The impact of the Indo-Pacific strategy on economic and trade cooperation among China, Japan, and South Korea

— by Zhang Yongjun, Lu Xinhong and Liu Xiangdong

 

【Abstract】 The United States is advancing a new version of the Indo-Pacific strategy, unveiling the Indo-Pacific Economic Framework, integrating countries such as Japan, South Korea, and ASEAN to economically encircle China, with a clear strategic intent to counterbalance China. This study analyzes the impact of the Indo-Pacific strategy on China and the economic and trade cooperation among China, Japan, and South Korea. It aims to avoid an economic encirclement of China by the United States, Japan, and South Korea, strive to retain Japan and South Korea, preventing them from adopting a one-sided strategy, which is of crucial importance for China to maintain stability in its surrounding regions.

 

This article, by examining the main features of the Indo-Pacific strategy, analyzing its strategic intent, and assessing its impact on economic and trade cooperation among China, Japan, and South Korea, proposes that, under the backdrop of the Indo-Pacific strategy, China, Japan, and South Korea should overcome obstacles to strengthen economic and trade investment cooperation. It suggests enhancing mutual interests, safeguarding the security and stability of industrial and supply chains, strengthening complementary and diversified development cooperation in industries, actively promoting the integration and development of RCEP and the Belt and Road Initiative, and enhancing China's competitiveness and attractiveness to attract Japanese, Korean, and global enterprises and talents for development in China.

 

【Key Words】Indo-Pacific strategy, Indo-Pacific Economic Framework, Economic encirclement, Economic and trade cooperation.

 

 

【About the Author】

Zhang Yongjun, Vice-Chief Economist and Researcher, China Center for International Economic Exchanges;

Lu Xinhong, Researcher of the Department of World Economy Studies, China Center for International Economic Exchanges;

Liu Xiangdong, Deputy Head and Researcher of the Department of Macroeconomic Studies, China Center for International Economic Exchanges;

 

Introduction

At present, the great changes not seen in a century are accelerating, with a profound adjustment in the international balance of power. Various risks are rapidly accumulating, and uncertainties and unpredictable factors in global economic development are increasing. The external environment facing China's economic development is becoming more challenging. The intensification of the China-U.S. strategic competition is evident, with the United States unveiling a new version of the Indo-Pacific strategy, aiming to create an "Indo-Pacific NATO" to contain China and maintain the U.S.-led hegemonic system. The initiation of the "Indo-Pacific Economic Framework" (IPEF) as the economic pillar of the Indo-Pacific strategy is part of an effort to regain dominance over regional trade agreements in the Asia-Pacific region.

The Indo-Pacific strategy is impacting regional economic integration arrangements in Asia, countering China's Belt and Road Initiative, and geopolitically affecting China's diplomatic environment in the surrounding regions. This has implications for the economic and trade relations between China, Japan, and South Korea, presenting new challenges. Japan and South Korea are essential trade partners and sources of investment for China, occupying crucial positions in the East Asian production network and contributing significantly to the security and stability of industrial and supply chains in the region. Against the backdrop of the Indo-Pacific strategy, Japan and South Korea, as key proponents of the U.S. alliance and the Indo-Pacific strategy, are strengthening their "offensive" posture. Their economic policies toward China are shifting from "balancing between China and the U.S." to "leaning towards the U.S. while containing China," impacting economic and trade cooperation between China, Japan, and South Korea, as well as the diverse and stable economic relationships in the region. It is crucial to pay close attention to the impact of the Indo-Pacific strategy on economic and trade cooperation among China, Japan, and South Korea. Proactively seeking new ideas and approaches for economic and trade cooperation and strengthening collaboration with Japan and South Korea are essential. This holds significant importance for China in maintaining regional stability, seeking development, and extending its strategic opportunity period. The Indo-Pacific strategy spans multiple domains, including diplomacy, military, politics, and economics. This study primarily focuses on the economic aspect of analysis.

 

1. Main contents and features of the new Indo-Pacific strategy of the United States

 

1.1 The Indo-Pacific strategy aims to contain China and uphold the hegemonic system led by the United States.

 

In February 2022, the White House in the United States launched a new version of the "U.S. Indo-Pacific Strategy Report" (referred to as the "Indo-Pacific Strategy"). This strategy explicitly emphasizes the "strategic significance of the Indo-Pacific region" and views the region as a "vital growth pole for the world economy in the coming decades," indicating a determination to lead in the Indo-Pacific region. The Indo-Pacific Strategy outlines five major policy goals, including building an open Indo-Pacific, a closely connected Indo-Pacific, a prosperous Indo-Pacific, a secure Indo-Pacific, and a resilient Indo-Pacific. It introduces ten core action plans: promoting increased resource flow to the Indo-Pacific, constructing an Indo-Pacific economic framework, enhancing military capabilities, strengthening cooperation with ASEAN, supporting India's continued rise and attainment of regional leadership, reinforcing the U.S.-Japan-India-Australia "Quad Security Mechanism," deepening cooperation between the U.S., Japan, and South Korea, establishing resilient partnerships with Pacific islands, supporting good governance and accountability, and endorsing open, flexible, secure, and trustworthy technology. The Indo-Pacific Strategy is designed with the objective of countering China, and the report states, "Our goal is not to change China but to shape the strategic environment in which China operates." In terms of military security, through the implementation of the new Indo-Pacific strategy, efforts are made to construct the "Five Eyes Alliance," a four-sided mechanism, a three-sided security partnership, and bilateral military alliances, forming a "Five-Four-Three-Two" military posture in the Asia-Pacific region, attempting to build an Asia-Pacific version of NATO. In the economic and industrial domain, the introduction of the IPEF, centered on constructing an Indo-Pacific security alliance, and using national security as a justification, aims to substantially decouple technology and supply chains from China, attempting to create a system excluding China in technology and industrial supply chains and countering the Belt and Road Initiative, continuously shifting the strategic focus of the United States eastward. In terms of rule formulation, by elevating the status of rule disputes with China through the inclusion of values and security issues, a new regional governance rule system that favors the U.S. and excludes China is being constructed.

