New East Asian Alliances February 22, 2012 2012 CommonWealth Economic Forum Asia’s Transformation and Growth in a New Era of Risk New East Asian Alliances Oh-Seok Hyun

Contents 1. Integrating East Asia 2. Convergence in East Asia In this chapter, we review the statistics of intra-regional and extra-regional exports, which recorded around 10% annual growth in 2000s. 2. Convergence in East Asia - In this part, we look into economic and social circumstances to review conditions of East Asia’s integration with coefficient variation(CV) index of KCJ(Korea-China-Japan), ASEAN, EU5 countries. CV is calculated by standard deviation of economic, social, and political variables, such as GDP per capita, trade volume, R&D expenditure, and unemployment rate. 3. Summary - With this part, we summarize the above export statistics and index data, and suggest some challenges that East Asia countries face. 4. Policy Recommendation - Finally, I will suggest a policy recommendation related with Korea-China-Japan’s FTA in the last part.

1. Integrating East Asia Intraregional exports of manufactured goods in East Asia increased remarkably. Since 2000, East Asian countries have begun to increase intraregional exports from 5,678 to 11,305 million US$ in all manufactured goods, which indicates the 10% of annual average growth. It is contrasted to America’s growth rate of same item, which shown 2% in the table below. This is clear evidence of the development of international production network within East Asia. Intraregional exports Extra-regional exports Intra-regional share in export to world Value (million US$) Annual average growth rate Product composition Annual average growth rate 2000 2007 00-07 East Asia(ASEAN+6) All manufactured goods 5,678 11,035 10% 78% 8,141 14,897 9% 87% 43% Machinery 3,513 6,607 47% 5,494 9,266 8% 54% 42% Parts and components 2,301 4,292 30% 2,307 3,314 5% 19% 56% (ICT-related goods) 1,585 2,433 6% 17% 1,308 1,310 0% 65% Finished products 1,212 2,315 16% 3,187 5,951 35% 28% 530 1,035 7% 1,316 2,456 14% Other manufactured goods 2,165 4,428 11% 31% 2,646 5,631 33% 44% Merchandise trade, total 7,099 14,106 100% 9,227 17,166 45% America (NAFTA & UNASUR) 7,122 8,033 2% 69% 4,715 6,727 71% 4,637 4,883 1% 3,095 3,765 3% 40% 2,271 2,130 -1% 18% 1,717 1,817 636 319 -9% 836 556 -6% 36% 2,366 2,752 24% 1,379 1,948 21% 59% 720 733 499 325 2,485 3,150 27% 1,619 2,962 52% 9,237 11,584 6,120 9,439 55% Europe (EU27) 14,213 25,837 79% 6,979 12,953 85% 67% 7,770 13,074 4,072 7,423 49% 64% 3,204 5,554 1,806 3,179 867 771 -2% 521 501 61% 4,566 7,520 23% 2,266 4,244 1,378 1,636 525 583 4% 74% 6,444 12,763 39% 2,908 5,530 70% 17,692 32,748 8,271 15,272 68% Source: ADBI (2011)

CV(Coefficient of Variation) of GDP per capita 2. Convergence: Economic Circumstances Income Level Korea, China, and Japan have great convergence in GDP per capita. CV of GDP per capita in KCJ countries decreased remarkably in 1990s, while EU5 nation’s income gap has been slowly increased. CV(Coefficient of Variation) of GDP per capita Source: Chun & Park (2010), KDI

CV(Coefficient of Variation) of Labor Productivity 2. Convergence: Economic Circumstances Labor Productivity Korea, China, and Japan have great convergence in labor productivity. As well as income level, labor productivity gap between Korea, China, and Japan has been narrowed in 1990s. On the contrary, EU5 nation’s CV data has shown little variation. CV(Coefficient of Variation) of Labor Productivity Source: Chun & Park (2010), KDI

CV of central government debt 2. Convergence: Economic Circumstances Macroeconomic Stability But inflation of Korea, China, and Japan has been fluctuated widely in 1990s Especially KCJ’s fluctuations in price were sharp, which are wider than those of EU5 nation’s . Gap of central government debt in KCJ has been slowly expanded after 2000s, while EU5’s gap has been narrowed. CV of Inflation CV of central government debt Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

