Chinese technologies as they move up the economic development ladder. Chinese officials are assuming that, by providing low-cost solutions today, they will have an opportunity to provide cleaner, higher-performing solutions down the road. In reality, negative experiences with first-round Chinese development projects could turn recipient nations away from future Chinese projects. If so, that trend has the potential to undermine China’s position as a low-emission technology provider across the region, despite the fact that China has already developed impressive technology innovations at home and has much to offer, not only in the coal sector but also in renewable energy technology.   Going Forward: Can China Avoid Building a Dirty Belt and Road? There are two potential pathways for Chinese involvement in Southeast Asia’s energy infrastructure expansion going forward. China could continue with the status quo approach, pushing low-standard technologies in less-developed regions and reserving China’s most innovative energy technologies for higher-income nations that can afford to pay higher up-front project costs. The backlash that China’s subcritical coal projects are already generating across Indonesia suggests that, if China pursues this approach, it will become a less attractive development partner over time. Once recipient nations gain the ability to pay for higher-standard projects, they may follow Indonesia’s example and turn to other nations instead of seeking to upgrade with a new generation of Chinese products. That would be particularly unfortunate in the coal sector because, as China transitions its domestic energy sector toward cleaner coal generation, it increasingly has cutting-edge technology and operational knowledge that could benefit Southeast Asian nations. Alternatively, China could change its approach and seek to leverage the Belt and Road Initiative and other state-supported programs to help developing nations leapfrog up to the same standards China is implementing domestically. That would require a mix of capacity building—to help recipient nations understand the full array of innovative technologies available and how to deploy them in their own markets—as well as innovative financing to help those nations meet the higher up-front costs associated with cleaner projects. This approach would shift the role China is playing as an international infrastructure developer, providing increasing rather than decreasing opportunities for Chinese investment over time. This approach would also provide broad regional and global benefits, particularly on the climate front.     Author’s Biography Melanie Hart serves as senior fellow and China policy director at the Center for American Progress (CAP), a leading American think tank based in Washington, DC. She is responsible for formulating CAP policy proposals on China and US-China relations and leading CAP efforts to promote those proposals with political leaders in the United States and Asia. She founded and leads multiple US-China track II dialogue programs at the Center and frequently advises senior U.S. political leaders on China policy issues. Hart also serves as a Senior Advisor on China to The Scowcroft Group, a premier international business advisory firm.  

Editor's Note China’s challenge to the current international system has generated concerns for the US leadership, causing a shift in US policy toward China driven by the view that China’s actions indicated that the US engagement policy had failed. Changes in American approaches to China have become more obvious since President Trump took office. He has taken a tough stance on China and triggered a trade war between the two countries. Ryo Sahashi attempts to show those changes in US policies toward China by examining key events with relation to various issues as well as Japanese responses to the ongoing competition between the US and China.     Quotes from the paper  Introduction The U.S. Vice President Mike Pence delivered his eye-catching speech on October 4th, 2018 on China. In the remark, Pence clearly accuses China of using political, military, and economic tools to interfere in the domestic politics and advance its influence in American society. He also criticizes Beijing for suppressing the rights of religious freedom for Christians, Muslims and Buddhists. Giving credit to American “open door” policy for the success of rapid development of China, Pence discusses the essence of Trump administration’s National Security Strategy and emerging policies against a “communist” China. While there is still a chance for both governments to agree on ways to assuage imbalance of trade surplus through diplomatic efforts, the hard-liner position on China has been almost a unified and inter-departmental view in the Trump administration. Trump’s foreign policy has inclination to promoting ‘America First’ in trade, and has been reluctant to globalism, order-building and international institutions, and cold-hearted towards old allies and partners which American leadership has been underpinned since the Cold War. Therefore, it was surprising to the international audience that his administration has advocated the strategy of competition against China, which requires all of policy resources, what he has denied until then. The big question is the role of the U.S. allies and partners in the strategy. Since Chinese challenges on the liberal and democratic order are multifaceted, and use of force is not always cost-effective to achieve the political goals in great power politics, it is rational to accumulate political and diplomatic powers to check and shape ambitious activities by China, such as modernizing dual-use technologies, exercising sharp power in Western democracies, and envisioning an alternative order. However, the Trump administration has gradually decreased American reliability and even credibility due to its uncertain and untrustworthy commitments on international agreements. This casts doubts for some on the ability for the U.S. to lead a coalition to compete against China. Moreover, no country is prepared to contain China: their China policy is naturally nuanced and balanced, due to the reality of economic interdependence and indispensability of economic exchange with China. In each country, we can find out interest groups, or constituency, to support business with China, while we can also find out pro-competition camps who try to offset engagement. A good example is the recent Japan-China relations. In October 2018, Prime