China-Japan-ROK Economic and Trade Cooperation in Perspective of Profound Changes Unseen in a Century
Being neighboring countries geographically, China, Japan and the Republic of Korea (ROK) are mutually important economic and trade partners for one another. Since the trilateral cooperation was launched in 1999, cooperation between the three countries in economic, trade and investment areas has continued to achieve remarkable results, the fields and scope of economic and trade cooperation being on the increase, and its plane and level being on the rise. China-Japan-ROK cooperation carries decisive weight for the region and the world at large, the trilateral economic and trade cooperation being not only the engine for Asia’s economic and trade growth but also an important driving force for global economic growth. At the same time respectively, all of the three parties are mutually important trading partners of the United States (US), which together with China, Japan and Republic of Korea form an important integral part of the global value chain, China-US trading relations noticeably affecting trading interests of Japan and ROK. Against the backdrop of the new stage of globalization and restructuring of the global trading system, the international political and economic significance of China-Japan-ROK economic and trade cooperation has come to the limelight.
China-Japan-ROK Economic and Trade Cooperation is an Important Driving Force for Asian and Global Economic Growth
Economic and trade cooperation plays a key role in China-Japan-ROK cooperation. In the past twenty years, the total trading volume between the three countries has increased from US$13o billion to US$720 billion, the three being mutually one of the most important trading partners for one another. At every stage of the expansion of globalization, mutual complementarity between the three countries is increasingly deepened, and Northeast Asia, home of the three countries has become an integral part of world economic growth that plays a decisive role.
1.China-Japan-ROK Economic and Trade Cooperation Makes Immense Contributions to Global Economic Growth
In the past twenty years, China, Japan and the ROK have respectively made full blown development in economic and trade terms. Between 2000 and 2018, China’s GDP increased from US$1.21 trillion to US$13.61 trillion, having maintained a fast and stable growth; that of the ROK, from US$0.56 trillion to US$1.62 trillion; and that of Japan, from US$4.89 trillion to US$4.97 trillion. Proportion wise, since the global financial crisis broke out in 2008, the shares of their GDP in the global have basically maintained a relatively stable growth. Among them, China’s growth in GDP has made the greatest contribution to the world economy. According to the statistics of the World Bank, in 2018 the combined economic size of the three countries totaled US$20.2 trillion, accounting for 23.5 percent of the globe total, surpassing that of the EU at 21.9 percent, and approaching that of the NAFTA at 27.3 percent, which fully illustrates decisive role the economies of China, Japan and the ROK play in global development (see figure 1).
The past twenty years have witnessed rapid progress of globalization as well as rapid restructuring of the global value chain. In the value chain system of trade in goods, China, Japan and the ROK have worked in cooperation with a due division of labor, bringing into play complementary advantages and pushing forward increased trade between them while driving the growth of global trade. According to the fig
ure of the World Trade Organization (WTO), the combined exports of goods between the three countries increased from US$0.9 trillion in 2000 to US$3.83 trillion in 2018; during the same period, the proportion of the same in global total exports in goods increased from 13.9 percent to 19.7 percent; among which, China’s increase in trade in goods was most spectacular, its proportion of the world total jumping from 3.9 percent to 12.8 percent; that of the ROK of the world total increased from 2.7 percent to 3.1 percent. In 2018, Japan’s exports in goods were 1.5 times of that of 2000, but at the same time its share in global exports in goods decreased by almost 50 percent (see table 1). At the same time, trade in services of the three countries has kept the tempo of steady growth. Between 2005 and 2018, the combined trade in services of China, Japan and the ROK increased from US$206.25 billion to US$547.84 billion, the proportion they took in global total trade in services increasing from 8.6 percent to 9.5 percent.
2. China-Japan-ROK Trade is the Engine for Regional Trade Growth of Asia
China-Japan-ROK trade has led the rapid growth of Asian regional trade. In 2018, the size of combined foreign trade of China, Japan and the ROK totaled US$3.83 trillion, the figure for the ASEAN countries during the same period being US$2.87 trillion. The combined China-Japan-ROK trade and the ASEAN trade totaled US$6.7 trillion, accounting for 34.4 percent of the global trade total. The past twenty years has also witnessed a rapid development of trade between China, Japan and the ROK and the ASEAN countries. Between 2000 and 2018, total trade between the three countries of China, Japan and the ROK and the ASEAN countries increased from US$129.334 billion to US$1081.928 billion, a seven fold increase, and proportion wise their shares in total ASEAN trade increasing from 26.6 percent to 37.7 percent. Among them, growth speed of China and the ROK was noticeably faster than that of Japan, their shares of total ASEAN trade increasing respectively from 4.0 percent to 18.2 percent and from 4.5 percent to 11.4 percent (see table 2).
