Asian free trade accords needed to co-exist with Chinese juggernaut

TOKYO (AFP) – East Asian countries including Japan must face the reality that China is a world power and learn to co-exist with their giant neighbor by developing a network of free trade agreements (FTAs), according to experts in Tokyo.

Such accords, mirroring those in existence elsewhere in the world, would allow these countries, especially Japan and China, to accelerate the structural adjustment of their economies to the globalization of markets, agreed the expert commentators at a symposium organized here by the Yomiuri Shimbun daily earlier this week.

"China’s growth and competitiveness are already too big to be ignored. It is also too strong to resist either for Japanese or other Asian economies," said Steve Harner, an American consultant who spent 12 years in Japan and has lived in Shanghai since 1994.

"Protecting themselves is not the answer. The answer is to adjust to its presence in the region," he said.

Aspiring to a role as regional superpower, China surprised the world with its proposal to its neighbors and competitors in Southeast Asia in the ASEAN bloc for the creation within 10 years of a vast free trade zone encompassing some two billion consumers.

Not to be outdone, Japanese Prime Minister Junichiro Koizumi suggested the establishment of an economic "community" with the Association of Southeast Asian Nations (ASEAN) during his tour of Asia in January. And late last year, Tokyo concluded its first FTA – with Singapore – and is discussing a bilateral accord with South Korea.

"Capitalist mechanisms should be much stronger... We have to strengthen our national fiscal situation, improve the investment environment and liberalize investments. For that trade agreements are crucial," said Hu Angang, the influential director of the Center for China Studies, Chinese Academy of Sciences at Beijing’s Tsinghua University, who sits on a number of government committees.

"Japan, (South) Korea, Hong Kong and China would be good candidates for a free trade zone. The Chinese government is contemplating that and ... is already moving with ASEAN to create an FTA area."

Underlining the strong growth of intrare-gional commercial ties, Hu pointed out that trade with Japan, South Korea and Hong Kong now accounts for 37 percent of all Chinese trade.

"Besides NAFTA (North American FTA), AFTA (African FTA) and the EU... there may be an Asian block but Asia is lagging behind in terms of trade mechanism," he said.

As far as Japan is concerned, FTAs could help kickstart its ailing economy, the experts said.

"If there are FTAs, we need to open up ourselves, we need a mechanism to reform ourselves. Adjustments mean pain and redirecting resources to new sectors," said Yasuhisa Shiozaki, a ruling Liberal Democratic Party lawmaker and an advisor to Koizumi.

Shiozaki acknowledge that Japanese agriculture which is globally uncompetitive and protected would present some difficulties, but FTAs would pose "a problem of competitiveness for everybody," including China.

The participants stressed China’s trump cards which help it maintain a growth rate of around seven percent a year: An enormous potential domestic market, labor costs among the lowest in world and sufficient financial resources.

But they also pointed to chinks in the armor: The lack of a system of private ownership of property, the communist party’s monopoly on power, its dependence on foreign investments which accounts for 10 percent of total investment, the huge volume of bad debts held by state-owned banks, and an aging population.

As a result, China need not inspire fear in its neighbors, the experts agreed, rather the reverse, but it should encourage them – Japan in particular – to deepen their ties with this emerging economy.