Minister Shinzo Abe visited Beijing and shook hands strongly with President Xi, proclaiming three principles in order to avoid being dragged into the competition. Japan has viewed that its alliance policy with the U.S. is still essential for long-term security, but it aims to shape the strategic environment by international norms and rules. Japan is not alone for such a nuanced and independent stance on China, and many Asian and European countries have different policies against China. Their strategic goals are to shape China in the rule-based order. Some argue it is because of the Trump administration that the U.S. finally turned its foreign and security policy toward competitive approaches against China. However, we have to ask whether the Trump administration has an ability to lead the world for the strategic goals properly, and whether American allies and friends can accept the economic cost to reshuffle business activities with China due to security concerns. This paper attempts to contrast American and Japanese approaches on China. Firstly, it analyzes emerging American hard-liner approaches on China. Then, it argues the debates and responses in Japan on the emerging U.S. -China competition.   Trade War Technology is becoming the main field of competitive policies. In December [2018], CFO of Huawei Wanzhou Meng was arrested in Canada and the U.S. Justice Department claimed criminal charges for bank fraud, wire fraud, conspiracies to commit bank among others against Huawei, its two affiliates and Ms. Meng. In 5G and ITC area, reportedly the Trump administration would soon issue presidential decisions on tighter control of telecommunication device made by Chinese companies to American market. Also, in other areas of emerging and founding technologies, the U.S. Commerce department is in the process of issuing the list of control.   Security To reduce increasing Chinese influence and debt diplomacy and make government development organizations like Overseas Private Investment Corp (OPIC) stronger, the Senate passed the legislation to create a new 60 billion USD agency. In addition, in Papua New Guina Vice President Pence also announced the Indo-Pacific Transparency Initiative. His speech explained, “In conjunction with more than $400 million in American funding, this program will help empower the region’s citizens, combat corruption, and strengthen sovereignty” (Pence 2018a).   Sharp Power Congressional Commission Report revealed that some Washington think-tanks were funded by the Chinese Communist Party through the United Front Work Department (UFWD) to ensure a better projection of China in the U.S. The report stated violation against the rights and freedom of speech that were protected by the laws of the U.S. The report stated that Johns Hopkins School of Advanced International Studies had been receiving funding from Tung Chee-hwa, the Vice Chairman of the Chinese People's Political Consultative Conference that has high influence on UFWD. The U.S. Justice Department ordered on September 18th [2018] that Xinhua News Agency (CCTV) and China Global Television Network (CGTN) to register as foreign agents. The initiative was taken to reduce the foreign influence in the domestic issues of the U.S., to reduce the media manipulation, and to toughen the stance of the U.S. on the policies of China. On the same day, Trump tweeted that China was trying to meddle in the U.S. elections by turning the farmers, industrialists and businessmen against the Trump administration.   Religious Freedom On September 12th [2018], Nauert discussed a possibility of U.S. sanctions in response to the Chinese government's crackdown on ethnic Uighurs, Kazakhs and other minority groups. The sanctions could be imposed under the Global Magnitsky Act that would allow the government of the U.S. to freeze the U.S. assets of the Human rights violators, ban them from entering the U.S. and prohibit any U.S. firms to do business with them. Chinese government did not show any accommodating posture and insisted the “sinicization” of Xinjiang should continue.   Taiwan In December 2016, Trump received a call from the President of Taiwan Tsai Ing-wen. Since taking office, Washington and Beijing started to fix the relationship through diplomatic back channels. On February 9th, just a few days before the upcoming Abe-Trump summit, the White House released the turnout on One China policy. It said, “President Trump agreed, at the request of President Xi, to honor our ‘one China’ policy.” Trump administration has tried to stretch out its Taiwan-related policy to the edge of its One China policy, and the Congress has shown its strong interests through legislation, while most of the policies on Taiwan was under the administrative power. A good example of bipartisan support and President’s forward-leaning position can be seen in the Taiwan Travel Act (signed in March 2018), which permits the meetings between the U.S. and Taiwanese high officials.   Further Research Agenda [I]t is observed that Trump administration’s China policy has been transformed into the hard-liner approach since the winter of 2017 through spring of 2018, and security hawks and economic nationalists have united their positions on various issues. However, the research questions have been remained: firstly, whether the administration position on China has been really shifted, including president, bureaucracy, and interest groups. Secondly, it is still unclear whether there is a consensus view on the end state with such hard-liner policy. Some provocatively argue the de-coupling of Chinese economy from global supply chains, and stress the regulation on technological development, acquisition through investment, and free trade with China, while these arrangements could do serious negative impacts on substantial economy and stock markets. If the administration aims at such decoupling, the tension between the U.S. and China shall not be relaxed for a decade or more. On the other hand, if the administration simply tries to enhance its bargaining power to change Chinese unfair economic practices and ambitious challenges against the American leadership, there is a room for the Chinese government to assuage the U.S. concerns through concessions and economic statecraft. Finally, relating to these points, is the engagement idea vanishing among the U.S. policy makers? Since the 1970s, many China hands have kept the hopes on Chinese democratization and also socialization in the international community through contribution to global governance. Last five years, it is said, by some security-concerned experts, such hopes have been into extinct. Do ideas to avoid Thucydides trap, through statecraft, have the possibility to arise? In addition, President Trump might be attracted by the idea to make “Big Bargain” with Chinese leaders, making a historical turning point of the world order, to claim it as his own achievement.   