Microregionalism and Governance in East Asia

Dr. Katsuhiro Sasuga

• Publisher: Routledge
• Year: 2004
• Topic: Economics
• eBook ISBN:
  9781134324064
• Subtopic: Asian History
• Index: Economics

This book provides an analysis of the processes of micro-regionalization in East Asia within the broader context of globalization and regionalization. The author examines the specifics of corporation production and investment networks that link parts of Japan, Taiwan and China with a detailed case-study focusing on the electronics industry. Making a significant contribution to the research on regionalism and multi-level governance in East Asia, this book will appeal to those interested in international political economy and Asian studies.

1 Introduction

During the 1990s, ‘globalization’ and ‘regionalization’ became fashionable terms in the study of international political economy (IPE). These phenomena cannot be explained by a single causal mechanism but must be seen as complex, uneven and contradictory trends that result from many different causal processes (Jessop 2001: 27). In East Asia,¹ the nature and scope of these impacts on the emerging markets of less developed countries, especially China, are problematic issues, since they challenge, first of all, some basic assumptions about the scale of economic activity in relation to the Chinese national economy, and, second, the pattern of China’s international relations based on a statist approach. In recent years, China’s international economic relations have been increasingly determined by the relationship between local state actors and foreign firms. Since economic reform, China has been the largest recipient of foreign direct investment (FDI)² among all developing countries, and in 2002 China even surpassed the United States (US), becoming the largest recipient of FDI in the world. The large injection of FDI, the transfer of technology and the abundant supply of cheap labour have led to China’s success in the development of its foreign trade. Spatially, China’s distinctive patterns and processes of integration with the world economy are most clearly visible at the regional and firm levels of interactions, e.g. as demonstrated in the case of the rapid development of industrial agglomeration in the Pearl River Delta in Guangdong province.³

In the Pearl River Delta, labour-intensive, low-technology and low-valueadded manufacturing started with the relocation of activity from Hong Kong in the 1980s and has since grown into a massive agglomeration⁴ in the electronics industry (especially in PC-related products), which now forms the world’s largest exporting base. Following investment by Hong Kong firms, Taiwanese, US and Japanese FDI has injected further huge levels of foreign capital into this region. The emergence of cross-border economic dynamism has brought about a fundamental contradiction between ‘pure economic space’ and the economy as a territorially and socially embedded system of economic and extra-economic resources and competencies. While this emerging economic space has had a favourable effect on economic development as a whole, it has also served to further fragment the national economy and create alternative foci of identity and political legitimacy (Jessop 2001: 28).

So far, most popular studies of China’s international economic relations have concentrated on an assesment of relations with Hong Kong and Taiwan, and most of them have sought to explain those relations in terms of three distinct geographical layers: ‘Greater China’ or ‘the Chinese Economic Area’ (CEA) (mainland China, Hong Kong, Taiwan and Macau); ‘Greater South China’ or ‘the South China Economic Zone’ (Guangdong, Fujian, Hong Kong and Taiwan); and ‘Greater Hong Kong’ (the Hong Kong–Guangdong nexus) (Jin 1995; Khanna 1995; Kwok and So 1995; Shambaugh 1995; Rowley and Lewis 1996; Taylor 1996; Hsiao and So 1997; Naughton 1997; Sung 1998; Sum 1999; Drover et al. 2001). The three-layered pattern of China’s economic relations is usually defined narrowly in terms of horizontal political and economic groupings of regions that benefit from their geographical proximity but lack formal institutional arrangements. According to official Chinese statistics, Hong Kong, counted as a separate foreign territory, has been the largest investor in China, thus emphasizing the importance of ‘Chinese’ investment. However, in recent years, Latin America’s share of investment in China has exceeded investment from North America, Europe, Japan and Taiwan. In 2002, the Virgin Islands were the second largest source of FDI in China. In official Chinese statistics there is no identification of the origins of FDI. It is thus very difficult to capture the real amount of investment incorporating the role of various tax havens. By the same token, Hong Kong has also been used as a conduit and transit port between China and the rest of the world, hindering a true understanding of China’s real trade flows. It is therefore very difficult to understand China’s international economic relations based on bilateral trade and investment flows.⁵

