China Risk and Efforts toward Regional Economic Integration[Overview of research]
The Asia-Pacific region is thought likely to continue as the world’s growth center, and theregion remains a key area for Japan’s trade and investment policies as well as businessactivities.

Within that context, China had long been “a key battleground among keybattlegrounds.” In recent years, however, China’s economic development model has beenstalling and, in addition to rising wages and other factors diminishing the benefits of foreign
investment in China, uncertainty about the outlook for its economic development, the surge
in Chinese nationalism underlying China’s rise as a great power and its dissatisfaction withthe status quo, and increasingly hostile anti-Japanese sentiment together have created theperception of a “China risk” among Japanese business sectors.
Accordingly, there is an active drive among Japanese companies to seek out newinvestment destinations other than China in what has become known as the“China-Plus-One” strategy. Contrary to concerns about the “China risk,” the economies ofVietnam, Indonesia, the Philippines, Thailand and Malaysia remain strong, and foreigncompanies can be seen returning to ASEAN. In Myanmar, where democratization process
is going on, many countries as well as foreign companies are paying due attention for its
possibility as a promising undeveloped market. The booming Indian market, too, could
become an important hedge against China.
A “One Step Beyond” approach has also emerged that transcends the “China-Plus-One”
strategy.

The Middle East and Africa had been leading candidates for the next big

investment destinations in the “China-Plus-One” strategy.

However, the “Arab Spring”

democratization movement in the Middle East, the socio-political turmoil in the region
associated with the Iranian nuclear issue, as well as the seizure of a North African plantfacility by extremists make the region a high-risk one in the eyes of Japanese businesssectors. Given the regime changes and public security concerns in the Middle East, Latin
America is now becoming a potent third alternative. Supporting the overseas businessactivities of Japanese companies with due consideration for these “China-Plus-One” and“One-Step-Beyond” strategies would be essential to sustain Japan’s economic development
and help it drastically expand.
Regional economic integration plays a key role in these “China-Plus-One” and“One-Step-Beyond” strategies because it encourages the free movement of people, goodsand money, improves the investment environment, and guarantees the transparency andpredictability of foreign direct investments.

With Japan now participating in the TPP

negotiations, consideration must be given to what negotiation outcome would best serve
Japan’s national interests and what Japan should seek from the TPP. The relatively newRCEP (ASEAN+6) framework is among a number of frameworks for regional integration inEast Asia. Because RCEP’s membership comprises important countries such as other
ASEAN countries, China, South Korea and India not participating in TPP, its significancediffers from that of TPP. The prospects for FTA negotiations among the three countries ofNortheast Asia (Japan, China, and South Korea), heretofore regarded as an FTA vacuum,also bear watching.
These regional economic integration efforts could prove useful tools for incorporating theregion’s vitality and demand, inclusive of the “China-Plus-One” and “One Step Beyond”
strategies, and regional economic integration efforts in which China participates could serveas important means of encouraging economic reform to achieve a soft landing in China. Atruly strategic foreign economic policy is needed to ensure Japan’s prosperity. In light of
the impasse reached by China’s economic development model in recent years and of the“China risk,” this project will examine ways to utilize regional economic integration from theperspectives of (1) incorporating the vitality and demand of “China-Plus-One” and “One StepBeyond” regions (including Latin America) to invigorate the Japanese economy and hedge
the risks it faces, and (2) facilitating a soft landing for the Chinese economy, and it will offer
recommendations for the most suitable approaches to a strategic foreign economic policy
for Japan.

[Research Project Members]
Project Leader
URATA Shujiro (Professor, Graduate School of Asia-Pacific Studies, Waseda University)
Members
ISHIKAWA Koichi (Professor, Institute for Asian Studies, Asia University)
HAMAGUCHI Nobuaki (Professor, Research Institute for Economics & Business
Administration, Kobe University)
ABE Kazutomo (Professor, Tokyo Denki University)
TERADA Takashi (Professor, Faculty of Law, Doshisha University)
NAKAGAWA Junji (Professor, Institute of Social Science, The University of Tokyo)

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HIROTA Koki (Director-General, Southeast Asia and Pacific Department, Japan
International Cooperation Agency [JICA])
Researchers
IIJIMA Toshiro (Deputy Director-General and Senior Research Fellow, The Japan Institute ofInternational Affairs [JIIA])HATASA Nobuhide (Fellow, The Japan Institute of International Affairs [JIIA])

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