Japan’s Response to the U.S.-China Competition Until the early spring of 2018, China had a long political season, and Xi Jinping entered his second term. In September, Abe showed up at the Chinese embassy’s ceremony of national day, voicing his intention to visit China and hope to invite Xi Jinping to Japan then. Beijing also made signals to keep the momentum for China-Japan relations. After having a warm summit meeting between Abe and Xi at Da Nang, APEC in November, on the occasion of Memorial Day ceremony for ‘Nanjing Massacre’ on December 13th, Xi did not make speech by himself, but the remarks were made by Yu Zhengsheng, chairman of Chinese People's Political Consultative Conference, emphasizing the points that Japan was a neighbor to construct the relationship along with the principles of Periphery Diplomacy toward their common future friendship. Prime Minister Li Keqiang visited Japan on the occasion of the China-Korea-Japan trilateral summit hosted by Japan in May, 2018. It was for the first time in eight years that Chinese prime minister visited Japan. At this occasion, in addition to the warm welcome for Li at Tokyo and Sapporo, the two leaders celebrated the conclusion of maritime-air communication mechanism between the two authorities and signed the China-Japan social welfare treaty, which both country’s industry long hoped to accomplish. Not only top-leaders’ meetings have taken place, but foreign ministers also met each other very frequently during this period of time. After assuming the Foreign Minister in August 2017, Taro Kono and his counterpart Minister Wang Yi had held eight foreign minister meetings. According to the anonymous person in the Japanese ministry, the Chinese side had sought occasions energetically to hold foreign minister meetings.   Prospect and Further Research Agenda As of February, 2019, China and Japan are still waiting how Trump would behave after the mid-term election of 2018, on his China policy and North Korean policy, respectively. Xi Jinping may pay state visit to Japan in 2019, but the items Beijing and Tokyo could agree on would depend on the situations of the US-China relations at that time: if this relationship between Beijing and Washington goes back to the normal negotiation phase, putting an end to strong criticism against China, China might not be motivated to approach towards Japan strongly. On the other hands, if Beijing and Washington fail to reach at any concessions, China should be tempted to enhance its relations with Japan, while Japan’s position might be more difficult. Japan, as a crucial ally for the U.S. strategy, should be asked from Washington to make a united front on China belligerent behaviors domestically and abroad. Japan would be put in a serious dilemma between the U.S.-Japan alliance and the China-Japan relations. The Japanese government paid much attention to manage the triangular relationships, by explaining the restoration of the relationship with China aims to fix the worsen relationship since 2012 and also to persuade China into a more fair and responsible behavior in the international community. However, any interpretation that this move means tilting towards China should be rejected. It should be also noted, on the other hands, that Japan has not shared such comprehensive sense of competition against China, which was provoked by Vice President Mike Pence. Both Japan and the U.S. concern over Chinese unfair practice, providing subsidies to state-owned companies and failing to secure intellectual property rights, while the Trump administration’s economic nationalism is also against WTO rules and targets at its own allies. To make further research, we have to make deep dive on Japan’s response on American tighter controls against Chinese business and investment, and then on Japan’s diplomatic efforts with other countries toward rule based order-building. Japan’s vision of Asian order was typical one to maintain American-led post war order in the time of shifting balance of power. For the last ten years, Japanese diplomacy has aimed to underpin American hegemony by stretching out its diplomatic and defense resources and by securitarizing its Indo-Pacific diplomacy through enhancing security partnership with a lot of nations (Sahashi 2018). However, Japan’s vision lies not in confrontational order-making process. As Akihiko Tanaka insists, while a new Cold War is theoretically possible as long as the Chinese communist party maintains its ruling system as such, it “should not be metamorphosed into a hot war and Japan should make efforts not only for strengthening the alliance for deterrence but also for enlarging a sphere for ‘peaceful co-existence’ with China.” He also argues, “Japan should not give up shaping China models of development and political reforms in the future” (Tanaka 2018). Even though Japan has not come up with good alternatives, and is still rejecting to accept a Sino-centric order vision, the recent behaviors suggest Japan’s dilemma is deepened in the time of incredible Trump foreign policy.     Author’s Biography Ryo Sahashi is an Associate Professor of International Politics, Institute for Advanced Studies on Asia at University of Tokyo. Sahashi specializes in international politics and is currently focusing on East Asian security as well as Japanese security policy. His recent book is In a Search for Coexistence: the United States and Two Chinas during the Cold War (Tokyo: Keiso, 2015). In English, he recently edited Looking for Leadership: The Dilemma of Political Leadership in Japan (Tokyo and New York: Japan Center for International Exchange, 2015), and wrote on the impact of rising China on Asian order, Japan’s security policy and Japan-Taiwan relations. Now he is writing his next book on US-China competition and leading two group studies on the alliance and order after the end of the Cold War. He received his B.A. from International Christian University and his Ph.D. from the Graduate Schools for Law and Politics at the University of Tokyo. He also studied at Department of Political Science, University of Illinois at Urbana-Champaign.  