This book argues that China’s international economic relations have further extended beyond such bilateral trade and investment relations. There has been only limited interest in examining the processes and consequences of spatial restructuring across southern China from the perspective of the broader dynamics of East Asian regionalization and globalization, the emergence of microregionalism, and subnational involvement in crossborder governance (Kwok 1995; Sum 1999; Breslin 2000; Wang 2001a; Breslin and Hook 2002). The pattern of China’s international economic relations is increasingly determined by a deep-rooted restructuring at the regional and firm levels as an expression of a new international, regional and hierarchical division of labour, and cross-border production networks within and between regions. By focusing on the electronics industry’s key role in the spread of global capitalism, this book seeks to show how Japanese and Taiwanese investment in southern China is resulting in new structures of governance.⁶ We argue that bilateral relations at the national level of analysis often miss the determinant role of international non-state actors and their interactions with local state actors in the processes of governing global capitalism. The microlevel analysis of China’s international economic relations reveals the limitations and distortion of statist assumptions and leads to an enhanced understanding of the complex dynamics of globalization in East Asia.

The scope and aims of this study

This study seeks to explore and explain the key processes involved in the emergence of microregionalism connecting the Guangdong province of China, Taiwan⁷ and Japan, with a particular focus on the role of networks of governance linking Chinese local governments⁸ and foreign firms – notably multinational corporations (MNCs).⁹ The emphasis is on the development of such networks in the context of the spread of industrial agglomeration in Guangdong, the rescaling of Chinese political economy, the role of Japanese and Taiwanese FDI and the governance of crossborder production networks and international commodity chains¹⁰ in the electronics industry. Thus, a specific industrial case study is used to illustrate the broader trends of microregionalism and new patterns of governance in East Asia.

The processes of economic globalization exhibit a remarkable diversity at the regional scale. National governments remain the most important providers of responses to globalization, but there are increasing interactions at the subnational level between local governments and foreign firms. This suggests the need to develop an in-depth understanding of the new mechanisms of multilevel governance and the impact of commodity chains and production systems. However, this is a complex task, since the forms of governance are continually evolving and changing.

It is especially important to understand the mismatch between political and economic space under the impact of globalization. East Asian microregionalism is a good example of this problem. Although this study considers only one industrial sector, the electronics sector, as a specific case study for analysis, it utilizes this case study to demonstrate the broader significance of emergent networks of governance linking local governments and foreign firms, and of the still evolving intra- and inter-firm relations through investment and production activities. The major driving forces behind the expansion of the electronics industry in Asia are pragmatic technological transfer strategies, FDI, the subsidiaries of MNCs, Japan’s role in building technology bases and overseas Chinese firms (Das 1998: 67). These networks are complex and require innovative methods, both formal and informal, of coordination and management, in order to ensure the achievement of mutual benefits for the parties involved.

With this analytical perspective in mind, there are three key research questions underlying this study: How should we define and characterize the key components of microregionalism connecting Guangdong, Taiwan and Japan? What kinds of policy environment and what actors in the host and home countries are needed to support cross-border economic relations? How do networks of multilevel governance operate to facilitate microregionalism?

In empirical terms, the research aims to furnish data concerning the structures, functions and operations of cross-border microregional networks of governance. More specifically, the intention is to contribute to an understanding of the implications of these developments for the growth of multilevel governance in China and for the evolving pattern of China’s integration with the East Asian regional economy. This study argues that the new regionalism in East Asia is a manifestation of the broader impact of economic globalization, and involves a deep-rooted restructuring at the regional and firm levels as an expression of new international, regional and horizontal networks of governance within and between regions. At the firm level, it is the emergence of cross-border production networks of various kinds, linked to the geographical extension of international commodity chains, which is of primary importance and poses the most fundamental challenges for the operation of local governments. In theoretical terms, the aim of this study is to contribute to the development of theories of microregional network-building and to the understanding of emerging patterns of cross-border multilevel governance.

