[NSP Research Report] U.S. and China's Economic Strategies Toward Asia: Focusing on the Linkage of Investment and Aid

Abstract

While the economic relationship between the United States and China is often highlighted in terms of competition over the redesign of regional architecture, underlying this are changes in economic relations at bilateral, mini-lateral, and multilateral levels. In this regard, the U.S. has been strengthening its economic ties with East Asian countries. From the U.S. perspective, the core of redesigning regional architecture is to preemptively block China's growing influence and establish a regional order favorable to itself, and to this end, it is coordinating its economic relations with East Asian countries in various ways. In this context, the coordination of economic relations with East Asian countries appears to be a fundamental factor influencing future cooperation and competition between the U.S. and China. Therefore, to forecast the changes in the future world order and the nature of regional architecture redesign, it is necessary to examine not only the mutual economic relations between the U.S. and China that operate at the underlying level, but also how the U.S. and China shape their economic relations with other countries at the Asian or global level. However, while the competition between the U.S. and China has so far centered on trade and the formation of trade architecture based on it, the stage of competition is expected to expand further in the future to investment and aid, and the design of a new regional order based on these. Competition over regional architecture in the East Asian region is already rapidly expanding its scope, with China pursuing the Belt and Road Initiative and its institutional foundation, the Asian Infrastructure Investment Bank (AIIB), and the U.S. effectively refusing participation from key allies such as Japan. The pursuit of China's Belt and Road Initiative and the AIIB, and the U.S. response to them, hold various implications in terms of building regional architecture based on economic relations with Asian countries. This paper examines the economic strategies of the U.S. and China from the perspective of the linkage between investment and aid. To this end, it examines the economic relations that the U.S. and China are forming with Asian countries based on trends in their foreign aid and investment volumes, then focuses on the linkage of investment and aid in China's ambitious Belt and Road Initiative and AIIB, and finally examines the policy coordination between the U.S. and Japan based on their critical perceptions of the Belt and Road Initiative and the AIIB.

Body

This paper examined the changes in economic relations that have emerged in the process of East Asian countries redesigning their regional architecture. The redesign of regional architecture and the changes in economic relations among countries in the region mutually influence each other and act as factors in gauging the nature of the changing regional order in East Asia. This paper specifically examined the phenomenon of major East Asian countries, including the U.S., China, and Japan, coordinating their economic relations by linking investment and aid.

Several implications can be drawn from this study. First, it can be observed that economic relations among East Asian countries are becoming more comprehensive than in the past. Until relatively recently, major East Asian countries formed economic relations centered on trade and production, and based on this, attempted competition to establish a regional economic order favorable to themselves. The continuous discussions and negotiations related to the Trans-Pacific Partnership, the Regional Comprehensive Economic Partnership, and the Asia-Pacific Free Trade Area attest to this. However, in the process of China establishing the AIIB and pursuing the Belt and Road Initiative, the scope of economic interaction among East Asian countries is rapidly expanding to include investment, finance, and aid, in addition to trade and production. Furthermore, while individual areas still maintain their independent importance, a phenomenon of increasing linkage between areas is emerging. The linkage between trade and production, production and investment, and investment and aid is expanding and strengthening. In particular, in response to China's close linkage of investment and aid in the process of pursuing the Belt and Road Initiative and the AIIB, Japan is also strengthening its aid-investment linkage by improving its domestic aid procedures and announcing new infrastructure investment plans.

Second, the importance of economic means is gradually increasing for major East Asian countries, including the U.S., China, and Japan, in pursuing the strategic goal of redesigning regional architecture. This is why a geoeconomic perspective that organically combines strategic goals with economic means is required. A strategic approach for economic-security linkage at the macro level is necessary for this reason. Both excessive securitization and under-securitization are likely to hinder this strategic approach. A strategic approach is needed to establish effective methods and appropriate levels for economic-security linkage.

Third, major East Asian countries are entering a new game of redesigning regional architecture. This game differs in nature from past great power competitions in that it involves both hard power and soft power competition simultaneously. The fact that the U.S. and China, which are competing and engaging in limited cooperation at the highest level of the game of redesigning regional architecture, are also engaged in soft power competition signifies their efforts to gain legitimacy from countries in the region (Goh 2013). This suggests that a strategic space is opening up for middle powers like South Korea to exert a certain degree of influence in the process of redesigning regional architecture. Whether this space can be strategically utilized to form a regional architecture favorable to South Korea will be an important task for South Korean diplomacy... (to be continued)

Author

Professor of Political Science and International Relations, Chung-Ang University. He graduated from Yonsei University with a degree in Political Science and received his Ph.D. in Political Science from the University of California, Berkeley. His main research areas include Japanese politics, international political economy, East Asian political economy, and East Asian regionalism. His books and edited volumes include Trade Policy in the Asia-Pacific (2010, co-authored) and Northeast Asia: Ripe for Integration? (2008, co-authored).