ASEAN and the Asian flying geese Magda Safrina, Massachusetts In the 1930s, Japanese economist Kaname Akamatsu

(1935) developed a multi-tier hierarchical flying geese model to describe how industrialization spreads from developed countries to developing countries. In a broader sense, this model might be applied to examine the patterns and characteristics of East Asian integration (Furuoka, 2005). Japan played its role as the leading goose in East Asian integration and made its first attempt to lead regional integration of Asian flying geese before World War II. Japans militarist and nationalist approach was implemented throughout Asia from Korea, Manchuria and Taiwan to Indonesia. The signing of the Japan US security pact in 1951 clearly shifted Japans style of approach to East Asia integration from military to economic. Japan made its second attempt to lead East Asian integration in the 1960s. Sponsored by the United States during the cold war era, and motivated by its own economic interests to meet the huge demand from the US for Japanese-made products from the 1960s to1980s, Japan built a production network in Asia. The formation of the second wave of Asian flying geese can be described as Japan leading the wave and followed by the second tier geese; South Korea, Taiwan, Singapore and Hong Kong, with the third tier geese; Thailand, Malaysia, Indonesia, the Philippines (ASEAN) and China following behind. Japan initially exported products to the second tier countries or so called host countries to create domestic markets within the host countries. While constantly penetrating the markets of the host countries, Japanese companies built production plants and exported from the host countries to the third-tier countries. Japans second attempt at East Asian integration successfully created the Newly Industrial Economies, namely South Korea, Taiwan, Singapore and Hong Kong, which in turn played their role in leading the third-tier countries. At the same time, Japan maintained its leading role in regional integration by providing foreign aids, technical assistance and leading research and development. However, the second attempt at East Asian integration started to lose its momentum when Japans economy crashed and then went into a long recession in the late 1980s. The spirit of East Asian integration faded away when the Asian financial crisis hit the region in 1997.

Recently, the spirit of East Asian integration has re-emerged. The continuing economic growth in Asia post the 1997 Asian financial crisis, Asias resilience during the 2008 global economic downturn and more importantly the rapid growth of Chinas economy over the past decade, have all together spurred optimism about East Asian integration. Through the size of its GDP (US$1.5 trillion), the size of its population (590 million people), and through its regional infrastructure, ASEAN become the heart of East Asian integration. In the absence of infrastructure, ASEAN with ASEAN+3 (Japan, China and South Korea) become the only regional infrastructure addressing East Asian integration. Is East Asian integration now entering a new third wave of Asian flying geese? A very challenging question given that Chinas influence is so large but its role is so unclear. China, however, is playing an active role in fostering East Asian integration, as can be seen in ASEAN+3, ACFTA, Chinas contribution worth $38.4 billion to the Chiang Mai Initiative and Chinas loan package for ASEAN worth a total of $25 billion. Add to that Chinas new softer approach to negotiations with ASEAN countries. These represent signals of Chinas attempt to take the leading role in the third wave of the Asian flying geese. Unlike Japans clear leading role in the second wave of Asian flying geese, however, Chinas role is ambiguous. Although its profile is still on the rise in the region, economically China is already the main player. Chinas ambiguous role has become the source of problems in recent East Asian integration, as reflected by ASEANs growing concerns toward ACFTA. Unlike the Japan-led East Asian integration in the past, where Japans trade and direct investment were the catalyst for the structural transformation in Asia, it remains to be seen whether Chinas trade and direct investment will have the same effect. Without being cynical, my questions are basically derived from the fact that Chinas trade and investment in ASEAN today is very different to Japanese trade and investment in the past. Simply exporting low-end manufactured products to ASEAN countries using a preferential trade platform under ACFTA, and simply importing raw material from ASEAN countries, while investments are concentrated in mining and loans are directed to infrastructure projects, I am wondering how Chinas trade and investment in ASEAN today can foster a structural transformation in ASEAN. Open trade can expand markets, improve competition and benefit consumers, thus, empirical research has revealed evidence that trade and foreign direct investment can

have far-reaching effects on host countries only when trade and foreign direct investment can lead to structural transformation in the host countries through transfer of knowledge and technology, stimulating innovations, improving work standards, linkages to suppliers and backward industries and improving the overall business environment. Research shows that trade and foreign direct investment for long-term economic growth is not only about the amount of dollars we receive today, but far more important, it is about the multiplier effect that trade and foreign direct investment brings to generate economic growth in the long run. Under this current period of China-led East Asian integration, how far this third wave of Asian flying geese will travel, again, remains a question mark. The formation of the second wave of Asian flying geese can be described as Japan leading the wave.