However, due to the mismatch between the costs and benefits of the Indo-Pacific strategy, it is expected to severely limit the effectiveness of the U.S. Indo-Pacific strategy's implementation (Ye Hailin, 2022).

 

1.2 With IPEF as the economic pillar of the Indo-Pacific strategy, the United States seeks to regain the dominance of the Asia-Pacific regional trade agreement.

In May 2022, the United States, along with Japan, South Korea, India, Australia, and 14 other countries (later joined by Fiji) introduced the Indo-Pacific Economic Framework (IPEF). The combined economic output of these countries accounts for 40% of the world's Gross Domestic Product (GDP), surpassing the economic output of the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The IPEF agreement comprises four main pillars: interconnected economies (international trade), resilient economies (supply chains), clean economies (clean energy and infrastructure), and fair economies (taxation and anti-corruption). Member countries can selectively join one or several of these pillars. The interconnected economies pillar aims to strengthen international trade and investment cooperation, formulate international regulations, and includes enhancing digital economic cooperation, formulating high-standard rules in areas such as digital trade, labor, and the environment, innovating trade and technology policy formulation, and promoting liberalization and facilitation of trade and investment. The resilient economies pillar focuses on enhancing supply chain resilience, strengthening resilience and security in key industry supply chains, such as chips, large-capacity batteries, medical products, and critical minerals. It also emphasizes policy coordination for crisis response, ensuring business continuity, and ensuring the safety and efficiency of critical raw materials and key industrial chains. The clean economies pillar aims to enhance cooperation in clean energy and infrastructure, comply with the Paris Agreement, strengthen cooperation in clean energy technologies, decarbonization, and climate change, and support infrastructure construction and technology assistance. The fair economies pillar focuses on strengthening cooperation in taxation and anti-corruption, emphasizing the formulation of tax, anti-money laundering, and anti-bribery systems, promoting fair competition, and supporting knowledge sharing and capacity building.

 

The IPEF possesses geopolitical attributes, marked characteristics of ideological orientation, and significant features of 'circularity' and 'modularity.' These aspects are not conducive to the economic integration and development of the Asia-Pacific region, presenting challenges to the region's long-term stability and prosperity (Li Hongjie, 2023; Pan Xiaoming, 2022). Essentially, this framework is a regional institutional integration plan for the Indo-Pacific that prioritizes U.S. interests. It will bring uncertainty to China's regional influence in formulating regional economic and trade rules and integrating regional economic systems in the future (Ou Dingyu, Hou Siyao, 2023). However, due to inherent deficiencies in the IPEF, where promises may not translate into tangible benefits, the prospects for future negotiations remain uncertain (Duran, 2022; Wang Wen, 2022). Despite the need to observe the effectiveness of the IPEF, its clear strategic intent towards China is highly evident (Zhang Xiaojun, Ma Xiaoqing, 2023; Jiang Fangfei, 2022). The four pillars of the IPEF focus on emerging economic sectors, aiming to ensure U.S. competitive dominance in critical technologies, industries, and supply chain areas. The multiple objectives include economic containment of China and a return to the Asia-Pacific, with a clear intention to counterbalance China's strategic objectives.

 

1.3 The relations between China, Japan, and South Korea under the new Indo-Pacific strategy by the United States.

The Indo-Pacific strategy places a high emphasis on strengthening the U.S.-Japan-South Korea alliance system. Japan and South Korea, as U.S. allies, have become the vanguard in advancing the Indo-Pacific strategy, with the U.S.-Japan-South Korea alliance becoming more assertive. Japan actively aligns itself with the geopolitical strategy of the United States and has positioned itself as a pioneer among the so-called "like-minded countries," fully supporting and actively following U.S. economic containment measures against China (Ling Shengli, Zhu Yimin, 2022). Japan seeks to co-lead the Indo-Pacific economic security order with the United States, adding complexity to the regional situation, increasing strategic pressure on China, and hindering the economic integration process in the Asia-Pacific region and the Belt and Road Initiative (Meng Xiaoxu, 2023).

 

South Korea's overall attitude towards participating in the Indo-Pacific strategy remains rational. On one hand, it seeks to advance the denuclearization process on the Korean Peninsula, enhance South Korea's position in regional governance, reduce economic dependence on China, and explore new economic growth points. On the other hand, considering its own economic development needs, it maintains "baseline rationality" in areas involving China's core concerns, keeping the overall negative impact under control (Zhu Xu, Han Wenchao, 2023). Although South Korea has introduced its own version of the "Indo-Pacific strategy," explicitly stating that it is not targeted at China, it still demonstrates a leaning towards the United States (Zheng Yulong, 2023).

 

The Indo-Pacific strategy explicitly strengthens the U.S.-Japan-South Korea alliance, providing a strategic necessity for the improvement of Japan-South Korea relations. However, the inherent contradictions between the two countries determine that the probability of tactical easing in the future is high, while the strategic reconciliation space is limited (Zhai Fusheng, 2023). The advancement of the Indo-Pacific strategy profoundly affects U.S.-China relations, and the development of bilateral relations may face challenges for a considerable period. The dynamic evolution of U.S.-China relations is expected to occur in a competitive and cooperative manner (Qiu Zhaobing, 2022).

 

Simultaneously, the Indo-Pacific strategy disrupts China's surrounding environment. With the progress of the Indo-Pacific strategy, neighboring countries, especially Japan and South Korea, have undergone changes in their perception and policies toward China. It is necessary to anticipate potential risks and challenges, make policy preparations in advance, maintain regional stability, and construct a supportive system for China's peripheral security architecture (Ye Hailin, Li Ming'en, 2023).

 

2. The strategic intent of the Indo-Pacific strategy to counterbalance China is clear.

 

The Biden administration in the United States, using the pretext of the "Chinese threat," is taking the lead in promoting the deployment of the new Indo-Pacific strategy. This development is expected to pose considerable challenges to economic and trade cooperation between China, Japan, and South Korea. The United States, under this pretext, is strengthening its alliance with Japan and South Korea. In response, the governments of Japan and South Korea have shown an inclination to enhance economic precautions against China. It is crucial to closely monitor the adjustments and progress of the Indo-Pacific strategy to safeguard a diverse and stable economic and trade environment in the surrounding region and extend China's important strategic opportunity period.

