The Economic and Strategic Rise of China and India : Asian Realignments After the 1997 Financial Crisis

The 1997 Asian financial crisis and the September 11, 2001, attacks on the Untied States have preoccupied analysts of Asia during the past nine years. That is not surprising. The financial crisis turned into a full-fledged recession, which was the worst in Asia since the 1930s. Similarly, the 9/11 onslaught was the first successful attack on U.S. soil since 1941, when the Empire of Japan hit Pearl Harbor. When devastating, unanticipated events strike, it is understandable that policy makers and the press focus on those events and the measures that might prevent their recurrence. Major crises have another effect, however, and that is to divert attention away from less visible but significant developments occurring at roughly the same time. Thus, this book is meant to highlight other patterns that have received insufficient attention. It is also meant to dispel some of the common assumptions about the 1997 financial crisis and show the linkages between economic shifts in Asia and long-term strategic realignments in the making. This book attempts to demonstrate the connection between economic and strategic developments in Asia with several interrelated arguments: (1) each of the Pacific Rim states faced slightly different economic challenges, so there was no single cause for the 1997 financial crisis, nor is there is a single explanation for the slow economic recovery from the crisis; (2) China is not the only rising major power in Asia; India is close behind; and (3) many observers are proceeding as if the current U.S. treaties and security agreements will continue indefinitely, whereas in Asia, preparations for changing patrons are already under way. It is worth noting that many books and articles have appeared claiming that the 1997 crisis was caused by one of the following: the International Monetary Fund, corruption, open capital markets, or poorly regulated financial institutions. What we will see, in Chapters 1 and 2, is that each of these factors contributed to the crash but that none, alone, was sufficient to have brought on a crisis of the magnitude that actually occurred. Also, there were significant differences among the countries affected. South Korea, for example, did not have an open capital market and experienced a crash, nonetheless. In addition, concentrating on the economic turmoil in Asia has led to inadequate attention being devoted to strategic developments. Although the fascination with China's scope and rate of change is understandable, few Americans know that India has a far more capable navy and air force than China does. Also, with the concentration on counterterrorism and the debates about American empire, many analysts are missing the subtle shifts in contacts and allegiances already occurring in Asia. My greatest debt in doing this book is to Freddy Siahaan, who helped me at every stage of its development. He was vital during data collection, insightful as the basic themes were being thought out, and meticulous in helping prepare the numerous tables and figures. His talent and energy are deeply appreciated. The book also benefited from several of my other present and former graduate students: Cover......Page 1 Contents......Page 6 List of Figures......Page 8 List of Tables......Page 10 Preface......Page 12 Acknowledgments......Page 16 Abbreviations......Page 18 The Context......Page 20 The East Asian Financial Crisis: Passing Storm or Transforming Event?......Page 23 The Economic Dilemma......Page 25 The Central Argument: The Rise of the Continental Powers......Page 34 Why Are China and India So Critical?......Page 35 The Impact of the 1997 Financial Crisis on Regional and Global Institutions......Page 37 The Strategic Impact of the 1997 Crisis......Page 41 The Structure of This Book and Its Intellectual Roots......Page 46 In Sum......Page 51 Introduction......Page 52 Why Was the Recovery So Prolonged, and Why Was There a Double-Dip Recession Rather Than a "Normal Recovery"?......Page 68 Why Is There No Satisfactory "Single Explanation" for the Difficulties That East Asia Faced in Recovering from the 1997 Events?......Page 75 The Current Macro Picture......Page 78 The Major Economies......Page 83 The Midsize Economies......Page 92 Conclusion......Page 97 Introduction......Page 98 East Asia's Record on Economic and Political Integration......Page 99 What Are the Main Divisions within East Asia That Make Cooperation Difficult?......Page 100 Why Has Economic Integration Made the Most Progress?......Page 104 Why Has the Performance of Asian Regional Organizations Been So Limited?......Page 106 Conclusion......Page 116 The Setting......Page 122 Aspects of Asian Security......Page 123 Recent Developments......Page 128 Seeds of Realignment......Page 134 New Patterns Emerging......Page 144 The Debate over U.S. Global Strategy......Page 148 Bush Administration Policy in Asia......Page 156 Setting Priorities in Asia......Page 161 Plausible Directions for Asian Players......Page 170 Impact of the 2006 Congressional Elections......Page 173 Conclusion......Page 174 Notes......Page 176 Bibliography......Page 206 C......Page 224 F......Page 225 I......Page 226 M......Page 227 S......Page 228 Z......Page 229 Cover 1 Contents 6 List of Figures 8 List of Tables 10 Preface 12 Acknowledgments 16 Abbreviations 18 1 Overview 20 The Context 20 The East Asian Financial Crisis: Passing Storm or Transforming Event? 