The Resilience and Flexibility of Asia-Pacific Regional Economic Cooperation in the Period of Worldwide Turbulent Changes

Liu Hongzhong

The world today is undergoing a new period of turbulent changes， with the post-war trade and economic system dominated by neo-liberalism facing complex challenges. The political and economic landscape of the Asia-Pacific region also fluctuates from time to time due to various factors. Meanwhile， the willingness of Asia-Pacific countries to promote regional economic cooperation remains strong， as the experience and lessons of “prosperity for all， loss for all” learned over the past few decades of development have convinced countries that continued strengthening of regional cooperation is the only right choice to ensure sustainable economic growth for their own countries. In the face of a volatile international environment and mounting external pressures， governments of Asia-Pacific countries need to demonstrate greater political wisdom and determination by making the right decisions despite various unfavorable factors， and to promote regional cooperation to go deeper， so as to ensure that a sound pattern of development is sustained.

Vulnerability and Opportunity in Asia-Pacific Regional Economic Cooperation from a Historical Perspective

The Asia-Pacific region as an economic zone was formed in a progressive manner. After the end of World War II， under the financial and technical aid of the United States， Japans economy was able to recover rapidly and realize fast growth， and returned to the level of developed countries in the late 1960s. Since then， Japan has begun its industrial transfer and division of labor in the Asia-Pacific region through economic means such as foreign direct investment and the export of intermediate goods. Other upcoming countries and economies in the region participated in this process based on their own comparative advantages， ranging from the “Four Asian Tigers” in the 1970s to the “Tiger Cub Economies” and China in the 1980s and 1990s， to other Southeast Asia countries such as Vietnam and Laos after 2008， have made full use of the opportunities brought about by the regional division of labor and cooperation in the field of industry and have been catching up with each other， thus forming the flying geese paradigm of development. While opening a “window of growth and prosperity” for emerging economies， this pattern has also made Asia-Pacific the region with the most dense and complex network of industrial division of labor in the world. Overall， this market-driven and division-of-labor-driven regional economic cooperation has come into being without a regional institution.

However， rather than moving forward in a smooth and linear fashion， the Asia-Pacific regions geese-flying growth has gone through two major tests and it was only through regionalist institutional cooperation that it finally broke free and embarked on a new path of shared regional growth. The first challenge came with the Asian financial crisis that erupted in 1997. The domino effect of the crisis overwhelmed East Asia with disastrous impact on the economies of a number of countries made East Asian countries truly realize for the first time their closely interconnected common destiny and the fact that relying only on market-driving regional cooperation and assistance with stringent preconditions from the United States and the International Monetary Fund （IMF） was not enough to ensure that they would emerge from the crisis. Against this background， the first informal meeting between the leaders of ASEAN and China， Japan and Korea was held in Kuala Lumpur， Malaysia， in December 1997， kicking off the prelude to institutionalized cooperation in East Asia. The Joint Statement on East Asian Cooperation adopted at the third leaders meeting held in Manila， Philippines， in November 1999， agreed on the principles and directions for promoting cooperation in East Asia， marking the new chapter of East Asia regional cooperation by institutional progresses. Since then， the East Asian Leaders Meeting has been transformed from informal to formal， and a set of institutional arrangements from decision-making to implementation has come into being. To a certain extent， it can be said that the rapid development of regionalism cooperation in the region after the 21st century has played a key role in bringing the East Asian economies out of the crisis and realizing rapid recovery.

The second major test of Asia-Pacific regional economic cooperation came in the form of the 2008 international financial crisis and the return of the United States to the Asia-Pacific region through its leadership of the Trans-Pacific Partnership （TPP）. The international financial crisis started with the subprime mortgage crisis in the United States， which had a huge impact on East Asian economies through the trade channel. What the crisis has taught East Asian countries is that the “East Asia produces - United States and Europe consumes” global division of labor， which was formed under mercantilist development policies， is not sustainable in the long run. Therefore， the re-balancing of the East Asian economy after the crisis has become a hot topic of discussion among academics and the political and business sectors. However， with the rapid recovery of extra-territorial markets， the strong inertia of East Asian countries in relying on mercantilism to get out of the crisis “overcame” the long-term need for economic re-balancing. Although the East Asian economies have since embarked on the road to recovery once again， the re-balancing of their economies has stagnated. On the contrary， as a whole， East Asias trade surplus in goods increased by 61.4% from $480.3 billion in 2009 to $775.2 billion in 2017， with the trade surplus in goods with the United States in particular reaching $450.5 billion in 2018， an increase of 124% compared to 2009.

