The six largest east Asian economies account for one half of global demand and output.

With big domestic markets of 2 billion people – one fourth of world population – and increasingly free intra-regional flows of commerce and finance, this is a huge community whose public policy is genuinely devoted to peace and economic development.

It is also an area closely focusing on sound macroeconomic management – a far cry from a situation that led to the Asian financial crisis of the late 1990s. The average inflation rate is about 5%, with roughly balanced or very large surplus trade positions. Public sector liabilities are held in the range of 40% to 60% of GDP, the only exception being Japan with its domestically owned public debt of 240% of GDP.

Opening up to regional trade has now become a powerful growth factor in east Asia.

At the beginning of this year, the ten ASEAN (Association of Southeast Asian Nations) countries and five of its main trade partners (China, Japan, South Korea, Australia and New Zealand) set up their Regional Comprehensive Economic Partnership (RCEP).

East Asians want peace and free trade

RCEP is by far the world’s largest free trade bloc accounting for nearly a third of the global population, GDP and merchandise trade. And that’s just for starters. Unfolding trade creation effects will now enhance growth of demand and output, and they will also continue to expand RCEP’s share of world trade in goods and services.

China, of course, looms large in that new east Asian economic community. Beijing, for example, has been ASEAN’s largest trade partner for 13 consecutive years. In the first seven months of this year, China’s trade with ASEAN rose 13% to $545 billion. More importantly perhaps, ASEAN trade generated nearly one-fifth of China’s exports and imports.

The question now is: How will the West’s “strategic and systemic competition” react to Beijing’s growing economic and political importance on the integration process in east Asia?

The reaction is already there, and it is two-fold.

First, the U.S. created a rival free-trade group called the Indo-Pacific Economic Framework (IPEF). The problem here is that half of the IPEF’s 14 members are also part of RCEP, and China is the largest trade partner of most IPEF countries. Based on 2021 trade numbers, China’s trade with IPEF members is also more than double compared to America’s trade with the group it set up to compete with China.

So, IPEF is unlikely to take China’s RCEP trade business.

Washington’s second line of attack will be direct economic and political pressure on east Asian countries to reduce – or cut off – their trade ties with China.

That’s a tall order. China is America’s second-largest trade partner, with a $402.3 billion of bilateral trade business in the first seven months of this year – a 14.2% increase from the same period of 2021. With that sort of trade record, Washington will be hard-pressed to ask its Asian allies to forego large and lucrative trade and investment deals with Beijing.

Trying to dislodge China is a wasted effort

A more general political and security pressure could be the only other option left. But, there again, that may not be as effective as it seems.

China, for example, has just reported incoming foreign direct investments of $138.4 billion in the first eight months of this year – a hefty 20% annual increase – with investments from Korea and Japan soaring 60% and 30% respectively.

How do you tell, let alone force, the Koreans to stop doing business with China, their largest export and investments market? The same is true of Japan, where they held a gala event last Friday (September 16), in the presence of the former Prime Minister Yasuo Fukuda, to celebrate 50 years of “normalized” diplomatic relations with Beijing.

China, therefore, will remain the key trade partner and an important source of economic growth for its east Asian neighbors. Beijing is aware of that, and it has done all it could to cut taxes, increase public spending on social welfare and maintain easy credit policies to revive its post-pandemic economic recovery. Industrial production and business investments are now growing at annual rates of 4% and 6% respectively, while retail sales of consumer goods shot up 5.4% in the year to August.

All that is good news for the rest of east Asia, especially in countries where relatively high inflation rates and budget deficits leave little or no room for expansionary fiscal and monetary policies. In those cases, the RCEP free trade area offers access to vast Chinese markets for opportunities of an export-led growth.