Won Bae K i m
The imbalance of military and economic power hinders regional coopera- tion in Northeast Asia. China and North Korea, the two socialist econo- mies with poor living standards, have considerable military might as well as security arrangements with each other, whereas Japan and South Korea even though they are economically prosperous have less military muscle. Manipulative uses of bilateral trade and economic ties for political and other gains can become a zero-sum game, and conflicts of interest may yet develop into crisis situations.
Trade imbalances and disparate interests are and may continue to be major problems, especially between the planned economies of China and North Korea and the market economies of South Korea and Japan. The current trade pattern between the two groups of countries can be charac- terized as a vertical division of labor—the former group supplies raw materi- als to the latter group and in return imports manufactured goods from the latter.11 Such vertical relationships are often disadvantageous to the underdeveloped countries and regions exporting raw materials. It is defi- nitely not a trade pattern that China and Russia desire in the long run. The need for comprehensive regional development in Russia's Far East and China's Northeast with a substantial processing base for added value, rather than simple extraction and export of raw materials, has been clearly stated in Chinese and Soviet policies and proposals."
Obviously Russia's Far East and China's Northeast need a massive infusion of capital investment and technology from Japan, South Korea, and other countries to achieve comprehensive regional development. This may not be forthcoming. The current capital flows and their characteris- tics, in particular direct foreign investment (DFI) from Japan and South Korea, reflect their interests in Far East development. Japanese interest in resource development there has waned over time. After the second oil shock, the Japanese economy transformed to a lower energy consumption base, and thus its need to secure a stable supply of raw materials became less acute. Also, the pattern of Japanese D F I over the last three decades indi- cates a movement away from resource development. The share of com- merce and services in total Japanese DFI has increased over time, and manufacturing accounts for about one-third of the total. The primary des- tination of D F I for resource development has been Southeast Asia, espe-
Cooperation in Far East Development: Caveats and Concepts 27
daily Indonesia and the Philippines" and manufacturing investment has been flowing into North America and Southeast Asia. Japanese DFI in China has been concentrated in services and manufacturing mostly in elec- tric machinery, particularly in Northeast China which has historical ties to Japan.3 4
South Korea's DFI pattern shows the greater importance of resource development in its overseas investment," although manufacturing and ser- vices have gained in recent years. The primary destinations of Korean D F I are Southeast Asia and North America. South Korea's D F I in Southeast Asia is concentrated in manufacturing, taking advantage of cheap labor and resource development (primarily in Indonesia), whereas its D F I in ser- vices is mostly concentrated in developed countries. In China, low-cost labor is the major attraction for South Korean firms involved in joint ventures. Most products are for export, although a few joint ventures in consumer electronics are aimed at China's domestic market.3 6
South Korea's investment in the Soviet Union began very recently and only a few projects have actually been implemented. Intended or agreed- upon projects between South Korea and the Soviet Union reflect a major emphasis on resource development. Consumer goods, import-substitution industries, and services are other targets of South Korean DFI. If Far East development is implemented as envisioned by the New Development Pro- gram,3 7 there will be an increasing participation of the Korean construc- tion industry. But high costs of construction in Siberia and the Far East together with the uncertain demand for the resources in the region make it necessary for the Russian government to provide sufficient incentives to compensate high development costs and risks. Furthermore, rules and regulations governing foreign involvement in China and the Far East are not well developed, and it is difficult to foresee the nature of their evolu- tion. Negotiations for a contract may take a long time because of subjec- tive interpretations of guidelines and bureaucratic delays.3 8
In the short run, DFI in resource development in the Far East, in- cluding fisheries and timber, will probably be feasible and can be extended gradually to processing industries. But in comparison with Northeast China where a substantial manufacturing basis has already been developed, the Far East is at a disadvantage for either machinery production or labor- intensive light industries. In the long run, perhaps energy-intensive heavy industry—including some processing of local raw materials—may be com- petitive with industries in China and other resource-rich countries.
Labor, another important factor of production, is abundant in North- east China and to a lesser degree in North Korea. In general, labor moves toward places with higher wages and benefits. However, migration and labor movement are controlled in a socialist-planned economy even internally. Crossing borders will not be easy even though there are sufficient incen- tives for the workers to do so. If the Siberian and Far East development
28 Won Bae Kim
plan is indeed implemented, there will be a huge demand for Chinese workers—up to 5 million in the next few years and as many as 50 million in the long term. Chinese labor contracts with the Soviet Union jumped to US$130 million in 1989 from US$5 million a year earlier. In 1991 about
15,000 Chinese were working in Russia. Heilongjiang, expected to be the main supplier of workers, has about 9,000 workers in Russia already. South Korea is very much interested in Chinese contract workers, in particular Korean Chinese. One hundred sixty Chinese workers are working in Svet- laya timber for Hyundai Timber C o . " Obviously, an increasing South Korean involvement in Far East resource development and infrastructure construction will require a large number of contract workers, perhaps from Northeast China.