Editor's Note China has overtaken Japan as the world’s second largest economy and has been seeking to reform the global governance system to expand its role and influence to match its growing economic power. In an effort to achieve these goals, China has adopted a global development strategy, known as the Belt and Road Initiative (BRI) and also created parallel regional organizations and institutions, such as the Asian Infrastructure Investment Bank (AIIB). Rumi Aoyama offers a broad picture of such shifts in China’s foreign policy by analyzing changes in perception of the Chinese leadership as well as a wide range of BRI-related activities.     Quotes from the paper  Introduction Over the past few decades, China has experienced remarkable economic growth in a larger effort to transition   into a market economy by pressing forward its reform and opening-up policy. Since the Nixon administration and particularly following China’s opening-up, Western-aligned developed nations such as the United States and Japan have pursued engagement with China. The underlying hope was that China would eventually transform into a democratic state that values freedom and the rule of law in the process of being incorporated into the existing West-led liberal international order. China’s presence on the international stage has dramatically expanded along with its rapid economic growth. The Xi Jinping administration’s motto is “achieving the great revival of the Chinese nation,” and its stated goal is for China to become a “modern socialist superpower” whose political system differs from that of Western-aligned nations. President Xi Jinping has promoted the Belt and Road Initiative as his signature foreign policy initiative, established various international organizations under China’s leadership such as AIIB, and retained a hardline stance on maritime issues. However, the international environment surrounding China continues to change. Within the last few years, several Western-aligned developed nations have begun to reconsider their policies of engagement with China, and the growing consensus in Washington seems to be that the engagement strategy has failed. For instance, the 2013 Foreign Affairs article, “The China Reckoning” by Kurt Campbell and Ely Ratner sparked debates on the existing US-China policy by suggesting the engagement policy’s failure to secure the liberal democratic order and calling for a new approach to China. In this paper, the author seeks to ascertain the characteristics of China’s foreign policy, and to clarify developments in the Belt and Road Initiative (BRI) promoted by the Xi Jinping administration as well as changes in China’s foreign policy, on the basis of China’s execution of its foreign policy since the end of the Cold War.   Perception of Security Threat China has consistently worked towards eliminating the military presence of major nations in areas surrounding China as well as increasing its own military might. In 1993, China announced a “new strategic guideline” in which the scope of defense of the Chinese military was revised from the “homeland” to “air, ground, sea, and outer space,” emphasizing its priority in developing sea and air power. In recent years, achievement of a comprehensive operational capability enabling the Chinese military to launch strikes in remote seas has emerged as a goal for China’s military modernization policy, and since the start of the Xi Jinping administration, China has abandoned the Soviet-style ground force model and has started to emphasize joint operation capabilities in areas including “land, sea, air, defensive missiles, and cyber defense.” China has reduced its forces by 300,000 people, reorganized the previous seven military regions into five theater commands, and is modernizing its military by strengthening its navy and air force as well as its outer space and cyber capabilities. With the realization of the Belt and Road Initiative, the importance of maritime, outer space, and Arctic issues has increased, and joint military-civilian technological development is being promoted in those three areas. Through such policy transitions, it can be found that China’s perception of security threats has also been shifted.   Suspicion towards US-NATO Collusion China’s geopolitical feature is that it is surrounded on three sides by land with one side facing the sea, and there has been a difference in opinion as to whether China is a continental nation or a maritime nation, but in recent years, the recognition that China is both a maritime and continental nation has quickly spread within China. Amid a political atmosphere where China’s maritime advancement is legitimized by the government, the People’s Liberation Army, and domestic public opinion, NATO’s position on maritime issues has garnered attention. Regarding the maritime issue, many argue that there is a possibility of conflict with NATO in the long term (He 2014). It is true that the passage of Chinese military vessels through the Mediterranean and the Suez Canal has caused concern for some NATO members. Also, in April 2013, Japanese Prime Minister Abe and then NATO Secretary General Rasmussen issued the “Joint Political Declaration between Japan and NATO,” and in May 2014, a Japan/NATO IPCP was agreed. The strengthening of relations between NATO and Japan, as well as the involvement of NATO in the nine choke points of the Indian Ocean have raised new concerns for China. Since the 2010s, China’s interest in the Arctic region has increased, and NATO’s positions have been studied. In November 2008, the EU put out a policy paper entitled “The European Union and the Arctic Region”; in January 2009, then NATO Secretary General Jaap de Hoop Scheffer pointed out the importance of the Arctic region, and in April of the same year, the joint declaration from the NATO summit held in Strasbourg, France also mentioned the Arctic. The general view in China is that while caution is warranted towards NATO’s increasing emphasis on the Arctic, at the current stage, entry by NATO into the Arctic is limited (Li 2014). As mentioned, in regards to the security threat towards China, China’s suspicion towards collusion between the US and NATO is especially great. While Russia is a strategic buffer for China, collusion between the US, Japan, and NATO regarding the maritime issue has recently become of increased concern for China.   Transformation of US-Led Security Network in Asia and Closer China-Russia Relations China’s foreign policy developed after the Cold War had been based on tacit acceptance of the presence of US military alliances in Asia. Needless to say, China came to be greatly suspicious of a series of moves made by the United States since the autumn of 2011 to strengthen military ties in the Asia region. Meanwhile, the United States’ strengthened military and economic commitment in the Asia-Pacific region brought about strong concerns by Russia, since they threatened to break the previous power equilibrium between the United States and Russia. The deployment of THAAD resulted in a strong backlash not only from China but also from Russia, similar to when NATO deployed a missile defense system in Europe. Russia’s moves can be understood through this logic.                       Cooperation between China and Russia regarding space and cyber security has also been quickly developing in recent years (Sutter 2018). In October 2018, at a meeting with Russian Minister of Defense Sergey Kuzhugetovich Shoygu, President Xi Jinping stated that “both nations are of utmost importance to each other, and are strategic cooperative partners to prioritize in foreign policy,” (Xinhuanet Oct. 19, 2018) giving greater praise to the nations’ relationship than ever before. Closer ties between China and Russia have also affected China’s view of the Russia-led CSTO in Central Asia. CSTO is a small collective security organization and China’s view is that Russia has outsized influence in the organization (Wang 2007). Since the SCO and the CSTO agreed to build a cooperative relationship in 2007, security cooperation between the Russia-led CSTO and China-led SCO and BRICS has been discussed (Russian Security Council Develops New Formats of Cooperation within CIS, BRICS, CSTO, SCO 2017). Of course, this cooperative relationship is far from being promoted to a “new Warsaw Pact” covering the Eurasian continent, let alone the world. The CSTO is an “indispensable presence” in Central Asia (Li and Niu 2016), and thus, in promoting BRI, China will likely put effort into strengthening its cooperative relationship with CSTO while its relationships with the United States and NATO were being taken into consideration. As aforementioned, in considering security concerns towards the United States, China always considers its security policy in terms of the US-China-Russia triangle. As the US-led security network in Asia is strengthened, ties between Russia and China are becoming closer.   