 

2.1 The Indo-Pacific strategy is an important channel for the comprehensive strategic competition that the United States is engaging in with China.

The Indo-Pacific strategy has evolved into a crucial tool for the comprehensive strategic competition that the United States is engaging in with China. The relationship between the United States and China is one of the most important bilateral relationships in the world today. Since the establishment of diplomatic ties between the two countries, U.S. policy towards China has gradually shifted from "engagement + containment" to "comprehensive strategic competition." During the Clinton administration, the U.S. adopted a strategy towards China of "building a constructive strategic partnership." In the Bush era, China was explicitly identified as a strategic competitor to the U.S. The Obama administration announced the "pivot to Asia" strategy, which also directly targeted China. The Trump administration clearly positioned China as a strategic competitor, emphasizing the advancement of the Indo-Pacific strategy. The Biden administration has inherited the Indo-Pacific strategy, released a new version of it, introduced the IPEF, reinforced the "China threat theory," issued a new national security strategy, explicitly identifying China as the "top, singular global competitor" for the U.S. This strategy specifically aims to prevent China and addresses issues related to the Taiwan Strait, strengthening the Quad (U.S., Japan, India, Australia) security mechanism and the U.S.-Japan-South Korea alliance. It places a high emphasis on economic matters, proposing the construction of the IPEF, engaging with India and ASEAN, and, for the first time, emphasizing a "strong India" and supporting India's continued rise and regional leadership. The new Indo-Pacific strategy clearly states that the overall U.S. strategy towards China will shift from "changing China" to "shaping the strategic environment of China" and move from a dual policy of "engagement + containment" to a policy of "comprehensive strategic competition."

The United States is building an anti-China "united front" through the Indo-Pacific strategy. The strategy reinforces close coordination between the United States and its allies, partners, and regional multilateral institutions. It claims to construct a free and open Indo-Pacific region, establish extensive regional and international connections, drive regional prosperity, enhance Indo-Pacific security, and improve regional resilience against "transnational threats." India is a crucial aspect of the success of the U.S. Indo-Pacific strategy. By collaborating with allies such as Japan and South Korea to support India, the U.S. aims to assist India in accelerating infrastructure development and modern industrialization, intending for Indian manufacturing to replace Chinese manufacturing and thereby strengthen competition with China in the mid-to-low-end industrial sectors. Simultaneously, the strategy aims to gradually replace China in high-end industries with the help of Japan and South Korea, Singapore in financial services, and ASEAN and Australia in raw material markets. From a strategic competition perspective, this is an effort to construct an economic cycle system that excludes China.

 

2.2 The IPEF (Indo-Pacific Economic Framework) is a crucial weapon in the Indo-Pacific strategy to counter China.

The United States-led initiative to build a resilient supply chain alliance poses a significant threat to China. The IPEF focuses on setting new standards and rules in emerging industries such as semiconductors and the digital economy, potentially becoming the prevailing norms in the Asia-Pacific region and even globally. The development of China's high-tech industries may be constrained by these new standards and rules, affecting its position in the global industrial chain. The IPEF strengthens the security of critical supply chains like semiconductors and excludes China through industry alliances, technology alliances, etc., intensifying technological blockades and locking China out of the low-end of the industry, weakening China's competitiveness in high-tech fields. Initiatives like the "Chip 4 Alliance" may hinder China's semiconductor development by requiring chip technology personnel to choose between U.S. nationality and working in China, causing significant disruption to China's chip industry in the short term. The U.S. has also implemented export controls and sales bans against specific Chinese companies, posing a considerable threat to companies like Huawei, and pressuring Japanese and Korean companies to cease supplying or selling to Chinese enterprises. The IPEF proposes the development of high-quality social infrastructure and green energy to counter the Belt and Road Initiative, diminishing China's influence in extending production capacity. It emphasizes the establishment of effective tax, anti-money laundering, and anti-corruption systems in the Indo-Pacific region to promote fair competition, placing China in a morally disadvantageous and passive position. Overall, the IPEF is an extension of the United States' "small courtyard, high wall" strategy, setting exclusive barriers in investment, technology, and industry to expand the scope of U.S. technological blockades, investment and export restrictions, and extraterritorial jurisdiction. The "small courtyard" built by the IPEF mainly targets key technological areas such as the digital economy, high-end manufacturing, and green environmental protection. The "high wall" extends from the United States domestically to the Indo-Pacific region, forming exclusive technology and industry alliances aimed at countering China. Under the Indo-Pacific strategy framework, the core of the United States' economic strategy towards China is to both monopolize technology and restrict investment in China. Simultaneously, it aims to construct industry chains that exclude China, ensuring control over the supply chain channels for technology realization.

ASEAN countries are currently adopting a wait-and-see attitude toward IPEF. The United States utilizes IPEF as an economic incentive to attract allies such as Japan, South Korea, India, and ASEAN countries. However, ASEAN countries are reluctant to take sides in the U.S.-China competition and prefer not to politicize economic issues. Overall, they maintain a cautious stance towards IPEF. This is because, in terms of the nature of the agreement, IPEF is viewed as a framework agreement for modular negotiations rather than a traditional free trade agreement. It only includes rules and does not involve preferential policies such as market access and tariff reductions, which diminishes its attractiveness to member countries. For instance, India explicitly announced its withdrawal from trade negotiations, citing a lack of perceived benefits. Regarding the binding nature of the agreement, IPEF is advanced by the United States through executive orders, requiring only the president's signature without the need for congressional approval. For other members, there is a high probability that it won't require domestic approval procedures, and the binding nature of the agreement is limited, raising questions about its sustainability. In terms of negotiation progress, IPEF faces coordination challenges among its members, particularly India. The various instabilities in the development of IPEF will likely continue to reduce the enthusiasm for cooperation among member countries. The future prospects of IPEF are not clear, but its strategic intent against China is evident.