It would be worth noting that the intra-industry trade between China, Japan, the ROK and the ASEAN countries has also developed fast, a China, Japan and the ROK led intra-industry trade enabled “10+3” (the ASEAN plus China, Japan and the ROK) countries to achieve complementary advantages in production of such capital and technological intensive products as motor devices, consumer electronics, and communication devices. As industrial division of labor becomes more refined, a trade model featuring “assembled in China” takes up a very important position in the foreign trade of the ASEAN countries, which avail themselves of the advantages of China, Japan and the ROK in labor cost, technology and parts to achieve cooperation on the industrial chain of parts manufacturing, working with China, Japan and the ROK in cooperation with a due division of labor and driving the rapid development of the intra-industrial trade with the “10+3”. At present, the growing point of world trade is still in Asia, as China, Japan and the ROK work together, promote the growth of trade and investment with regional partners such as the ASEAN, and
ensure that Asia remains a key target area of global trading growth.
China-Japan-ROK Cooperation Pertains to a Win-Win Effect
In the process of rapid progress of regionalization of the global economy, China, Japan and the ROK have formed an area of the close linkage between global trade and economic regionalization. Comparing to trade in services, China, Japan and the ROK are more closely linked in trade in goods. According to the statistics of the WTO, in 2018, China was the greatest trading partner for both Japan and the ROK, whose exports to China accounted for 19.5 percent and 24.7 percent of their export total respectively, whereas imports from China accounted for 23.3 percent and 20.5 percent of their total imports respectively. At the same time, Japan and the ROK were also important trading partners for China. Japan took up 6.1 percent of China’s total exports in goods and 9.0 percent of China’s total imports, ranking third; and the ROK was the fifth export market for China, accounting for 4.6 percent of China’s total exports, and at the same time it was China largest source of imports, accounting for 9.7 percent of the total. In regard to trade in services, China-Japan-ROK cooperation continues to deepen. In 2018, China was the largest destination of the ROK’s exports in services, accounting for 21.8 percent of the total, and at the same time as the third largest source of its imports in services, accounting for 14.3 percent. Furthermore, China is also the fourth largest trading partner of Japan in trade in services.
In the past twenty years, the bilateral trade between China and the ROK has developed rapidly, which picked up speed after the outbreak of the financial crisis between 2009 and 2010 and again after official signing of ChinaROK Free Trade Agreement between 2014 and 2015, gradually making both countries the largest trading partners in triangle trade between China, Japan and the ROK. Starting by US$29.748 billion in 2000, China-ROK trade has grown continuously, surpassing JapanROK trade and China-Japan trade in 2003 and 2015 respectively. By 2018, bilateral trade between China and the ROK reached US$515,174 billion, China becoming the most important trading partner of the ROK, whose exports to China accounted for 24.7 percent of its total exports. Though bilateral trade between China and Japan has undergone several periods of fluctuation, dependence of Japan’s imports and exports on the Chinese market has kept growing, and China has become Japan’s most important trading partner. By 2018, 19.5 percent of Japan’s exports in goods landed in China, whereas 23.3 percent of its imports came from China. For both Japan and the ROK, China’s trade has important bearings on their domestic economic development and trade.
The bilateral trade between Japan and the ROK increased from US$51.169 billion in 2000 to US$162.14 billion, roughly a third of the China-ROK bilateral trade volume and half of that between China and Japan. There are both cooperation and competition between Japan and the ROK in the hightech area, and as dependence on trade increases under the global value chain, restriction on trade anywhere will lead to chain reaction everywhere, that is, collateral damages shall affect multiple parties on the value chain with an obvious effect of “cooperation leading to win-win-win whereas confrontation leading to lose-lose-lose”.
US Economic and
Trade Interest is Interconnected with that of China,
Japan and the ROK
As a world trading power, the US has a high economic and trade interdependence with China, Japan and the ROK, all three of which are its most important trading partners. In recent years, US bilateral trade with China, Japan and the ROK has assumed four features as follows.