Belt and Road Initiative and Foreign Policy Strategies of China Xi Jinping’s signature foreign policy initiative, the Belt and Road Initiative (BRI), is also centered on the four elements of “institutional hegemony, economic hegemony, political/ideological hegemony, and military hegemony.” Although the BRI was initiated under the Xi Jinping administration, it serves as the foundation for China’s post-Cold War foreign policy, and thus, the execution of the Belt and Road Initiative will be analyzed here with consideration for China’s efforts up to now.   Pursuit of Structural Power in International Order China’s influence in the existing international financial system has significantly increased. In the IMF, which was created under the Bretton Woods system, the voting share held by a member state depends on the amount of contribution by the member state. As a result of the reform to the IMF voting shares agreed in 2010, China’s contribution proportion rose to the third place after the United States and Japan. As well as seeking to increase its influence in the existing international financial institutions, China has put effort into creating financial institutions led by China. The AIIB is an idea that was unveiled in October 2013 together with the Belt and Road Initiative when President Xi Jinping visited Indonesia. In addition to the establishment of the BRICS New Development Bank and the AIIB, there are also discussions regarding the establishment of a Shanghai Cooperation Organization Development Bank. China has been actively involved in regional organizations throughout the world since the latter half of the 1990s, and has established cooperative relationships with them. The Xi Jinping administration has consolidated into one framework China’s efforts in Asia, Africa, Europe, the Arab world, and Pacific Island nations, has increased its cooperation with Latin America, and its involvement in Arctic Council (AC). China’s policy of engagement is at the center of its global strategy surrounding the Belt and Road Initiative, by which China seeks to create an economic and political sphere of influence in five areas: policy, finance, trade, infrastructure, and people-to-people exchanges (Five Connectivities: 五通).   Ideological Hegemony — China’s Governance Model Considering various discussions within China since 1990, China’s political values today include the three ideologies of universal values, Marxism-Leninism, and Chinese traditional thought, and as a nation that is seeking to increase its soft power, China cannot depend completely on any one of the three ideologies in its foreign policy philosophy, and therefore vacillates between all three (Aoyama and Amako 2015). In this situation, the Chinese government is attempting to spread state capitalism as the Chinese governance model throughout the international community under the BRI. This Chinese governance model seeks a foundation for economic growth and stability in China, and thus, whether China can overcome economic friction with the United States as well as manage its economy in a sustained and stable manner is crucial in determining the outlook of Chinese soft power.   Military Hegemony with focus on Cyber/Space Power Under the Xi Jinping administration, the importance of space and cyber warfare forces in addition to ground, naval, and air forces has rapidly increased in China’s military strategy (Wang 2016). In August 2018, the United States Department of Defense released its Annual Report to Congress pertaining to military and security developments in China, and this Report points out that China’s efforts in space technology are a major concern for the United States. The 2018 Defense of Japan white paper also states that China sees information operations for definitively gaining information superiority as one form of its asymmetrical military capabilities, and argues that China’s capabilities in electronic and cyber warfare, which aim to confuse the enemy’s chain of command during a conflict, are rapidly increasing (Defense of Japan 2018). The white paper “China’s Military Strategy” published by the Chinese government in 2015 states that China’s military strategy is active defense and that China’s future strategy is informationized local wars (China's Military Strategy 2015). The paper additionally states that the Chinese military’s eight duties include safeguarding the security and interests of new areas such as outer space and cyberspace in addition to territorial integrity, national unification, maintenance of world peace, stabilization of the domestic political society, and the like. Thus, in recent years, with an increased dependence on satellites and computer networks in the military, the Xi Jinping administration has put particular effort into outer space and cyberspace in order to create a world-class military. International cooperation on the projects of outer space and cyberspace has been emphasized under the BRI as an important policy.   Conclusion While having achieved remarkable economic growth, Chinese foreign policy has also undergone significant changes. At the beginning of the 1990s, China had predicted that the post-Cold War world order would constitute one superpower and multiple great powers, but by now, China has put efforts into forming a “G2+” world order (the two superpowers of China and the US as well as other political powers). China’s strategy for rising in prominence has been strongly influenced by international political theories and concepts such as the hegemonic stability theory and structural power. China has been seeking to increase its standing in the changing international order by increasing structural power, building infrastructure, and providing international public goods such as the RCEP and FTAAP. The Xi Jinping administration continues moving in this direction and promoting the Belt and Road Initiative so as to be centered on institutional hegemony, economic hegemony, political/ideological hegemony, and military hegemony. On the other hand, with major reforms in the party and state organization as well as reforms in creation and execution of policies, the unifying ability of the Communist Party as well as coordination between the state administration, local governments, and corporations have been strengthened in order to promote the Belt and Road Initiative. Under the Xi Jinping administration, the Communist Party (the state) now has the power to decide a policy, market mechanisms continue to be incorporated into executing policies, and the state administration, local governments, and corporations are cooperating to execute policies as a whole. In short, the arrangement of the government and market and that of the government and corporations have greatly changed, and there are strong tinges of state capitalism under Xi’s leadership.   As distrust towards the West in terms of security escalates and China attempts to respond to the changing international situation, China-Russia ties have become closer. In new security areas such as outer space and cyberspace, China and Russia have shown remarkable unity in terms of global governance and the direction of foreign policy, and have consequently widened the gap with Western nations. Thus, the international situation is becoming increasingly fluid.     Author’s Biography Rumi Aoyama is director of Waseda Institute of Contemporary Chinese Studies, and a Professor at the Graduate School of Asia-Pacific Studies at Waseda University. She has been a visiting scholar at Stanford University (2005-2006) and George Washington University (2016-2017). She earned her Ph.D. in Law from the Graduate School of Law, Keio University. She specializes in China’s contemporary foreign policy and politics. Her publication, entitled Contemporary China’s Foreign Policy (Keio University Press, 2008), was honored with the 24th Masayoshi Ohira Foundation Memorial Prize. Other recent publications include Decoding the Rise of China (Palgrave Macmillan, 2018); A Diplomatic History of the People’s Republic of China (University of Tokyo Press, 2017); China and the Future of International Order (University of Tokyo Press, 2015)..  