 

3. The impact of the Indo-Pacific strategy on economic and trade cooperation among China, Japan, and South Korea

Currently, there is a significant trend of the global economic center shifting towards Asia, with the economic focus in Asia on China, Japan, and South Korea. China's largest trading partner is the ASEAN region. Against the backdrop of global dynamics and the economic pull of China, and with the U.S. security threats and the reinforcement of shared values under the Indo-Pacific strategy, how will Japan and South Korea choose to navigate this situation? What unfavorable impacts might this have on economic cooperation among China, Japan, and South Korea in the context of the Indo-Pacific strategy prioritizing national security interests over economic considerations?

 

3.1 Promoting Japan and South Korea to reduce their economic dependence on China.

The economic cooperation between China, Japan, and South Korea faces challenges due to the strong influence of the U.S.-Japan-South Korea alliance, reinforced by the Indo-Pacific Strategy and the IPEF. The Indo-Pacific Strategy and IPEF strengthen the foundational position of the U.S.-Japan-South Korea alliance, prompting Japan and South Korea to shift from their long-term "Secure America through China" dual-axis strategy to a single-axis strategy of "Trend towards the U.S. while containing China." The economic policies of Japan and South Korea towards China are constrained by the United States, and in the context of the Indo-Pacific strategy, both governments show a shift in their economic and trade attitudes towards China, emphasizing a stance of strengthening precautions against China, particularly evident in core supply chain areas. This shift will likely weaken the economic and trade relations between Japan and South Korea and China.

 

Japan actively aligns itself with the United States, becoming a vanguard for U.S. advancement of the Indo-Pacific strategy. For example, Japan enacted the "Economic Security Promotion Law," viewing China as a potential factor shaking the existing international economic order and a major threat to regional and international security. Japan also issued new security strategy documents positioning China as the "largest strategic challenge to date." This security-oriented arrangement prompts Japan's foreign economic policy to show signs of being politicized and securitized, emphasizing a broad political and security perspective. This trend exacerbates strategic competition between China and Japan, increasing potential risks and conflicts.

 

While South Korea follows the United States in strategically containing China, its overall approach appears more restrained and cautious. Currently, South Korea maintains a relatively pragmatic stance in the arena of Sino-U.S. strategic competition, keeping close communication with China. Despite joining the Chip Supply Chain Resilience Initiative (CHIPS Act) under U.S. pressure, SK Hynix and Samsung Electronics managed to obtain exemptions from the U.S. Department of Commerce for the export controls on semiconductor factories in China. Due to historical and territorial issues that remain irreconcilable, achieving true normalization in relations between Japan and South Korea is challenging, posing an uncertainty factor for the U.S. Indo-Pacific strategy. The United States hopes to transform the Japan-Korea conflict into a "China threat theory" based on shared values, thereby promoting improved Japan-Korea relations and enhancing the cohesiveness of the U.S.-Japan-South Korea alliance. Therefore, considering national security interests outweighing economic interests, it is not ruled out that Japan and South Korea may temporarily set aside their differences and actively cooperate with the United States in implementing the Indo-Pacific strategy to contain China.

The IPEF is driving Japan and South Korea to reduce their economic dependence on China. The divergent attitudes of Japan and South Korea towards China have led to varying changes in their trade and investment cooperation with China. In terms of bilateral trade, in 2022, China's trade volume with Japan was $357.4 billion, a year-on-year decrease of 37%, accounting for 56.6% of China's total foreign trade. In contrast, China's trade volume with South Korea was $362.3 billion, a year-on-year growth of 0.1%, accounting for 57.4% of China's total foreign trade. For the first time since 1995, China's trade volume with South Korea exceeded that with Japan, making South Korea China's fourth-largest trading partner. Regarding bilateral investments, in the first eleven months of 2022, actual investments from Japan and South Korea to China increased by 266% and 1221%, respectively, with South Korean investments experiencing substantial growth. Due to the deep economic dependence of Japan and South Korea on China, both countries aim to reduce this dependence to ensure greater autonomy. Against this backdrop, the Indo-Pacific strategy and the Indo-Pacific Economic Framework will encourage Japan and South Korea to align more closely with the United States, adding constraints to the economic cooperation between China, Japan, and South Korea.

 

3.2 Forcing the reconstruction or migration of industrial and supply chains.

Impact on the stability of East Asian production networks. On the basis of regionalization, nearshoring, and localization of global supply chains, an increasingly prominent trend of grouping, ideologicalization, and fragmentation is emerging. Under the influence of the Indo-Pacific strategy and the IPEF, the United States is actively strengthening industrial and supply chain cooperation with allies such as Japan and South Korea, intending to detach China from key industrial and supply chains, such as semiconductors, digital economy, and biopharmaceuticals. This inevitably will impact the stability of East Asian production networks. Three possible scenarios for the future of the East Asian and global industrial systems are envisioned.

 

The first scenario is the maintenance of the existing global industrial division system and East Asian production networks. The East Asian industrial and supply chain, primarily led by China, Japan, and South Korea, remains stable, with ongoing intertwined interests. This suggests that Japan and South Korea will continue to adhere to the "security with the U.S., economic cooperation with China" dual-axis strategy, and the East Asian production network will not be replaced by the new supply chain system introduced by IPEF.

 

The second scenario is the potential formation of a global industrial division system characterized by complementary and differentiated development. China, Japan, and South Korea continue to seek points of mutually beneficial cooperation in areas such as technology and industry, maintaining connections without completely decoupling. This implies that U.S. pressure on Japan and South Korea will be limited to the Indo-Pacific strategy, while at the industrial level, Japan and South Korea will strengthen both competition and cooperation with Chinese enterprises.

 

The third scenario is the potential formation of two parallel industrial systems between China and the U.S., with each having its own system. Driven by economic interests, Japan and South Korea will not easily abandon the large Chinese market, and they will seek appropriate ways to balance between China and the U.S. However, under the two parallel systems, barriers to cooperation with China will increase, and Japan and South Korea will need to make adaptive adjustments to fit into these dual industrial systems. It is noteworthy that the future international triangular division of labor pattern may gradually undergo adjustments, and there might even be an accelerating trend of 'decoupling' from China, with China's position as the 'world's factory' gradually being replaced by the tri-polar influence of IPEF, the U.S. and Europe, and the Middle East and Africa.