First, in the past twenty years, the total trade volume between the US and China, Japan and the ROK has been on the rise, among which China-US trade grows the fastest, whose proportion in the US foreign trade total has increased from US$124.897 billion in 2000 (4.9 percent) to US$736.741 billion in 2018 (13.1 percent); China surpassed Japan to become the third largest trading partner of the US, second only to Canada and Mexico in 2004, it became the second largest trading partner of the US in 2006 and the largest trading partner of the US in 2015. The bilateral trade volume between the US and Japan is relatively stable, at US$250 billion or so, but proportion wise its share in total US trade decreases every year, from 10.5 percent in 2000 to 5.3 percent in 2018. Benefiting from the US-ROK Free Trade Agreement, US-ROK trade
has increased fast, from US$80.947 billion in 2000 to US$167.26 billion in 2018, however by proportion, the share of the bilateral trade volume in US total trade decreases relatively (see figure 2).
Second, trend wise, the dependence of China, Japan and the ROK on trade in goods with the US has decreased. Among them, China’s dependence on trade in goods with the US (China’s imports and exports to the US vs. China’s total imports and exports) has decreased the most, from 40.2 percent in 2000 to 22.7 percent in 2018, and at the same time, the ROK’s dependence on the US has decreased by 11 percentage points, and that of Japan by 10 percentage points.
Third, structure wise, the US dependence on trade with China, Japan and the ROK remains relatively high, which is seen in three aspects: first, its dependence on trade in goods with China, Japan and the ROK is higher than trade in services, its dependence on imports of goods being higher than on exports of goods, indicating that the US depends more on importing consumer goods from the three countries. In 2018, its dependence on imports of trade in goods from China, Japan and the ROK is 21.10 percent, 5.64 percent and 2.93 percent respectively whereas its dependence on exports of trade in goods is 7.22 percent, 4.54 percent and 3.44 percent. Secondly, the trend of increasing US dependence on exports of trade in goods to China has reversed whereas its dependence on that of Japan and the ROK has begun to increase somewhat in recent years. Third, the US dependence on exports of trade in services with China, Japan and the ROK is higher than its dependence on imports of trade in services. In 2018, its dependence on exports of trade in services with China, Japan and the ROK is 6.91 percent, 5.47 percent and 2.70 percent respectively whereas that on imports of trade in services is 3.23 percent, 6.12 percent and 2.17 percent respectively, the US having obvious competitive advantages of trade in services and China, Japan and the ROK being its important market of trade in services.
Fourth, the US and China, Japan and the ROK are trading partners on the global value chain with a different division of labor, and the China-US trade relationship affects trading interest of Japan and the ROK. As global division of labor deepens and trade in intermediate goods increases, the value of ChinaUS imports and exports includes sizable added value from third parties such as Japan and the ROK, and China, Japan and the ROK take a bulk of interest distribution in US trade, in the field of advanced manufacturing the three countries being the principal component part of the global value chain of US businesses. US restrictions on trade with China necessarily produce clear restraining effect on the value chain between China, Japan and the ROK, pertaining to the feature of “trade cooperation leading to all-win and trade restrictions, to all-lose”.
Future Prospect of China-Japan-ROK Cooperation
In the context of profound changes unseen in a century, China-Japan-ROK economic and trade cooperation faces both important opportunities and serious challenges. Opportunities in face of them boil down to two aspects as follows.
First, from a global point of view, the trend of decreasing intraregional trade has begun to reverse, and increasing intraregional trade provides ChinaJapan-ROK cooperation with important opportunities. Since 2013, the proportion of intraregional trade in global trade in goods has increased by 2.7 percentage points, most striking in the Asian region, which to a certain degree reflects the increase in the level of consumption in the emerging markets. This trend provides regional cooperation between China, Japan and the ROK in global innovation value chain with new historic opportunities. China-Japan-ROK cooperation is both the premise of economic and trade regional integration of Asia and the driving force for Asia’s regional economic growth.
Second, Regional Comprehensive Economic Partnership (RCEP) and the construction of China-Japan-ROK free trade areas are in face of important opportunities. At present, there are significant differences between major trading powers on major issues involved in the reform of the WTO, and their political will for reforming the multilateral trading system is less than sufficient. It is precisely the gap in the construction of global economic governance system that calls for achieving a higher plane
of opening through negotiations and establishing Mega-Regional Trade Agreements (MRTA) in making trade rules on a more profound plane to make up for. Such a trend provides space and feasibility for China-Japan-ROK led MRTAs to play a greater role in the pattern of global economic governance. Through negotiations, China, Japan and the ROK have reached consensus on expanding market openness, which is conducive to the concluding and implementing the RCEP.