EAI Fellows Program Working Paper Series No.14 Abstract Although China, Japan, and Korea have shared a common cultural tradition of broadly defined Confucianism, which as whole is quite different from the Western tradition, their modern fate diverged after the East came to contact with the West around the middle of the 19th century and throughout the 20th century, the three countries followed different paths for modernization, national building and industrialization that also produced different results. However, in the last few decades, the paths of these countries begin to converge. With China shedding its communist ideology, and returning to a more market oriented economic development strategy that approximates the path that other East Asian countries followed, and increasingly drawing its inspiration from China’s own tradition and resources rather than from exported ideologies, it has become more imperative to critically examine similarity and differences among these three countries. This paper attempt to analyze what is believed to have continuing bearing on the actual operation of contemporary business organization. As an initial part of a larger project on comparative study of institutional template in these countries, this paper exclusively focuses on the traditional family structures in China, Korea, and Japan., under the concept of "institutional template." Author Professor Hong Yung Lee received his B.A. from Yonsei University, Seoul, Korea and his Ph.D. from the University of Chicago. His research areas of interest include the domestic politics of China and Korea, and political economy and international relations in East Asia. He authored Politics of Chinese Cultural Revolution (UC Berkeley, 1978) and From Revolutionary Cadres Party Technocrats in Socialist China (UC Berkeley, 1991), and edited Prospects for Change in North Korea (Institute of East Asian Studies, 1994); Korean Options in a Changing International Order (Institute of East Asian Studies, 1993); Political Authority and Economic Exchange in Korea (Oruem Publishers, 1993). He teaches courses on East Asian politics and political economy, and on international relations, and is currently working on a book length manu on "Comparative Study of Institutional Templates of China, Japan, and Korea."  This paper was submitted to "EAI Fellows Program on Peace, Governance, and Development in East Asia" supported by the Henry Luce Foundation based in New York. All papers are available only through the online database. When viewed from a comparative perspective, one of the puzzles raised by the East Asian political economies is why the economic institutions in China, Japan, and Korea are organized and operate differently from each other, despite the fact that they share a similar cultural heritage, and the face similar challenge as late industrializing countries. Similarly, why do various organization and institutions performing different tasks within a given society demonstrate certain isomorphic relations, though economic institutions that perform similar tasks in different countries are organized differently?   Such a question generally leads to the acceptance of the institutional approach’s main premises – namely that any economic organization – including a business firm — is "embedded" in the broader historical and cultural context of a given nation.1 In other words, though business organizations might have been created for specific tasks that need to be performed regardless of nation, they are imbedded in and directly affected by networks of institutionalized relationships, which are in turn different in each society. 2Further elaborating the implications of this, some scholars argue that a certain degree of isomorphism between the economic institutions and non economic institutions of a given country is a prerequisite for any successful economic performance. “Asian economies have worked so well because they have created organizational arrangements and management practices that give them a competitive advantage. Japan, South Korea and Taiwan each pursue business strategies that suit their social arrangements -- their cultures, their traditional ways of organizing and managing affairs, and their governmental structure.”3 In other words, factors specific to each of the East Asian countries are accountable for its economic performance.   Because of this institutional isomorphism and imbeddedness, an institution will evolve in a path dependent way, shaping new institutions and organizations that are created for well defined objectives. What makes various institutions be isomorphic to each other in a given country is conceptualized as “template.” In other words, it is not the institution itself, but rather the institutional template that defines the range of choices an agent can select in creating a new type of institution, be it pertaining to the state or business or the relationship between the two. Such path dependency means that agents are allowed a certain amount of autonomy when shaping new institutions and organization, but only within the limits of the existing institutional template with which the agents are familiar. Such considerations also affects the choices one makes in creating a new organization, the choice that will certainly in turn modify the institutional template...(Continued)    

EAI Fellows Program Working Paper Series No.20 Abstract The Asian Financial Crisis had a catalyzing effect on East Asian financial policy makers, as it laid bare both the exposure of regional countries to global finance and the apparent indifference to their plight on the part of the IMF and United States. Whatever else the crisis produced—and it had enormous economic, political, and social ramifications in many countries —it clearly raised concerns about the ability and willingness of the guarantors of global financial stability to care about East Asian stability. Some East Asian policy makers decided early on that the new dynamics of the global financial system called for a regional self-help system, as evidenced in the Asian Monetary Fund proposal and Japan’s New Miyazawa Initiative. After some stumbling around, cooperative efforts eventually coalesced around the ASEAN+3—a group that had not formally existed before 1997—in a set of cooperative endeavors that included preeminently the Chiang Mai Initiative, the Asian Bond Markets Initiative, the Asian Bond Fund (actually an initiative of the Executives’ Meeting of the Asia-Pacific Central Banks, which is composed mostly of ASEAN+3 central banks), and a rudimentary surveillance mechanism known as Economic Policy Review and Dialogue. East Asian financial regionalism developed in response to the lessons of the AFC, and as such was meant to prevent such a crisis from recurring—or, if it did, to prevent its spread and to rapidly contain its worst effects. Regional cooperation has faced criticism on its economic merits both from those who argued that it had not gone far enough in locking in the lessons of the 1997 crisis and from those who felt that in “fighting the last war,” the East Asian economies were creating new global problems. There have been political concerns as well, both from advocates who fretted that politics was preventing the establishment of effective regional institutions and from those who doubted the viability of a set of arrangements that depended ultimately on Sino-Japanese cooperation to provide public goods. Author William W. Grimes, Associate Professor of International Relations, Director of the Center for the Study of Asia, Boston University This paper was submitted to "EAI Fellows Program on Peace, Governance, and Development in East Asia" supported by the Henry Luce Foundation based in New York. All papers are available only through the online database.   