The United States strategic adjustment of back to Asia-Pacific by leading TPP is mainly based on the consideration of balancing Chinas influence in the Asia-Pacific region. But at the economic level， the United States is not intended to “decouple” from the East Asian economy， and even want to strengthen economic ties with the Asia-Pacific region through the signing of free trade agreements. However， the TPP is also a source of concern for ASEAN because it will have a divisive effect on ASEAN as a whole and weaken ASEANs centrality in Asia-Pacific economic cooperation. In this context， ASEAN has proposed a Regional Comprehensive Economic Partnership （RCEP） cooperation framework comprising 16 Asia-Pacific countries， building on the six “10+1” free trade agreements （FTAs） already in place. After 30 rounds of negotiations and successive leaders and ministerial meetings from 2013 to 2020， the RCEP was finalized and entered into force in 2022 （India withdrew from negotiations on the agreement in 2019， and the RCEP now has 15 member countries）. On Donald Trumps first day in office， he abolished the TPP agreement， which allowed Asia-Pacific regional economic cooperation to continue along the logic of “improving ASEAN-centrality， regional identity， regional cooperation consensus， and regional economic growth”.

Overall， Asia-Pacific regional economic cooperation has achieved progress while lost something at the same time in overcoming the second major challenge. In terms of gains， the international financial crisis has further promoted the regional division of labor among East Asian countries， while the United States Asia-Pacific re-balancing strategy has strengthened the regional identity and sense of regional cooperation among Asia-Pacific countries apart from its major purposes. In other words， although the Asia-Pacific countries do not simply reject the U.S.-led TPP framework， they do not want their own regional cooperation replaced by the TPP which is dominated by the extra-territorial countries. When it comes to the losses， although the Asia-Pacific countries have seen the huge risk of this traditional “East Asia production - U.S. and European consumption” international division of labor from the crisis， mercantilist thinking and policy making under this mindset ultimately rendered them subject to heavy reliance on extraterritorial market demand as they were， and the re-balancing of the regional economy still has a long way to go.

Since the second decade of the 21st century， the international political and economic situation has changed dramatically. With the intensification of the U.S. strategic competition with China and the implementation of the U.S. strategy of reconstructing the global value chain， the Asia-Pacific region has encountered the third major challenge to economic cooperation. Different with the Obama administrations pivot to Asia-Pacific strategy which features strengthening economic ties with the Asia-Pacific region and balancing Chinas influence， the Trump administrations strategic goal became re-configuring the global value chain， destroying the Asia-Pacific regional division of labor network which is spontaneously formed on the basis of market competition. Trump administrations logic is more geopolitical than of economic development， and this strategy has become the guidelines of the United States to handle its relations with this region. This new change has undoubtedly made it more difficult for Asia-Pacific countries to cope with and overcome the challenges.

Four Pillars to Address Current Challenges of Asia-Pacific Regional Economic Cooperation

Geopolitical changes have posed unprecedented challenges to Asia-Pacific regional economic cooperation， but history shows that the future is not necessarily pessimistic. After decades of development， four distinctive features of Asia-Pacific regional economic cooperation have emerged： geese-flying regional economic growth and close regional production networks， the principle of open regionalism， ASEAN centrality， and the regional cooperation concept of development for security. These four features have given Asia-Pacific economic cooperation sufficient resilience and flexibility to overcome the current difficulties and continue to push the Asia-Pacific economy towards an orderly path of structural adjustment and stable growth.

First， the flying geese paradigm has energized the Asia-Pacific economies while promoting the formation of complex value chains in Asia-Pacific countries. The flying geese paradigm development model has provided room for growth for all latecomer countries in Asia-Pacific region that have adopted an open-up policy to integrate into regional cooperation， and has also been described as the key to the miracle of East Asia. It is in this dynamic process of development that the economy of Asia-Pacific countries have gradually become closely integrated， increasingly becoming a community with a shared future in which interests of all players are bond together. This division of labor and development model has survived the tests by the international financial crisis and many natural disasters， and has shown strong resilience. Judging from the changes in recent years， the regional value chains in the Asia-Pacific region have sufficiently remained resilient， despite the international situation in the context of turbulence and the immense pressure and challenges posed by the United States reconfiguration of global value chains. Many studies have shown that while the world as a whole has experienced a contraction in global value chain participation in recent years， and supply chain connections in the Asia-Pacific region have been strengthening.

