The Rise of China and Regional Integration in East Asia
| Date | 01 February 2016 |
| Published date | 01 February 2016 |
| DOI | http://doi.org/10.1111/sjpe.12107 |
THE RISE OF CHINA AND REGIONAL
INTEGRATION IN EAST ASIA
Paul De Grauwe* and Zhaoyong Zhang**
Over the past decades, East Asia has achieved one of the most profound eco-
nomic transformations in recorded history, and has become the most dynamic
economic region and one of the most integrated areas in the world. However,
regional and economic integration in East Asia is a relatively new phe-
nomenon and cooperation is lightly institutionalized (ADB, 2008). Largely
reflecting the diversity of the economies, the East Asian regionalism follows a
markedly different pattern from that in Europe and other regions. In the
absence of a formal institutional framework, the regional integration in East
Asia has been driven by market forces and by the development of increasingly
sophisticated production sharing and intra-regional network trade, in which
China’s rapid growth has been instrumental. It is the international firms that
are creating linkages across borders in their search for profitable opportunities
through trade, foreign direct investment (FDI), and other arrangements in
accordance with changes in comparative advantage, industrial upgrading, and
unilateral liberalization of goods and capital markets in the region (Dobson,
1997; Zhang, 2003; De Grauwe and Zhang, 2012). Policies such as preferential
trading arrangements have traditionally not played much of a role in the inte-
gration of the region.
Since the early 1990s, there has been a shift from non-preferential to a pref-
erential route to trade liberalization, and the East Asian region began moving
toward more formalized preferential agreements and regionalization, with the
Association of Southeast Asian Nations (ASEAN) playing a catalyst role in
driving the regional integration and cooperation. The outbreak of the 1997–
1998 East Asian financial crisis created a greater awareness of the region’s
shared interests and vulnerabilities, and pushed East Asian regional coopera-
tion and regionalism. One important lesson learnt by these economies from
the financial crisis is that it is important to establish both a more resilient
domestic economic and financial system and a better functioning global finan-
cial system as keys to crisis prevention, management, and resolution (Kawai,
2009). Since then a number of initiatives in the trade (the proliferation of free
trade arrangements) and financial (e.g. the Chiang Mai initiative) areas have
been launched as a result. It is essentially the crisis itself that led to further
regional integration and cooperation in East Asia, in contrast with the euro-
zone sequence. The region’s diversity, development pattern, and global links
have led to a unique Asian model of regionalism, i.e. a dynamic, open, multi-
*London School of Economics
**Edith Cowan University
Scottish Journal of Political Economy, DOI: 10.1111/sjpe.12107, Vol. 63, No. 1, February 2016
©2016 Scottish Economic Society.
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