23 The Economic Dilemma 25 The Central Argument: The Rise of the Continental Powers 34 Why Are China and India So Critical? 35 The Impact of the 1997 Financial Crisis on Regional and Global Institutions 37 The Strategic Impact of the 1997 Crisis 41 The Structure of This Book and Its Intellectual Roots 46 In Sum 51 2 Why Was the 1997 Crisis So Severe? 52 Introduction 52 Why Was the Recovery So Prolonged, and Why Was There a Double-Dip Recession Rather Than a "Normal Recovery"? 68 Why Is There No Satisfactory "Single Explanation" for the Difficulties That East Asia Faced in Recovering from the 1997 Events? 75 3 Is the Current Recovery Sustainable? 78 Introduction 78 The Current Macro Picture 78 The Major Economies 83 The Midsize Economies 92 Conclusion 97 4 The Mixed Record on Political and Economic Integration in East Asia 98 Introduction 98 East Asia's Record on Economic and Political Integration 99 What Are the Main Divisions within East Asia That Make Cooperation Difficult? 100 Why Has Economic Integration Made the Most Progress? 104 Why Has the Performance of Asian Regional Organizations Been So Limited? 106 Since World War II, Outside Powers Have Primarily Provided Major Asian Security Guarantees 116 Conclusion 116 5 Strategic Realignments in Asia 122 The Setting 122 Aspects of Asian Security 123 Recent Developments 128 Seeds of Realignment 134 New Patterns Emerging 144 6 U.S. Policy and Asian Realignments 148 The Debate over U.S. Global Strategy 148 Bush Administration Policy in Asia 156 Setting Priorities in Asia 161 Plausible Directions for Asian Players 170 Impact of the 2006 Congressional Elections 173 Conclusion 174 Notes 176 Bibliography 206 Index 224 A 224 B 224 C 224 D 225 E 225 F 225 G 226 H 226 I 226 J 227 K 227 L 227 M 227 N 228 O 228 P 228 R 228 S 228 T 229 U 229 V 229 W 229 Y 229 Z 229 Important Economic And Strategic Realignments Are Taking Place In Asia But Receiving Relatively Limited Press And Academic Attention. Thailand, Indonesia, And South Korea Were Dealt, Well Publicized, Blows By The 1997 Asian Financial Crisis And Japan's Stagnation In The 1990s Has Also Been Widely Analyzed. What Has Not Been Adequately Explored Is The Impact Of Economic Restructuring And Slowing Of Growth Rates In The Other Pacific Rim Economies, Notably Taiwan, Hong Kong, Malaysia, And Singapore. Although China's Rise To Prominence Has Received Extensive Commentary From Journalists, Economists And Strategic Analysts, Much More Limited Attention Has Been Given To The Relative Decline Of The Pacific Rim States Or The Rapid Rise Of India's Economic And Strategic Position. This Volume Attempts To Explain Why The 1997 Financial Crisis Was Such A Critical Turning Point And, Unexpectedly, Ended Up Stimulating Trade And Investment Within Asia. Why Was The 1997 Crisis So Severe? -- Is The Current Recovery Sustainable? -- The Mixed Record On Integration In East Asia -- Strategic Realignments In Asia -- United States Policy And Asian Realignments. David B.h. Denoon. Includes Bibliographical References (p. [157]-204) And Index. Important economic and strategic realignments are taking place in Asia but receiving relatively limited press and academic attention. Thailand, Indonesia, and South Korea were dealt, well publicized, blows by the 1997 Asian financial crisis and Japan's stagnation in the 1990s has also been widely analyzed. What has not been adequately explored is the impact of economic restructuring and slowing of growth rates in the other Pacific Rim economies, notably Taiwan, Hong Kong, Malaysia, and Singapore. Although China's rise to prominence has received extensive commentary from journalists, economists and strategic analysts, much more limited attention has been given to the relative decline of the Pacific Rim states or the rapid rise of India's economic and strategic position. This volume attempts to explain why the 1997 financial crisis was such a critical turning point and, unexpectedly, ended up stimulating trade and investment within Asia.--Publisher description This book demonstrates the connection between economic and strategic developments in Asia with several, interrelated arguments. The author asserts that there is no single explanation for the 1997 financial crisis in the Pacific Rim states, nor for the slow recovery afterwards. The author also points out that China is not the only major power rising in Asia; India is close behind, and warns that while many observers are proceeding as if current U.S. treaties will continue indefinitely, Asia is already preparing for changing patrons.