The Asian Financial Crisis had a catalyzing effect on East Asian financial policy makers, as it laid bare both the exposure of regional countries to global finance and the apparent indifference to their plight on the part of the IMF and United States. Whatever else the crisis produced—and it had enormous economic, political, and social ramifications in many countries —it clearly raised concerns about the ability and willingness of the guarantors of global financial stability to care about East Asian stability. Some East Asian policy makers decided early on that the new dynamics of the global financial system called for a regional self-help system, as evidenced in the Asian Monetary Fund proposal and Japan’s New Miyazawa Initiative. After some stumbling around, cooperative efforts eventually coalesced around the ASEAN+3—a group that had not formally existed before 1997—in a set of cooperative endeavors that included preeminently the Chiang Mai Initiative, the Asian Bond Markets Initiative, the Asian Bond Fund (actually an initiative of the Executives’ Meeting of the Asia-Pacific Central Banks, which is composed mostly of ASEAN+3 central banks), and a rudimentary surveillance mechanism known as Economic Policy Review and Dialogue. East Asian financial regionalism developed in response to the lessons of the AFC, and as such was meant to prevent such a crisis from recurring—or, if it did, to prevent its spread and to rapidly contain its worst effects. Regional cooperation has faced criticism on its economic merits both from those who argued that it had not gone far enough in locking in the lessons of the 1997 crisis and from those who felt that in “fighting the last war,” the East Asian economies were creating new global problems. There have been political concerns as well, both from advocates who fretted that politics was preventing the establishment of effective regional institutions and from those who doubted the viability of a set of arrangements that depended ultimately on Sino-Japanese cooperation to provide public goods. Both advocates and critics have built logical arguments based on theoretical and practical assumptions, but any honest evaluation has been left with the basic lingering question: When push comes to shove, what effects would financial regionalism have? With a new financial crisis of global dimensions, this would appear to be a good time to attempt at least an initial appraisal. The thesis of this paper is a paradoxical one. I argue that, while financial regionalism per se has had little apparent impact on how the crisis has affected the ASEAN+3 economies, the regional financial architecture has effectively insulated these economies from the worst effects of the crisis. The catch is that “regional financial architecture” must be understood as more than simply the official cooperative efforts of ministries of finance and central banks. Rather, it also includes the responses of national authorities and global actors to the political dynamics created by regional and global institutions. And ironically, it is far from obvious that “improvements” in the form of greater institutionalization of regional financial cooperation will improve either the functioning of the regional initiatives themselves or the more broadly defined regional financial architecture.  

EAI Fellows Program Working Paper Series No.12   Author Peter J. Katzenstein is the Walter S. Carpenter, Jr. Professor of International Studies at Cornell University. His research and teaching lie at the intersection of the fields of international relations and comparative politics. Katzenstein"s work addresses issues of political economy, security and culture in world politics. His current research interests focus on the politics of civilizational states on questions of public diplomacy, law, religion, and popular culture; the role of anti-imperial sentiments, including anti-Americanism; regionalism in world politics; and German politics. Recent and forthcoming books include: Analytical Eclecticism (2009), with Rudra Sil. The Politics of European Identity Construction (Cambridge University Press, 2008/9), co-edited with Jeffrey T. Checkel. Rethinking Japanese Security (Routledge, 2008). Anti-Americanisms in World Politics, coedited with Robert O. Keohane (Cornell University Press, 2007). Religion in an Expanding Europe (Cambridge University Press, 2006), coedited with Timothy A. Byrnes. Beyond Japan: East Asian Regionalism (Cornell University Press, 2006), coedited with Takashi Shiraishi. A World of Regions: Asia and Europe in the American Imperium (Cornell University Press, 2005). Rethinking Security in East Asia: Identity, Power, and Efficiency (Stanford University Press, 2004). He is the author, coauthor, editor and coeditor of 32 books or monographs and over 100 articles or book chapters.    This paper was submitted to "EAI Fellows Program on Peace, Governance, and Development in East Asia" supported by the Henry Luce Foundation based in New York. All papers are available only through the online database.       