Impact on the cooperation of the China-Japan-Korea industrial chain and supply chain. Regardless of which scenario unfolds in the future, the implementation of the Indo-Pacific strategy by the United States will challenge the stability of East Asian production networks. This will compel a restructuring or relocation of the China-Japan-Korea industrial chain, creating obstacles for industrial cooperation among these countries. The Indo-Pacific strategy and IPEF will drive Japan and South Korea to 'decouple' from China in high-tech industries, particularly in core industrial chains, reflecting their alignment with the U.S. against China. Cooperation in technology, industry, and personnel exchange may also face significant challenges. Influenced by these factors, Japanese and South Korean companies are concerned about the impact of economic 'decoupling' between China and the U.S., resulting in insufficient confidence in investing in China. They are accelerating the diversification of industrial and supply chain layouts, implementing the 'China Plus One' strategy. This involves relocating or transferring part of the industrial chain and supply chain back to their home countries or to Southeast Asian countries such as Vietnam, Myanmar, and India, as well as to countries and regions in Africa.

 

3.3 Hedging against 'Belt and Road' infrastructure connectivity.

The Indo-Pacific strategy proposes strengthening cooperation in infrastructure within the Quadrilateral Security Dialogue (Quad), involving the United States, Japan, India, and Australia. The United States aims to assist allies in the Indo-Pacific region in narrowing the infrastructure deficit, promoting high-standard infrastructure investment, advancing high-standard infrastructure construction, enhancing the resilience of critical infrastructure, and expanding cooperation among the United States, Japan, and South Korea in regional infrastructure. Simultaneously, leveraging the Pacific Regional Infrastructure Facility, the strategy encourages regional cooperation in digital infrastructure, and deepens joint resilience in critical government and infrastructure networks. Infrastructure is one of the four pillars in the IPEF. The framework proposes enhancing cooperation in technology, funding, and connectivity through infrastructure construction and technical assistance. The Quad mechanism plans to provide $500 billion in infrastructure funds for the Indo-Pacific over the next five years. During the ASEAN-U.S. Summit, the United States pledged $40 million for clean energy infrastructure in Southeast Asia. In the future, there may be a synergistic model involving the IPEF, the Quad, the Partnership for Infrastructure Investment, and Growth (PIIGG), and the Blue Dot Network (BDN), where the United States provides capital, Japan contributes technology, ASEAN and Australia supply raw materials, and India supports manufacturing, potentially replacing China's role as the 'world's factory' and mitigating the influence of the Belt and Road Initiative (BRI).

 

3.4 Constraining the process of regional economic integration in Asia.

Impact on Asia's Regional Economic Cooperation. The United States, through the Indo-Pacific Strategy and IPEF, is intervening in the situations in East Asia and Northeast Asia, continually creating tensions in regions such as the Korean Peninsula and the Taiwan Strait. With intentions to extend the Ukraine conflict to the East, it aims to intensify tensions in the East Asian and Northeast Asian regions, posing a potential threat to regional economic cooperation. By providing moral legitimacy through IPEF for countries in the Indo-Pacific region to participate in the Indo-Pacific Strategy, IPEF may serve as a springboard for some countries or regions to join the strategy, leveraging U.S. influence to counter China in geopolitical and security aspects. If IPEF incorporates "poison pill clauses" and other exclusive economic provisions in the future, economic cooperation between China and Japan, South Korea, and ASEAN countries may face even greater challenges, compounded by non-economic factors such as politics, security, values, etc., making it difficult to stabilize and upgrade economic and trade relations between China, Japan, and South Korea.

 

Hedging against RCEP and CPTPP. The Indo-Pacific Strategy is a geopolitical regional strategy lacking economic ties, and IPEF aims to fill this gap under political constraints. The United States hopes to regain dominance in the formulation of international economic and trade rules in the Indo-Pacific region through IPEF, which will impact the regional arrangements centered around ASEAN. IPEF highly overlaps with RCEP member countries, including the 11 countries in RCEP, showing a clear intention to hedge against RCEP. The new rules and standards of IPEF will have a significant impact on the implementation of RCEP. RCEP is a market-driven strategy that, driven by market interests, brings tangible benefits to economic and trade cooperation among China, Japan, South Korea, and other countries. Compared to RCEP, IPEF has advantages in terms of population size, economic scale, import markets, etc., which will weaken the integration effect of RCEP. IPEF will also hedge against CPTPP, with member countries including the 7 countries in CPTPP. With similar values, IPEF can use values as its core, promote the reshaping of Asia-Pacific multilateral mechanisms, disrupt existing regional economic and trade system arrangements, and make the 'spaghetti bowl effect' more pronounced.

 

As mentioned above, the short-term impact of the Indo-Pacific Strategy  and IPEF on the economic relations between China, Japan, and South Korea, as well as regional economic cooperation, is limited, primarily confined to the threat of supply chain disruptions. However, once the rules of IPEF are implemented, there will be a significant threat to China, Japan, South Korea, and regional economic cooperation, especially in the four main areas where IPEF may obstruct and restrict China. It is essential to closely monitor changes in the situation, be prepared, and develop contingency plans to guard against the possibility of a sudden deterioration in the external economic environment.

 

 

 

 

4. The China’s proposal for advancing economic cooperation among China, Japan, and South Korea under the Indo-Pacific Strategy

Promoting economic cooperation among China, Japan, and South Korea under the backdrop of the Indo-Pacific Strategy requires a comprehensive perspective on the global and Asian positioning of these countries. It involves managing relations with neighboring countries and navigating relationships between major and smaller nations. To leverage the differences between Japan and South Korea, a strategy of 'pulling, hitting, and tying knots' should be adopted, aiming to increase intertwined interests and offset the impact of the U.S. Indo-Pacific strategy. Taking the initiative and seizing opportunities, addressing the primary contradictions, and strategically engaging Japanese and Korean enterprises can align their efforts with the establishment of a new development pattern that emphasizes the dual circulation of domestic and international economies. This approach focuses on safeguarding diverse and stable economic relations in the surrounding region and promoting regional economic integration.

