January 6, 2018 6:00 am JST

China sidelining US in Asia with growing economic clout

'Chinafication' in trade may let Beijing counter American geopolitical influence

IORI KAWATE, Nikkei staff writer

Visitors walk outside the venue of the China Import and Export Fair in Guangzhou, Guangdong Province, on Oct. 15, 2017. © Reuters

TOKYO -- Asian economies that once relied on the U.S. are reaching a turning point as China comes to the fore, a trend that may weaken Washington's ability to promote democracy and free markets.

The U.S., as the world's largest consumer market, was the dominant export destination for Asian countries for decades after World War II. But this has changed in recent years. The Association of Southeast Asian Nations exported more to China than to America in the decade following the global financial crisis. The bloc's China-bound shipments totaled $143 billion in 2016 -- 9% more than its exports to the U.S.

Chinese economic influence is also growing in Japan, where exports to China for the 11 months through November totaled 13.38 trillion yen ($118 billion), topping the full-year record set in 2014.

Should this momentum continue, it could alter the balance of power between Washington and Beijing in the region.

A bigger splash

Kengo Tahara of the Japan Center for Economic Research examined the economic impact of the U.S. and China on Asian countries. Using data from the Organization for Economic Cooperation and Development, he calculated how much a 1% increase in American or Chinese final demand would boost real gross domestic product in Japan and the five largest ASEAN economies via exports and other channels.

Tahara found a China poised to take a commanding lead over the U.S. in the coming decades. "In 2030, China's economic impact on Southeast Asia and Japan will be 1.8 times what it was in 2015 and 40% higher than that of the U.S.," he predicted.

A 1% demand increase in China would lift total GDP in the ASEAN countries by $3.3 billion in 2030 by Tahara's reckoning, double the 2015 figure and equivalent to 0.074% of nominal GDP. The same increase in U.S. demand would produce a boost of just $1.9 billion, he said.

The Chinese economic impact on Japan already slightly outpaced that of the U.S. in 2015, at $2.8 billion to $2.7 billion per 1% increase in final demand. The 4 trillion yuan ($616 billion at current rates) economic stimulus Beijing implemented in the wake of the financial crisis supported infrastructure and equipment investment, lifting Japanese exports of machinery and the like to China. Tahara sees the Chinese figure reaching $4.6 billion in 2030, rising to 0.096% of Japan's nominal GDP from 0.064% in 2015.

America is expected to remain more influential in the world economy as a whole in 2030, lifting global GDP by $52.9 billion per 1% rise in demand -- more than 20% higher than China's impact. But China will have an overwhelming advantage in Asia, owing partly to proximity. The age of the U.S. as the sole economic superpower, where "America sneezes and Asia contracts pneumonia," looks set to become a thing of the past.

Carrot and stick

Rising personnel costs in the Chinese manufacturing sector have created a wellspring of potential demand for labor-saving investments and opportunities for corporate Japan to put its wealth to work. Mitsubishi Electric announced plans late last year to begin producing industrial robots in China.

The impact goes beyond exports. Japanese manufacturers operating in China may have subsidiaries there repatriate profits to Japan, where they could be invested back into the business or used to pay employees.

But the wave of Chinafication may prove a mixed blessing for the countries in its path. Growing trade with China should bring benefits, but any downturn in the nation's economy will hit the region that much harder.

Beijing's willingness to use its economic might as a diplomatic tool poses risks as well, as South Korea has learned. Seoul's decision to host an advanced U.S. missile defense system prompted Chinese boycotts in retaliation. The Bank of Korea has estimated that such measures would lop 0.4% off the nation's GDP in 2017.

President Moon Jae-in's government has taken steps to appease Beijing, such as agreeing not to participate in a U.S.-led regional missile defense network.

Clashing values

American economic power has been a driving force behind democratization in Asian countries. But Washington may lose leverage as Beijing's influence grows.

Myanmar's transition to democracy, for example, was driven in large part by U.S. sanctions. But Naypyitaw is standing firm on its handling of the Rohingya refugee crisis despite international condemnation, including from Washington. China has shown itself willing to accept Myanmar's stance that the problem is an internal affair, and Naypyitaw has in turn tilted closer to Beijing.

On the economic front, the Trans-Pacific Partnership, an effort to create a massive free trade zone, attracted such countries as Vietnam and Malaysia. But the withdrawal of the U.S. has weakened the trade pact's ability to offer an alternative to China. Asian nations will need to build stronger ties with other economies to avoid growing too dependent on their behemoth of a neighbor.

Mitsubishi Electric Corp.

Japan

Market(Ticker): TKS(6503)
Sector:
Industry:
Electronic Technology
Electronic Equipment/Instruments
Market cap(USD): 40,916.61M
Shares: 2,147.20M

Get Insights on Asia In Your Inbox

To read the full story, Subscribe or Log in

Get your first month for $0.99

Redeemable only through the Subscribe button below

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

Resubscribe now to continue reading.
BEST OFFER:
Only US$ 9.99 per month for a full-year subscription

To read the full story, Subscribe or Log in

Once subscribed, you can…

  • Read all stories with unlimited access
  • Use our smartphone and tablet apps

To read the full story, Subscribe or Log in

3 months for $9
SUBSCRIBE TODAY

Take advantage of this limited offer.
Subscribe now to get unlimited access to all articles.

To read the full story, Update your account

We could not renew your subscription.
You need to update your payment information.