China as Economic Hegemon in East Asia

Webster’s dictionary defines hegemony as leadership, predominant influence, or domination, by one nation over others. China is now clearly the economic hegemon in East Asia in terms of predominant influence, while its leadership role is growing.

The Chinese regional geopolitical objective is to build an East Asian economic grouping — through free trade agreements and financial linkages — with China as the dominant center. China negotiated a free trade agreement with ASEAN in 2005, for implementation by 2012, and supports an ASEAN plus three free trade arrangement to include Japan and South Korea.

The Chiang Mai Initiative of 2000 created a network of currency swap loans within the ASEAN plus three grouping. In May 2007, their finance ministers agreed to set up a regional reserve pool that each member would be able to access in times of crisis, in effect a supplement to or substitute for IMF loans, with China a principal lender.

The rise of China to become the economic hegemon in East Asia — and its pursuit of a preferential regional trade and financial arrangement with China at the center — are growing concerns for others in the region, reflecting historical relationships in which China was the “Middle Kingdom,” exacting tribute from its weaker neighbors.

China repeatedly rejects any such intent, including the use of the term hegemon, but this can be seen as protesting too much.

The most important external dimension of the Chinese quest for an East Asian grouping is the exclusion of the United States, which is part of the broader Chinese strategy to limit U.S. power and influence in the region.

In this context, regional free trade agreements, excluding the United States, would accelerate the decline in the U.S. market share of trade and investment in East Asia.

The principal policy counter-response by others in the region, and by the United States, is negotiation of free trade agreements across the Pacific, the Asia-Pacific free trade objective, as an alternative to an East Asian grouping that excludes the United States.

The U.S-South Korea free trade agreement of 2007 — if approved by the U.S. Congress — would be the most important trans-Pacific agreement, and could lead to a U.S-Japan agreement, which, in turn, would be decisive for the Asia-Pacific alternative.

The most recent geopolitical development within Asia of great potential importance is the rise of India to become a major trading nation, with high priority on deepening economic ties within Asia. China has resisted India’s inclusion within the East Asian grouping, for example by opposing full participation by India in East Asian summit meetings, but momentum is going India’s way.

India’s rise as an emerging advanced technology superstate changes dramatically longer term geopolitical relationships within Asia. In terms of geographic scope, the “East” will drop out of the long-standing regional fixation on “East Asia.” Asia will increasingly involve East and South Asia as a single integrated region.

The incipient central economic characteristic of the region will be the bipolar relationship between China and India as two advanced technology superstates, each with over one billion population, the largest high-growth domestic markets, and the highest concentration of engineers, R&D, and multinational company and financial institution engagement. China is now far larger than India in terms of output and trade, but the gap will progressively narrow over the coming five to 20 years.

This broadened and more balanced set of economic relationships within Asia as a result of India’s rise has profound geopolitical implications which, on balance, should be highly positive for all, including for China. Deepening trade and investment with India would bring increased gains from trade for all.

The greater geopolitical balance would reduce concern about China as the regional economic hegemon. In effect, Asia would move toward a dual hegemony regional economy, perhaps in need of new terminology, such as a “bihegemony,” offering analytic scope for Ph.D. dissertations.

The China-India bilateral relationship will take on increasing importance over time, as will the United States’ relationships with each. These relationships will involve commercial, foreign policy, and geostrategic components.

The geostrategic components will focus on China’s rapid rise to become the dominant military power in Asia and the second global military power after the United States — and on the course of military modernization in India.

Editor’s Note: This is Part I of a five-part series from Ernest Preeg’s book, “India and China.” Printed by the permission of the author and publisher.