ArrowArtboardCreated with Sketch.Title ChevronCrossEye IconFacebook IconIcon FacebookGoogle Plus IconLayer 1InstagramCreated with Sketch.Linkedin IconIcon LinkedinShapeCreated with Sketch.Icon Mail ContactPath LayerIcon MailMenu BurgerIcon Opinion QuotePositive ArrowIcon PrintRSS IconIcon SearchSite TitleTitle ChevronTwitter IconIcon TwitterYoutube Icon
Economy

China sidelining US in Asia with growing economic clout

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

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.

China is an increasingly important export destination for Japan and Southeast Asian nations.

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.

You have {{numberReadArticles}} FREE ARTICLE{{numberReadArticles-plural}} left this month

Subscribe to get unlimited access to all articles.

Get unlimited access
NAR site on phone, device, tablet

{{sentenceStarter}} {{numberReadArticles}} free article{{numberReadArticles-plural}} this month

Stay ahead with our exclusives on Asia; the most dynamic market in the world.

Benefit from in-depth journalism from trusted experts within Asia itself.

Try 3 months for $9

Offer ends September 30th

Your trial period has expired

You need a subscription to...

See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

See all offers
NAR on print phone, device, and tablet media