The framework of analysis

Issues of spatiality and spatial complexity have become important focal points of work in the social sciences, not least in the study of globalization and regionalization, and in the emergent specialized focus on microregionalism. Thus, it is important to explain the key characteristics and conceptual levers of the analytical framework used in the present study.

The creation and articulation of appropriate definitions, concepts and categories is necessary in order to analyse the phenomenon of microregionalism within the context of globalization and regionalization. While the literature on regionalization has been a particularly fertile source of insight for the present study, most books and articles are concerned with the development of the European Union (EU). There have been few broader comparative studies, and our understanding of the development of crossborder economic relations, especially outside the EU, remains poor (as an exception, see Breslin et al. 2002). What is needed is a categorization of different forms of regionalization and their distinctive characteristics.

Higgott and Reich (1998) suggest that the concept of regionalization embraces three distinct dimensions:

1. de facto processes of economic integration, firm-led and networkled processes, and de jure processes of state-led institutionalized governance;
2. emerging (vertical) meso-levels of authority between the state and the global order (transnational or supranational regionalization), and between the state and the local level (subnational regionalization); and
3. emerging (horizontal) authority across extant territorial jurisdictions.

The major interest of the present analysis is in the increasing interplay between de facto processes of economic integration and de jure processes of state-led institutionalized governance at the subnational and microregional levels.

This study therefore concentrates, first of all, on the importance of de facto processes of economic integration, the organization of production and allied activities, and the clustering of industry through the expansion of international (cross-border) production networks and international commodity chains. The case of the electronics industry, which has played a major role in the East Asian economy, is chosen to illustrate these changing geographical patterns. In particular, the locational strategies and production systems of Japanese and Taiwanese electronics firms are highlighted. In this respect, it is vitally important to identify the strategic differences between Japanese and Taiwanese firms. While there are various elements causing these differences, this study argues that they are derived mainly from the characteristics of the home country’s system of governance.

This book focuses on the increasing role of local state actors in coordinating the relations between economy and society in cross-border economic relations. In particular, it seeks to distinguish between two different de jure processes: vertical and horizontal regionalization between the state and the local level. It also seeks to identify the emerging horizontal authority across extant territorial jurisdictions (i.e. national boundaries) at the subnational level. A subnational level of analysis in the regionalization debate is essential in order to bridge the divide between the macroregional and microregional perspectives (see Chapter 2). In East Asia, through the development of economic relations between cross-border regions, the subnational level has changed both qualitatively and quantitatively. Behind the rapid development of urban areas in East Asia there are fundamental changes in industrial structure. Industrialization, based on export-led strategies and the international, regional and hierarachical division of labour, mainly in the production system, has become the foundation of the continuous upgrading of industrial structure and rapid urbanization. The resulting quantitative economic growth has in turn led to qualititative change at the subnational level. One problem here, however, is that in China the discretion of the subnational level has traditionally been strictly limited by the state. Accordingly, in this study, close attention needs to be paid to the vertical dimensions of regionalization (decentralization and recentralization) within China. Decentralization and recentralization are seen as the primary measures of Chinese regionalization from above, and the subnational responses to this movement can be seen as an expression of subnational regionalization from below. This study seeks to show that China needs a further restructuring of the domestic developmental system and centre–periphery relations in order to adjust successfully to globalization. In considering the power configuration through the effects of production networks on the state system, the aim is to give an account of the roles of different levels of local government in providing MNCs with international public goods.