We are, it appears, in the midst of another celebratory cycle. Impatient  journalists  declare a particular decade, especially this one, as the moment in which one particular country will remake a world region, indeed the entire world, in its own image. Based on its meteoric economic rise and riding what eventually turned into a  financial bubble, Japan in the 1980s was widely greeted as a challenger which would come to rival the U.S. as a global power in the 21st century. Pax Nipponica was to be shaped by a civilian power that was destined to determine the technological trajectory of most societies. The i-pod as the successor of the walkman and a Scott as head of SONY illustrate how wrongheaded this world view really was. A decade later, the same thinking was applied to the United States. After the collapse of the Soviet Union, in the era of globalization America offered a model to the world that appeared to have no rival. With some hyperbole the United States was called the New Rome. Pax Americana was to reign for decades, if not centuries. Within a decade America’s high-tech and low-mortgage speculative bubbles burst; America’s deficits and debt burdens mounted; and the arrogance and ignorance that informed American foreign policy under the Bush administration produced huge political train-wrecks in Afghanistan, Iraq, and Pakistan. Brief as it may be, and with India waiting in the wings, now is the moment to celebrate or fear the Chinese economic juggernaut and a looming Pax Sinica. China’s rise elicits one of two reactions. The breathless adulation that is the hallmark of today’s economic journalism flourishes side by side with ominous political rumblings among specialists in international affairs about the rise of a new superpower. Enormous markets for economic growth and profit, we are told, are sprouting in a country that is fated to become a serious political rival and deadly military challenge to the United States -- if not today, then tomorrow, or the day after tomorrow. Such optimistic and pessimistic views permeate also scholarship (Friedberg 2005), as they did  a couple of decades ago at the time of Japan’s ascendance and as they will a decade or two hence when India will be greeted as the looming world power. These different reactions share, however, in one assumption. China as the rising power is seen as responding to the challenges posed by the West. Historian Paul Cohen (1996) has probed that assumption as well as the partial corrective that can be taken.  John Hobson (2004) and Andre Gunder Frank (1998) make the same point in their frontal assaults on Euro-centrism. In contrast to historians and sociologists, students of world politics by and large continue to adhere to the challenge-response framework. Competition is the name of the game -- in global markets and in the international state system. The West challenged China in the late 19th century in the form of imperialism and in the late 20th century in the form of economic globalization. China’s task was and is to respond. Resisting analytical perspectives that focus exclusively on China’s response, an alternative view celebrates China’s uniqueness. In this view China’s rise is explained by inherent traits that are finally asserting themselves once again and that are placing China in its well-deserved position at the top. This view risks essentializing specific features of China – Confucian traditions, religions, breakthroughs or visions. The risk extends to attempts that articulate Chinese forms of universal empire outside of the Chinese tradition, as in Zhao Tingyang’s theory of Tianxia (Zhao 2006. Callahan 2007).  The intellectual and emotional, impulse to celebrate China’s uniqueness can be powerful, even irresistible. China’s many achievements and traits are easily cited, relevant evidence. To succumb to this temptation is hardly unique to China, but it is a temptation scholars should resist. China’s distinctiveness, this paper argues, is related to the combination of common features with unique traits. Distinctive of China is the fact that for many centuries it was more than a vast market and a powerful state; it was a civilizational polity endowed with a sense of self, reflected in distinctive practices and values. Whether China experienced the same break as did other Axial Age civilizations remains a matter of considerable controversy among scholars (Schwartz 1975. Eisenstadt 1986). But it is plausible to argue that China today is a civilizational state because of the institutionalization of recognizable rules, identities and habits which enable the Chinese people to cope with changing conditions. And the forever changing boundaries of that civilizational state depend on the quality and relative intensity of interaction and the relative degree of homogeneity that interaction generates (Huang 2002, 222). The rise of a distinctive China at the turn of a new millennium, this paper argues, is not creating political ruptures but recombinations of old and new elements. China’s and East Asia’s encounter with the West, in the second half of the nineteenth century, lends support to this view. Recent scholarship has offered two explanations, one focusing on autonomy and non-interference and the second on status and recognition. For Stephen Krasner (2001, 179-85) European states habitually violated their own sovereignty and that of East Asian states with impunity. Since sovereignty amounts to nothing more than “organized hypocrisy,” it was trumped by strategic and commercial interests. European practice in the egalitarian Westphalian system, furthermore, was similar to China’s self-serving conduct in the hierarchical order of the Sinocentric world. In sharp contrast, explanations drawing on the English School focus on status and recognition as powerful factors in the expansion of the European society of states into East Asia in the late 19th century (Bull and Watson 1985). This changed both the fundamental nature and the behavior of East Asian states. In joining the international society, East Asian states came to share with Western states expectations, mutual understandings, and core practices. East Asian debates over sovereignty norms were not just cheap talk concealing the hypocritical interests of rulers as Krasner’s interest-driven analysis assumes; nor were they devoid of meaning as the status-oriented explanation of the English School suggests. In the second half of the 19th century, as Seo-Hyun Park (2006) argues, sovereignty debates in East Asia were intensive rather than scripted, and throughout East Asian history both autonomy and status markers were highly salient in a hierarchically conceived regional order. The meaning of sovereignty fluctuated between both frames over time and between different countries. Like Western principles, Confucian principles allowed for behavioral slack and variable political repertoires of action. For example, in the second half of the 19th century Japan broke with its traditional, autonomy strategy and adopted instead a status strategy in the Westphalian system. Korea, by contrast, sought to stay within China’s orbit but switch from status to autonomy, unsuccessfully, as it had not fully internalized the Westphalia’s norms. Krasner explains the Korean exception with a quick reference to varying domestic norms and deeply-held elite views. Despite its plausibility, Park argues, this argument fails to offer good reasons why sovereignty discourses in the two states went through different transformations between 1860 and 1885, and why the goals of state policy on questions of sovereignty evolved so differently as well. Agreeing with Gerrit Gong (1984) and Hidemi Suganami (1984) Park offers a coherent analysis of these transformations in terms of the more (Japan) or less (Korea) marginal positions these two states had occupied in the Sinocentric order...(Continued)