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Commentary: Two visions of Asian trade order clash

  • 2015-01-27 15:00:00
  • , Nikkei
  • Translation

(Nikkei: January 25, 2015 – p. 3)

 

 By Yasuhiko Ota, senior writer

 

 Will an economic sphere based on free competition and rules and emphasizing market mechanisms be created or will an order effectively controlled by a major power backed by military and financial might come to pass?

 

 Two visions clash in the Asia-Pacific region, which is now at a historic crossroads.

 

 New Zealand became a founding member of the Asian Infrastructure Investment Bank (AIIB) on Jan. 1, 2015, with the consent of all the other members.

 

 The Chinese Finance Ministry issued a statement early this year to welcome the participation of the first advanced Western country in the AIIB. It even stressed that the China-led AIIB is “built on the principles of openness and tolerance.”

 

 The AIIB now has 24 members, including all the ASEAN states. It is now almost certain that this mechanism will move forward as envisioned by China. Negotiations on the AIIB are expected to be completed by the end of June, after which the bank will be officially launched before the end of 2015.

 

 What will happen if a Trans-Pacific Partnership (TPP) agreement is not reached by then? The economic order in Asia will be formed under China’s leadership. In the first place, China has foreign currency reserves to the tune of $4 trillion, mostly earned through trade surpluses. This is more than three times Japan’s reserves, which rank second in the world. Such overwhelming financial prowess will certainly be used for economic diplomacy.

 

 Another example is the two Silk Road economic zones, for which China will create a $40 billion fund for building roads, ports, electric power networks, pipelines, and other infrastructure. China envisions a land link from China to Europe via Central Asia and a sea lane to the Middle East via the ASEAN states.

 

 For sure, generating Keynesian demand through infrastructure development will also increase trade and investment. Greater efficiency of production and distribution that comes with development will also enhance the growth potential of the region as a whole. However, if funding is over-reliant on China, fairness cannot be ensured.

 

 Japan, the U.S., and Australia do not support the AIIB due to lack of transparency in its governance and financing standards. Then why did New Zealand choose to join the Chinese camp when it is also one of the initiators of the rule-based TPP?

 

 One reason is the present state of ANZUS (Australia, New Zealand, United States Security Treaty) signed in 1951. ANZUS has practically become a bilateral security alliance between the U.S. and Australia since 1986, after New Zealand adopted a non-nuclear policy.

 

 New Zealand is in a slightly different position from Japan, the ROK, and Australia, which are close allies of the U.S. In that sense, it has greater diplomatic leeway. As a small country struggling with the waves of globalization, it is adopting a realist approach by broadening its connections.

 

 Who will lead economic integration in Asia? Regardless of the wishes of the countries in the region, trends appear to be favoring China.

 

 To turn back this vision for Asia based on power and not rules, the TPP talks need to restore the leadership of the free-trade pact. The Abe and Obama administrations are not responsible only for the adjustment of bilateral and domestic interests.

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