 

4.1 Promoting deeper and more substantive trade and investment cooperation, enhancing the intensity and interdependence of trade among China, Japan, and South Korea.

 

Eliminating security concerns and expanding the positive aspects of cooperation. In the competition of major powers, China and the United States are each other's main strategic competitors, while conflicts between China and Japan, and China and South Korea, are secondary. In the context of Sino-U.S. competition, Japan and South Korea are potential allies for both sides. Historically, China has been the largest trading partner for Japan and South Korea, with the trade volume between China and Japan, as well as China and South Korea, far exceeding that of the U.S.-Japan and U.S.-South Korea. Driven by market interests, Japan and South Korea find it difficult to give up the Chinese market. Therefore, efforts should be made to stabilize and deepen economic and trade ties with Japan and South Korea, minimize the escalation of secondary conflicts in industrial competition, adopt a strategy of 'pulling and restraining' by increasing interests intertwining. Structurally, promote complementary cooperation among China, Japan, and South Korea, building a regional economic pattern of mutual interdependence. Strategically, focus on a 'soft' approach to security, ensuring respect for China's core interests. By strengthening strategic ties and intertwining interests with Japan and South Korea, it serves as a countermeasure to the U.S. Indo-Pacific strategy, enhancing China's ability to cope with the U.S.'s 'long-arm jurisdiction.

 

Tightening the bonds of interests, distinguishing strategies towards Japan and South Korea. Since 2019, tensions between Japan and South Korea have escalated, with Japan imposing export controls on three key semiconductor materials to South Korea and removing South Korea from its whitelist. Subsequently, South Korea actively sought cooperation with China, aiming to find alternatives to Japan in the semiconductor supply chain, thereby overcoming Japan's restrictions. Therefore, in dealing with South Korea, it is advisable to leverage the Japan-South Korea conflict, strengthen cooperation with South Korea, pull South Korea closer through market advantages, and counterbalance the U.S. Indo-Pacific strategy. For example, China can fully leverage its vast market, strengthen cooperation in semiconductor materials and technology, use South Korea's influence in the semiconductor industry to support China's semiconductor development, and partially overcome U.S. export controls on China. For Japan, it is essential to continue tightening common interest bonds while voicing concerns on Japanese issues. In response to issues that jeopardize China's core interests, including historical problems, the Diaoyu Islands territorial dispute, and the Taiwan issue, as well as negative actions on maritime, Hong Kong, Xinjiang, etc., and in coordination with the U.S. increasing technological containment against China, China should resolutely voice its stance and take countermeasures. In summary, it is crucial to deepen economic and trade cooperation with Japan and South Korea, seek stability amid changes, find opportunities amid challenges, turn challenges into opportunities, and reduce the centrifugal force brought about by the Indo-Pacific strategy. Seizing the opportunity of leaders' consensus to advance China-Japan-South Korea economic and trade cooperation. Continuously implementing the leaders' consensus, leveraging the 45th anniversary of the signing of the China-Japan Peace and Friendship Treaty as an opportunity, exploring new approaches to building a stable and constructive China-Japan relationship that meets the requirements of the new era. Using deepening economic and industrial cooperation as an entry point, explore new pathways to promote the all-around development of China-South Korea relations in step with the times. Seizing the post-pandemic opportunity for open recovery, initiating the China-Japan-South Korea trilateral summit at the right time, and promoting high-level economic and trade cooperation between China and Japan and South Korea.

 

Continuously promote trade and investment liberalization and facilitation among China, Japan, and South Korea, and expand financial cooperation. Further advance customs facilitation among China, Japan, and South Korea, persist in promoting bilateral trade growth against the trend, actively drive the development of new formats and models in foreign trade such as cross-border e-commerce and digital trade. Enhance strategic mutual trust, continue to improve the business environment, carry out higher-level market opening, accelerate the improvement of market access for the three countries, further relax restrictions on foreign direct investment, expand market access in high-tech and other areas, reduce investment barriers, improve relevant investment facilitation measures, promote high-level development of two-way investment between China and Japan, China and South Korea, and enhance the facilitation of industrial cooperation and business exchanges between China and Japan, China and South Korea. Actively promote financial cooperation, expand the scale of currency swaps between China, Japan, and South Korea, increase the scale of local currency settlement, avoid the spillover effects of the U.S. Federal Reserve's interest rate hikes and the strong appreciation of the U.S. dollar, and stabilize regional financial markets. Actively participate in the formulation of international standards and the reasonable supervision of international trade processes, promote fairness in international trade, and support the overseas development of Chinese enterprises.

 

4.2 Expand the depth and breadth of industrial cooperation, and maintain the stability of global industrial and supply chains.

 

Identify points of mutual benefit for cooperation, promote industrial complementarity, and foster differentiated development. The design of the China-Japan-South Korea industrial cooperation path should not only consider avoiding obstacles from the U.S. Indo-Pacific strategy but also seek stable points of mutual benefit in the China-Japan-South Korea industrial and supply chain cooperation, making progress in key industrial cooperation while serving the domestic innovation-driven development and the strategic upgrade of the industrial chain. Leveraging the industrial strengths of Japan and South Korea in areas such as semiconductors, automobiles, digital economy, pharmaceuticals and health, and green low-carbon, explore points of industrial cooperation, raise the level of modern industrial development, and expand the space for industrial upgrading. Utilize Japan's strengths in chip design, manufacturing, and material production, South Korea's complete semiconductor industry supply chain advantages, and China's strengths in chip design to enhance mutual cooperation in the semiconductor industry. Exploit Japan and South Korea's experience and technological advantages in the field of new energy vehicles and smart cars, combined with China's new technologies and rich application scenarios in this field, to promote China-Japan-South Korea cooperation in the automotive industry. Advance cooperation in the digital economy, promoting digital transformation and upgrading. Facilitate collaboration in health and elderly care, addressing the challenges of an aging population together. Deepen cooperation in energy, climate change, and work together to address climate change.