2. Convergence: Economic Circumstances Economic Openness Economic openness is measured by trade and foreign direct investment. Both Trade volumes of KCJ and EU5 have converged, but EU5’s CV was more stable. On the contrary, both gap of FDI in KCJ and EU5 have sharp fluctuation after 1990s, which means FDIs move sensitively than trade. CV of trade volume CV of FDI Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

2. Convergence: Economic Circumstances Level of Informatization Level of informatization was estimated by number of Internet users and mobile phone subscription. In Korea, China, and Japan, level of informatization has remarkable convergence. It indicates that information gap has been reduced in Asian countries. CV of Internet user’s number CV of mobile phone subscription’s number Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

2. Convergence: Economic Circumstances Technology Innovation Technology innovation was measured by percentage of R&D expenditure and number of patents granted. Since 2000s, KCJ’s R&D rate gap and patent number has been constantly narrowed, as opposed to EU5. CV of R&D rate CV of Patent Number Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

2. Convergence: Economic Circumstances Education For higher education, both EU5 and KCJ continued to convergence, the other hand, ASEAN countries’ educational gap has been expanded until mid 2000s. But the gap of public spending on education in KCJ continually expending. CV of Graduates of higher education CV of Public Spending on Education Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

2. Convergence: Social Circumstances Safety Since the mid1990s, the unemployment rate gap in KCJ has been converged, but that in ASEAN is expanding constantly. With regard to Health expenditure, both EU and KCJ continued to show convergence since 1990. CV of Unemployment rate CV of Health expenditure Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

2. Convergence: Social Circumstances Safety(con’d) Suicide rate gap in EU5 nations is expending constantly, on the contrary, KCJ’s have a tendency to be narrowed recently. Both crime rate gap of KCJ and ASEAN has narrowed generally. CV of Suicide Rate CV of Crime Rate Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

CV(Coefficient of Variation) of Gini Index 2. Convergence: Social Circumstances Distribution The gap between KCJ three nation’s Gini Index has been widely expended in 2000s, while ASEAN’s gap has narrowed. CV(Coefficient of Variation) of Gini Index Source: Chun & Park (2010), KDI

CV(Coefficient of Variation) of Fertility Rate 2. Convergence: Social Circumstances Low Fertility The gap in fertility rate among Korea, China, and Japan’s was expended until mid 2000s, however, the gap has been narrowed recently. ASEAN nation’s fertility gap seemingly has converged. CV(Coefficient of Variation) of Fertility Rate Source: Chun & Park (2010), KDI

CV of Institution Trust 2. Convergence: Social Circumstances Trust We can not find the distinct characteristics about general trust. With regard to institution trust, gap in KCJ countries was fluctuated, while that in EU has been constantly narrowed. * CV of Trust was calculated based on World Valued Survey CV of General Trust CV of Institution Trust Source: Chun & Park (2010), KDI Source: Chun & Park (2010), KDI

CV(Coefficient of Variation) of Foreign Population 2. Convergence: Social Circumstances International Cooperation Foreign population gap in KCJ has a tendency to be converged, while ASEAN’s gap has been expended. CV(Coefficient of Variation) of Foreign Population Source: Chun & Park (2010), KDI

3. Summary So far, we have seen economic and social indexes that reflect the status of convergence in Korea, China, and Japan. Korea, China, and Japan seemingly have great differences on the surface, but the comparison with other regions and the time-series data show that prerequisite conditions for economic integration are not unfavorable. It should be noted, however, that unlike the convergence in economic areas, social differences between countries have not been narrowed, which means that a keen attention would be needed to stimulate convergence in this area.

4. Policy Recommendation Korea – China – Japan FTA ? Currently under consideration - In the process of Asian integration, Korea-China-Japan’s leading role between advanced economies and developing countries is necessary. Therefore, it is very timely for Korea-China-Japan to take joint conference to discuss Free Trade Agreement to encourage integration of East Asia. Trade could bring win-win situation. - Trade among Korea-China-Japan would strengthen competitiveness in the global market and result in Win-Win situation. More economic integration could bring political stability. - As shown in the European Union(EU), economic integration evidently has a significant role in maintenance of peace and political stability after World War Ⅱ. More economic integration in Asia also could bring political stability. Partners for a New World Order. East Asia integration would be more effectively set up when Korea, China, and Japan expand their cooperation in various global issues. The active role of Taiwan is needed to bring stability of a New World Order.

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