The framework of analysis in this study employs concepts of network and governance as key characteristics of the emergent cross-border linkages between local governments and firms, and intra- and inter-firm relations (see Chapter 2). The first of these concepts, network, denotes a ‘complex of organizations connected to each other by resource dependencies and distinguished from other . . . complexes by breaks in the structure of resource dependencies’ (Benson 1982: 148). Put another way, it refers to regularized interactions among independent agents, nodes of activity and sites of power (Castells 1996). The concept of governance is used to indicate the ways in which networks are ordered, coordinated and regulated, both formally and informally. Governance is not the same as institutionalized government, although governments (in this case, national governments) play a major role in the conduct of governance. Governance suggests that a variety of actors and agencies, both public and private, are involved in efforts to create order. In one sense, therefore, governance denotes a complex and fragmented set of institutional and agency-based relationships in a particular field of activity. This gives rise to key issues concerning how such relationships are organized and how they function. This study seeks to show that increasingly the cross-border governance arrangements connecting Guangdong, Taiwan and Japan are multilevel in scope, i.e. they increasingly involve complex interactions between different levels of the formal hierarchy of government, from the centre to the localities. (On multilevel governance, see Chapter 3.)

The four research studies

Four distinct research studies are integrated into the present analysis. The relationship between the three key research questions, the four studies and the main research methodologies is summarized in Table 1.1, where the four research studies are referred to as (a), (b), (c) and (d).

The geographical focus of the analysis is on three territories: China, Taiwan and Japan. In 1999, Japan became China’s largest trading partner, and China became Japan’s second largest trading partner. In 2002, China became Japan’s largest source of imports, and Taiwan became China’s fourth largest trading parner. In 1999, China became Taiwan’s second largest export destination, and Japan became Taiwan’s second largest trading partner. Between 1997 and 2000, Taiwan was Japan’s second largest export destination, and in 2001 and 2002 Taiwan was Japan’s fourth largest trading partner. Despite this increasing economic interconnectedness among the three territories, the national economy-based statistics overlook the deeprooted restructuring that is occurring at the regional and firm levels (see Chapter 4). In acknowledging the deficiencies of the existing approach to China’s foreign economic relations, this study seeks to develop a distinctive and more revealing account of the complexities of microregionalism.

The emphasis of the present work is on the particular case of the electronics industry in cross-border economic relations. This sector was chosen for a number of reasons. First, it is the main industrial sector in East Asian industrialization. The share of electronics goods in the total exports in each East Asian country is very high (see Table 1.2). Second, the electronics industry is forging increasing economic links between the three countries. The electronics goods exports from China operated by processing trade arrangements (PTAs)¹¹ – the latter are given special attention in this book – accounted for 90 per cent of China’s total electronics goods exports in 1999 (Kokusai Bōeki 16 May 2000). (Unless otherwise indicated, all trade statistics are by value.) Foreign firms dominate PTAs, and Japan and Taiwan are the two major contributors. For example, in 1999, exports in electronics goods and parts accounted for 25.5 per cent of total Japanese exports to China and 14.6 per cent of total imports to Japan from China (Tsūshōsangyōshōhen 2000: 176–8). In the same year, 23.7 per cent of Taiwan’s total exports to mainland China and 30.9 per cent of total exports from the mainland to Taiwan consisted of electronics goods and parts (Kōryū 2000: No. 618). Also, exports in the electronics industry accounted for 24.5 per cent of total Japanese exports to Taiwan, and 23.4 per cent of total imports to Japan from Taiwan in 1999 (Tsūshōsangyōshōhen 2000: 186–7). The electronics industry is already the leading industry in Japan and Taiwan and is emerging as China’s most important industry in terms of imports and exports.

Table 1.1 The research questions, research studies and main research methodology

The choice of Guangdong and its one rapidly growing city, Dongguan, for special attention is related to the trade structure discussed above. Guangdong, especially the Pearl River Delta Area, is the largest site for PTAs in the electronics industry. Indeed China’s exports owe much to the coastal area, especially Guangdong province, which has been in the first rank in exports for the last 15 years. For example, in 1998,...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Figures
• Tables
• Acknowledgements
• Abbreviations
• Notes on the text
• 1 Introduction
• 2 Theoretical perspectives on regions, regionalization and microregionalism
• 3 Guangdong and Chinese multilevel governance
• 4 China, Guangdong and microregional integration
• 5 Japanese foreign direct investment and East Asian microregionalism
• 6 Cross-border production networks across the Taiwan Strait
• 7 The structure and operation of cross-border networks of governance
• 8 Conclusion and implications
• Notes
• Bibliography