SEOUL — South Korea (where the idea of becoming a regional hub is now all the rage) and Malaysia share the same basic vision for Northeast Asia and Southeast Asia, respectively. In addition, the two countries are cosponsoring an initiative to formally coordinate the ASEAN plus three forum. Last month, Malaysia announced its willingness to provide $10 million seed money to launch an ASEAN plus three secretariat in Kuala Lumpur. Seoul was the first to applaud the initiative.
The two countries already share a $6 billion two-way trade relationship based on extensive economic complementarity. And both lead their subregions in the development of computers, communications infrastructure and software. South Korea is pouring billions into an information-technology hub around Inchon and Malaysia in a “multimedia supercorridor” around Putrajaya.
However, the pair would appear more like an odd couple than natural partners. Malaysia is more than three times as large, multicultural (with three major ethnic groups: Malay, Chinese and Indian), and has only about a third of South Korea’s per capita GNP; South Korea is smaller, homogenous and has more than twice the population.
Can two countries so different in size, population, level of economic development and culture find common ground in leading their subregions? Thus far they have demonstrated that being different doesn’t necessarily mean a win-lose outcome. For example, although each took a dramatically different path to recovery, both came out winners. Malaysia bucked the IMF with capital and currency controls as part of its go-it-alone recovery from the 1997 Asian financial crisis. South Korea was the class star in graduating from the IMF’s bailout ahead of schedule. But what they both share is perhaps more important — the discipline and determination to recover, albeit each in his own way.
An additional handicap that both need to overcome is the fact that while each is centrally positioned geographically, each also faces formidable competitors: China and Japan in Northeast Asia, Singapore and Hong Kong in Southeast Asia. This will not be an easy task with both countries on the cusp of generational leadership changes; South Korean President Kim Dae Jung will be leaving office next February, while Malaysian Prime Minister Mahathir Mohamad will follow in October. Both men have been driving forces for a regional approach to Asian economic growth.
While becoming a regional hub makes sense in terms of geography and symmetry, that is not the end of the story and the idea should not be hyped. In economics as well as physics, the shortest distance between two points is not always a straight line. Just because South Korea is midway between China and Japan does not automatically mean that multinational companies — South Korea’s target of choice — will make a course correction, ready to open up shop in Seoul.
No company with operations in China or Japan or both is likely to choose South Korea merely because it is halfway between the two countries or because it has good port and airport facilities. In addition, the Japanese economy is 10 times larger, while China’s is already twice as large, and at current growth rates will double every decade. And while information technology is advanced in South Korea, IT is a necessary but not a sufficient condition for locating in a regional hub.
There are certainly companies that will find South Korea’s location between China and Japan advantageous, and if the North-South railroads are relinked and connected to the Trans-Siberian railway — making Europe and Asia part of a seamless transportation network — South Korea will be a prime beneficiary. Today, however, Northeast Asia is a region only geographically; it has yet to become a region economically or politically. And South Korea cannot really expect to benefit as regional hub until it does.
Southeast Asia is further along the path of regional unity, but growth has stalled as a result of the recent economic downturn, with many of its economies mired in recession. While the countries comprising ASEAN have done much to lower trade and investment barriers among themselves, political instability has held back progress, forcing the region to look outward for support — northward to China, South Korea and Japan (constituting ASEAN plus 3) and westward to the European Union.
By contrast, there is an absence of regional cohesiveness in Northeast Asia. Indeed, if there is a weakness in the ASEAN plus 3 concept, it is that the Association of Southeast Asian Nations is looking at three very different countries at very different stages of economic development, and with varying political outlooks and security interests. While there are comparable differences within ASEAN, there is also a shared experience of several decades in harmonizing economic and trade policies and — with the exception of Singapore — two distinct groupings of countries: Malaysia, Thailand, the Philippines and Indonesia at an intermediate level of economic development and Vietnam, Laos, Cambodia and Myanmar a level lower.
A final difference is that while these two subregional groupings are engaged in reinforcing each other’s economic prospects, the three countries in Northeast Asia have yet to begin the process of coordinating economic policies among themselves, thus far viewing each other more as rivals than partners. Here new leadership and more realistic and synergistic regional outlooks can make all the difference.
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