 

Deepen stability and security cooperation in the East Asian industrial chain and supply chain. Strengthen the connectivity of industrial and supply chains to ensure the supply and trade circulation of raw materials and components. Collaborate to build a green supply chain aimed at carbon neutrality goals, jointly promote green projects, and develop green finance. Make efforts to ensure the normal operation of the supply chain centered around batteries, achieve efficient coordination between supply chain cooperation and environmental protection, and facilitate coordinated progress in economic development and green transformation. Promote the connection between China's super-large-scale market and the region's super-large capacity, achieve mutual complementarity and deep integration, accelerate the construction of a China-Japan-South Korea mutually supportive industrial chain and supply chain system, and jointly maintain the stability of the East Asian and global industrial chain and supply chain.

 

4.3 Promote the synergy between RCEP and the Belt and Road Initiative (BRI), and enhance third-party cooperation in infrastructure development.

 

Actively promote the construction of the unified market under RCEP. Utilize the dividends of RCEP implementation, encourage enterprises from China, Japan, and South Korea to leverage RCEP's preferential tariffs, rules of origin accumulation, and other principles. Further expand trade and investment cooperation among the three countries and RCEP members, enhance the quality and level of trade and investment cooperation, advance the construction of the unified market under RCEP, and unleash the integrated effects of mutual promotion between the 'small multilateral' of China, Japan, and South Korea and the 'large multilateral' of RCEP.

 

Promote the integration and development linkage between RCEP and the Belt and Road Initiative. Currently, China has signed memoranda of understanding on third-party market cooperation, including with Japan and South Korea, involving 14 countries. This provides robust policy support for entrepreneurs from China and other countries to carry out third-party market cooperation. Leverage RCEP to expand new space for trilateral cooperation in the Belt and Road Initiative involving China, Japan, and South Korea. Strengthen cooperation on infrastructure construction projects and implement ongoing project collaborations. Steadily expand cooperation into new areas and tracks, advancing 'China-Japan-Korea + X' cooperation under the Belt and Road Initiative. Actively explore new models of industrial cooperation under the RCEP framework, promote cooperation in industrial parks, and pioneer innovative open systems. Use industrial cooperation platforms as a link to enhance the resilience of regional industrial and supply chains.

 

4.4 To build a new mechanism for open and inclusive cooperation, enhancing the level of regional economic and trade integration.

 

Establish an open and cooperative regional cooperation mechanism. Accelerate the conclusion of the second phase of negotiations for the China-Korea Free Trade Agreement (FTA), promptly establish a higher-level China-Japan-Korea FTA, explore effective paths for China and Korea to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), actively promote the construction of the Free Trade Area of the Asia-Pacific (FTAAP), and enhance the level of free trade in the Asia-Pacific. Join the Digital Economy Partnership Agreement (DEPA) as soon as possible, actively participate in global digital governance, and increase leverage in addressing standards related to the Indo-Pacific Economic Framework (IPEF) digital economy. Actively leverage platforms such as the Group of Twenty (G20), Asia-Pacific Economic Cooperation (APEC) summit, East Asia Summit, ASEAN Plus Three Cooperation, and China-Japan-Korea trilateral leaders' summit to build a high-standard regional integration communication mechanism for common interests, construct economic and trade partnerships beyond political and security frameworks, and support businesses in engaging in pragmatic cross-border economic and trade cooperation. Play a more proactive and constructive role in promoting trade liberalization.

 

Manage relations with neighboring countries and navigate relationships between major powers and smaller nations. Actively expand partnerships, address significant issues related to development and security, enhance the influence of regional cooperation governance concepts, promote strategic mutual trust in the Asia-Pacific region, and resist the impact of the U.S. Indo-Pacific strategy. Improve Sino-U.S. economic and trade relations, strengthen communication and cooperation in regional economic and global governance areas. Prioritize the continuous deepening of China-Japan-South Korea relations, strive for peaceful cooperation with India, and maintain sufficient attention to medium-sized countries in Asia. Actively incorporate small and medium-sized economies in the Asia-Pacific region into the process of regional economic integration, actively win the initiative in the strategic game between China and the U.S. Strengthen cooperation with ASEAN, uphold the regional cooperation mechanism centered around ASEAN, promote the upgrading of the China-ASEAN Free Trade Area, and strengthen cooperation under the RCEP and "Belt and Road" frameworks. Strengthen strategic precautions against India, be cautious about falling into commercial traps related to Indian infrastructure construction and investment, slow down the process of shifting low- and medium-end industries to India, and strive to keep foreign investment from countries like Japan and South Korea within the country. Effectively manage differences, exclude interference from external forces, find more economic convergence points, guide neighboring countries such as Japan and South Korea to shift their thinking gradually from confrontation to dialogue. Avoid excessive propaganda, depoliticize the characterization of the IPPEF, and do not view joining the IPPEF as taking sides. Coordinate the development-security, openness, and risk relationships, enhance the ability to prevent and defend against various risks, build institutions, and establish networks. Actively promote the concepts of "openness and inclusiveness" and "mutual benefit and win-win," drive the process of regional economic integration, advocate global development initiatives, and construct a global development community. Participate in global regional cooperation and governance, strengthen people to people exchanges, and enhance emotional resonance among the people.

 

 

4.5 Concentrate efforts on doing our own tasks well and effectively achieve "linkage" without "decoupling."

 

The immediate task is to concentrate efforts on doing our own tasks well. We should maintain strategic composure, safeguard the hard-earned achievements of China's reform, opening up, and development, and steadfastly promote reform, openness, and innovation. Additionally, we need to enhance the construction of China's supply chain security.