Second， the principle of open regionalism has given Asia-Pacific regional economic cooperation greater inclusiveness and flexibility for development. Asia-Pacific regional cooperation has been gradually formed and developed in a liberal international order. To meet the challenges posed by complex geopolitics and national differences， Asia-Pacific countries have been following the principle of open regionalism to promote regional cooperation. Open regionalism means， first and foremost， inclusiveness and non-discrimination. From the “10+1” and “10+3” mechanism， which were initially focused on East Asia， to the RCEP and the Comprehensive and Progressive Trans-Pacific Partnership （CPTPP）， which have transitioned to the Asia-Pacific region after 2010， Asia-Pacific regional cooperation has continued to absorb new members， forming a benign open development pattern. In July 2023， the CPTPP even approved the UKs formal accession to the agreement. In addition， with ASEAN at the center， the Asia-Pacific region has also incorporated external contributors such as Russia， the United States， and other countries along the east coast of the Pacific into the Asia-Pacific regional cooperation process， resulting in various dialogue mechanisms and institutional arrangements such as the ASEAN Regional Forum （ARF） and the East Asia Summit. Open regionalism adheres to the principle of cooperation whereby regional institutional arrangements complement rather than replace global multilateral rules. For example， Chiang Mai Initiative advocates currency swap multilateralization linking to IMF loans， which dispelled concerns that the initiatives Reserve Currency System would replace the IMF. Open regionalism essentially means free trade rather than protectionism. At a time when protectionism is everywhere， the openness of the Asia-Pacific regional economic cooperation undoubtedly gives the region greater flexibility to defuse the risks posed by various external impacts.

Third， ASEAN centrality （ASEAN approach） ensures that the Asia-Pacific regional economic cooperation has greater flexibility to make adjustments and development resilience. Promoting regional cooperation with ASEAN， the “group of small and medium-sized countries”， as the center and platform is an important feature that distinguishes the Asia-Pacific region from other regions. Platforms such as the ASEAN+3， the East Asia Summit and the ARF， created on the basis of the centrality of ASEAN， provide important channels of communication for main countries within and outside of the region to engage in dialogue on an equal footing and negotiate solutions to regional issues. The ASEAN approach is an important prerequisite for ensuring that ASEAN centrality is accepted by all countries in Asia-Pacific regional economic cooperation. Based on the concepts of consultation and consensus， the ASEAN approach embodies the collective principles of sovereign equality， non-interference in internal affairs and consensus decision-making. The ASEAN approach was first applied to the intra-ASEAN integration process， which then gave rise to the 10+1 FTAs， and ultimately to the completion of the RCEP negotiations in 2020 covering 15 Asia-Pacific countries. The negotiations have demonstrated a unique ASEAN approach， especially in emphasizing hard constraints of the regional cooperation mechanism while taking care of the interests of all parties to the negotiations， including granting special and differential treatment to least developed countries， such as Cambodia， Laos， and Myanmar by allowing them to enjoy a transition period of tariff elimination of up to 18 years. In addition， when India opted out at the last minute， RCEP promised that India would still enjoy the special treatment of a founding member if it chose to join in the future.

Fourth， the regional cooperation concept of development for security is an important conceptual underpinning for promoting regional economic cooperation and economic integration in the Asia-Pacific region. Although the Asia-Pacific is a region with the greatest development vitality and potential in the world today， under the continuously turbulent international environment， countries in the Asia-Pacific region are facing serious challenges such as unbalanced economic development， insufficient political mutual trust， and prominent security and governance issues， etc. In 2014， President Xi Jinping put forward the common， comprehensive， cooperative， and sustainable concept of “Asian Security Outlook” at the ASEAN Summit in Shanghai， stating that “development means the greatest security and is the master key to regional security issues”， and advocating the formation of a benign interaction between regional economic cooperation and security cooperation， which go hand in hand to “promote sustainable security through sustainable development”. Since then， President Xi Jinping has reiterated this viewpoint on a number of important international occasions. It can be said that the common， comprehensive， cooperative and sustainable concept of security in Asia is also a precise elaboration of the reasons why economic cooperation in the Asia-Pacific region has continued to move forward despite the ups and downs of the past 20 years. Although frictions of various kinds have still arisen from time to time in the region in recent years， the impetus of countries to promote regional economic cooperation has not weakened. This shows that the fundamental belief in “economic and trade cooperation as ballast and development for security” continues to play an important role in managing relations among Asia-Pacific countries and promoting regional economic cooperation in the Asia-Pacific region.