At the same time, China-Japan-ROK economic and trade cooperation is in face of a number of challenges.
First of all, the instability of global trading system comes hand in hand with uncertainty of global economic growth. In recent years, US trade protectionism and unilateralism have intensified, whose long-term effect is difficult to estimate comprehensively for the moment. Never before have issues of trading policy become important issues of global political agenda as today since the global multilateral trading system came into being at the end of the World War II. On one hand, the global trading system itself faces crisis, and results of reform can hardly come about in the short term; and on the other, US promotion of free trade in postwar years has been unprecedentedly reversed, and trade protectionism has become a political product, and even convenient tool for achieving political interest in elections. The existing ecology of sustainable development of global trade has been broken, uncertainty of trading policy and economic and political contests over it have become a new normal of global trade. The spread of protectionist tendency of US trading policy will inevitably affect domestic choices and handling of trading policy for China, Japan and the ROK.
Secondly, there are special geopolitical relations between China, Japan and the ROK, including both a symbiotic economic and trade area and a number of unsettled historical issues, and on top of that, political and security considerations relating to US-led alliance cause misgivings on deepening trilateral cooperation, some of the trading policies even pertaining to strong political and strategic bearings. Besides, the trilateral relations are built on the basis of bilateral relations, and once there are problems with one pair of the bilateral ties, further trilateral cooperation will be affected. For a period of time, tensions have been built on Japan-ROK bilateral economic and trade relations, contradictions between them intensifying as hitherto unseen. It is inevitable for the lack of mutual trust in bilateral relations to affect economic and trade talks between China, Japan and the ROK and make it even more difficult to build political consensus, security consensus and regional identity, leaving issues on the agenda of economic and trade cooperation very sensitive ones.
Thirdly, the China-Japan-ROK trade agreement that is undergoing negotiation will be necessarily influenced and constrained by existing Japan-US and ROK-US free trade agreements in terms of its width of openness and breadth of topics. US-ROK Free Trade Agreement (KORUS) came into effect in March 2012. The Trump administration had renegotiated it with the ROK and reached agreement on March 28, 2018. On October 7, 2019, the US and Japan signed US-Japan Trade Agreement and USJapan Digital Trade Agreement, among which the Digital Trade Agreement was connected with the standard of USMexico-Canada Agreement (USMCA), highlighting the intention to lead rule making for digital trade. It is an important test for political wisdom and capacity for international negotiation of China, Japan and the ROK to conduct talks on China-Japan-ROK trade agreement on the basis of existing Japan-US and ROK-US trade agreements. On October 24, 2019, the ROK announced to give up its status as a developing country in the WTO, a major trading policy option of international political and economic significance.
Finally, at a new stage of globalization, China-Japan-ROK trade on global value chain has begun to have new changes in industrial structure, and the trilateral dynamic competition and cooperation will continue to readjust with gradual decline of complementarity and gradual rise of competition. As a developed economy, Japan boasts of clear international competitive advantage in high-tech industries, and as a newly industrialized country, the ROK has competitive advantage with its level of industry, particularly that of mid and high end industry, contradictions and misgivings of openness and competition continuing to exist in the process of negotiation. In opening up agricultural trade, China, Japan and the ROK have different interest considerations. As the three parties are different in competitiveness on the plane of products, and in that of the impact of forward and backward linkages among industries, there are differences among them on objective, interest and route to achieve them in negotiations on China-JapanROK free trade agreement.
In face of profound changes unseen in a century, it is necessary for ChinaJapan-ROK cooperation to build on mutual trust and coordination among the three countries, and the degree of trilateral cooperation shall have profound bearings on Asia-Pacific economic and trade development. Be it the CPTPP, the ASEAN, the “10+3”, or the RCEP, all reflect multitier, multiform, and pluralization of Asian regional cooperation. The existing mechanisms of ChinaJapan-ROK dialogue and cooperation are diplomatic platforms for the three parties to achieve cooperation through dialogue. As its neighborhood is of primary importance, and as a major trading nation of the world, it is necessary for China to plan the work on its neighborhood as a whole region, build a greater area of connectivity, and take its surrounding areas as strategic support areas. To actively participate in building up a greater regional open trade system and regional trade governance system, and take the opportunity of promoting quality development of the Belt and Road Initiative to improve mechanisms for economic and trade cooperation in its neighborhood will also be China’s important contributions to global trade governance.