 

 

Leverage the advantages of the vast market, further enhance Japan and South Korea's deep dependence on the Chinese market. Strive to transform the economic and trade exchanges with neighboring countries like Japan and South Korea into a supply chain system with China at its core, strengthen China's capability to allocate global resources, enhance the competitiveness of the Chinese market, attract multinational companies to increase investment in China, and fortify the bargaining chips against external risks and challenges. Effectively achieve "integration" without "decoupling" by utilizing market forces, corporate strength, and international cooperation. Strengthen open-ended technological innovation and intellectual property protection, expedite collaboration in the digital economy and cross-border data flow, and explore new opportunities for cooperation and competition in emerging industries. Actively engage in technological, industrial, and financial cooperation, ensuring that technology, industry, and finance are interconnected, promoting high-quality development in China-Japan-Korea economic and trade investment cooperation. Drive the construction of a unified large market, accelerate economic integration, and establish an East Asian "small circulation" oriented toward the vast Chinese market.

 

Advance higher-level opening-up to attract and utilize Japanese and South Korean foreign investment more effectively. Steadily expand institutional openness in terms of rules, regulations, management, standards, etc., enhance the quality and level of trade and investment cooperation, reasonably shorten the negative list for foreign investment access, legally protect the rights and interests of foreign investors, continue to share development opportunities with countries worldwide, and provide more development opportunities for foreign companies, including those from Japan and South Korea. Further expand the scope of encouraging foreign investment from Japan and South Korea, boost the confidence of foreign investors, and ensure that foreign capital can always enter, stay, and develop well. Implement a combination strategy of "market opportunities + institutional guarantees + government services," further improve the mechanism for major foreign investment projects, and actively promote the implementation of landmark foreign investment projects with driving roles.

 

5. Conclusion

Since the 2007 global financial crisis, there has been a noticeable shift of the global economic center towards Asia, with the economic focus in Asia being prominently on China, Japan, and South Korea. The economic relations among China, Japan, and South Korea hold significant importance for the stability of the Asian and global economies. The United States has been advancing its Indo-Pacific strategy, introducing the Indo-Pacific Economic Framework (IPEF), creating a surrounding force with Asian-Pacific countries, including Japan and South Korea, forming a containment trend against China. This has severely damaged the regional integration process in the Asia-Pacific and the economic cooperation among China, Japan, and South Korea. It is urgent to find a solution that avoids an economic encirclement against China and retains the cooperation of Japan and South Korea.

 

From a geopolitical perspective, the Indo-Pacific strategy aims to foster the "Iron Triangle" alliance among the United States, Japan, and South Korea. This development could escalate tensions on the Korean Peninsula and lead to the formation of a U.S.-led Asia-Pacific version of NATO, comprising the "Five Eyes Alliance" (U.S., UK, Canada, Australia, and New Zealand), the "Quad" (U.S., Japan, India, and Australia), the "Trilateral Security Partnership" (U.S., UK, and Australia), and the U.S.-Japan-South Korea military alliance. This military buildup in the Asia-Pacific region could isolate China and Russia, worsen the situation in Northeast Asia, and pose a threat to the security and stability of the Asia-Pacific region.

 

Having experienced wars and conflicts in the past, people in the Asia-Pacific region understand the preciousness of peace and development. Japan should reflect deeply on its historical actions that caused harm to Asian countries, including China and South Korea. It should work to develop normal relations with Asian countries based on the proper handling of historical issues. South Korea, due to its ongoing balancing act between economic development and military security, is a country that China should strive to engage and prevent from leaning in a direction unfavorable to China.

 

From an economic perspective, the Indo-Pacific strategy and IPEF (Inter-Parliamentary Alliance on China) will pose greater challenges to China-Japan-South Korea economic and trade cooperation. Japan and South Korea are important neighboring countries and major trading partners for China, with China being the largest trading partner for both Japan and South Korea. However, under the influence of the U.S. Indo-Pacific strategy, economic and trade policies in Japan and South Korea are shifting towards a "lean towards the U.S. and contain China" approach, introducing centrifugal forces to their economic cooperation with China. While South Korea has, for the most part, maintained restraint, the escalating U.S. sanctions against China have increased difficulties and resistance for Chinese-South Korean business cooperation.

 

To overcome the impact of the Indo-Pacific strategy on China-Japan-South Korea economic and trade cooperation, it is essential to rely on market forces and the people. The trade volume between China and Japan, and China and South Korea, far exceeds that of the U.S.-Japan and U.S.-South Korea trade. The industrial chain and supply chain connections between China, Japan, and South Korea are close. With China having extensive application scenarios and a global large market, under the driving force of market interests, it will be challenging for Japan and South Korea to abandon the Chinese market. Although China-Japan-South Korea economic and trade cooperation faces constraints from the United States, the development prospects remain promising.

 

In 2022, the trade volume between China and South Korea exceeded that between China and Japan for the first time, breaking through $360 billion, accounting for 5.74% of China's foreign trade, and making South Korea China's fourth-largest trading partner. Over the years, China's close geographical proximity, cultural affinity, and deep economic and trade connections with Japan and South Korea have led to continuous deepening of cooperation in various fields, fostering a forward-looking and comprehensive development of China-South Korea relations, bringing significant benefits to the people. It is essential to strengthen exchanges between local governments, friendly cities, and enhance interactions among non-governmental organizations, industry associations, and chambers of commerce. Promoting all-around cultural, tourism, and sports exchanges and cooperation among the people of the three countries will consolidate the public support for China-Japan-South Korea cooperation, playing a role as a bridge to promote political cooperation through the economy and government officials exchanges through the people.

 

Standing at a new historical juncture, the international community, including Japan and South Korea, must work together in solidarity and cooperation to overcome crises and navigate through challenges. This effort aims to propel the Asia-Pacific economy to the forefront of global economic recovery and establish a common destiny for the Asia-Pacific region. China, Japan, and South Korea should collaborate to implement the principles and consensus reached by their leaders. In areas such as digital economic transformation, green and low-carbon energy transition, climate change mitigation, healthcare and well-being cooperation, stable collaboration in the industrial and supply chain, third-party market cooperation, and regional economic collaboration, they should seek points of mutual benefit with Japan and South Korea. China should intensify economic, trade, and technological exchanges with Japan and South Korea, fostering close cooperative relationships and mitigating the impact of the Indo-Pacific strategy. Simultaneously, China can leverage the economic and trade conflicts between Japan and South Korea, managing them in a way that serves China's interests and contributes to the stability of the overall regional situation.