Directions and Prospects for Deepening Asia-Pacific Regional Economic Cooperation

Relying on the four pillars mentioned above， Asia-Pacific regional economic cooperation has made great achievements. At the same time， they have given Asia-Pacific countries the resilience and flexibility to advance regional economic cooperation in spite of various challenges. However， due to the profound transformation of the international order， Asia-Pacific regional economic cooperation is under unprecedented pressure. To realize sustainable economic growth and deepen regional economic cooperation， it is still necessary for Asia-Pacific countries to further strengthen cooperation and consolidate the foundation of the “four pillars”.

Firstly， regional countries shall promote the upgrading and expansion of RCEP， and build a higher level and wider scope of regional FTAs. As the worlds largest free trade area， RCEP has been in force for more than two years， its initial effects on trade and investment coming into being. In order to better curb increasing trade protectionism， RCEP member countries can consider accelerating the pace of cutting tariffs and non-tariff barriers， and raising the level of service trade and investment facilitation; further improving the standards of the agreements rules， and pushing forward the construction of an upgraded version of the RCEP， so as to create a freer and more convenient regional development environment for the regional integration of industrial chain， supply chain and value chain. At the same time， the expansion of RCEP shall be actively explored， and the coverage of the agreement shall be expanded by including more new members， thus increasing the market scale effect of the agreement.

Secondly， they shall promote the effective interface and synergy between the Belt and Road Initiative （BRI） and the development strategies of Asia-Pacific countries， as well as regional and international development agendas at a high level of standard. With connectivity as the core， the BRI has made great achievements over the past 10 years. However， poor infrastructure remains one of the major bottleneck constraining economic development in this region， and Asia-Pacific countries need to continue to deepen cooperation in joint development and construction. To this end， China can orderly promote cooperation with countries that have a better foundation and stronger willingness to cooperate to better docking around their respective development strategies and cooperation plans， and identify the combination point and docking point for deepening substantial cooperation， so as to realize complementary advantages and synergies， and produce the effect of “one plus one is greater than two”.

Thirdly， they shall promote cooperation on digital economy and green economy based on development security and future-oriented development as efforts made to create new growth points for regional cooperation. The importance of the digital economy and green economy to human development and security has gained broad consensus globally. In order to make better use of the huge opportunities in the digital and green economies， Asia-Pacific countries should strive to promote further liberalization of intra-regional digital trade and trade in green products by providing more convenience for international cooperation in cross-border e-commerce， artificial intelligence， new energy vehicles and other industries in the region. To this end， on the basis of maintaining data security， countries should cooperate to strengthen the construction of infrastructure related to the digital economy and green economy in the region， promote mutual recognition of standards among regional countries in the fields of digital economy and green economy， and innovate digital and green financial products and service models， so as to promote the sharing dividends of the digital and green economy by all parties， and thus give the region a new impetus for economic cooperation.

Fourthly， they shall promote the transformation of the Asia-Pacific economic development model from a production and export oriented regional division of labor network to an “East Asian Economic Circle” with balanced development of production and consumption within the region. Against the backdrop of continued international market turbulence and downturn， it is of great significance for the stable and sustainable development of the Asia-Pacific region to reduce the heavy reliance on external markets such as the United States and European countries， and to form a new model of the division of labor in East Asia that is based on regional consumption demand and balanced development both within and outside the region. The key to the formation of a balanced development of the “East Asian Economic Circle” is to expand the size of the final consumer goods market in the region， and China will undoubtedly play a key and leading role considering the current size of the economies of various countries and their consumption capacity. This requires China to accelerate its transformation of economic growth mode from investment and export driven to a domestic demand-led one. This demand should be reflected not only in the consumption of domestic products， but also in the increase of imports， especially from neighboring countries in the Asia-Pacific region， so as to play a supporting role in ensuring the stable development of the East Asian supply chain.

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Liu Hongzhong is Professor of Shanghai Academy of Global Governance & Area Studies at the Shanghai International Studies University