Political tensions and instability in Asia run counter to the region's otherwise bright economic success story. Whether the headlines concern India and Pakistan, the Korean peninsula, or China and Taiwan, panelists gathered for the Asia Business Conference on February 14 agreed that such chronic conflicts create an undeniable drain on economic productivity.
John Park, a research fellow at Harvard's John F. Kennedy School of Government specializing in Korean nuclear issues, outlined the Chinese perspective on stabilization in the region. The CIA estimates that 35 percent of GDP per capita in North Korea is spent on the military, a number that does not bode well for the country's sustainable economic development. The Chinese goal of a xiaokang society—one in which there is a general sense of well being and prosperity—could be threatened by its neighbor's instability, Park said. How can China achieve a per capita GDP of $3,000 by 2020 (a figure quadruple of that in the year 2000) if it must devote time and resources to stabilizing the Korean peninsula?
The process of persuading North Korea to abandon its nuclear weapons program is slow, agreed Kenji Hiramatsu, a fellow at Harvard's Weatherhead Center for International Affairs and former director of the Northeast Asia Division at the Japanese Ministry of Foreign Affairs. But the fact that South Korea, China, Japan, Russia, and the U.S. have begun to sit down and coordinate an approach to the issue is significant.
| These are countries that can't afford the explosion of an arms race in financial or human terms. |
| — Krishna Guha, Financial Times |
In September 2002, Japan and North Korea signed the Pyongyang Declaration, an early attempt to establish normalized diplomatic relations. The abduction in the 1970s and 1980s of Japanese citizens for North Korea's espionage program continues to be a diplomatic obstacle to establishing a working relationship, Hiramatsu said, but as a former government official he holds out "some hope" that North Korea's government will chart a course for economic and political reform.
The Taiwan Straits and Korean peninsula are two relics of the Cold War, said professor Zhu Feng of Peking University. The question of Taiwanese independence continues to play a defining role in U.S-Sino relations, particularly with Taiwan's upcoming presidential elections underscoring the country's autonomy. At the same time, China doesn't have the leverage it needs to convince Washington to back off its hard-line position on North Korea.
China, in a sense, is caught between a rock and a hard place. It continues to be the driving force behind the Asian economy, yet a conflict with Taiwan or North Korea could slow its momentum and create a negative chain reaction with other countries (such as South Korea) that are still struggling to grow.
India and Pakistan: the prospects for peace
Krishna Guha, a political correspondent for the Financial Times, turned the discussion to another area of conflict in Asia—the ongoing tensions between India and Pakistan over the disputed territory of Kashmir. The macroeconomic costs of such a conflict are clear, Guha said. Pakistan dedicates 4 percent of GDP to military expenditures, India 2.3 percent, or what amounts to 15 percent of government spending.
"These are countries that can't afford the explosion of an arms race in financial or human terms," he said, citing the high illiteracy and infant mortality rates in both India and Pakistan.
As a journalist, Guha says he's witnessed the immediate economic impact of India-Pakistan border conflicts. Bad publicity deters foreign investment, destabilizes the just-in-time supply chain, and makes multinational corporations think twice before they outsource core business processes to a region that could be subject to conflict.
While India and Pakistan have been locked in a zero-sum game over Kashmir for some time, Guha sees hope for normalized relations in India's emergence as a serious economic power.
"The Pakistani establishment realizes it cannot compete with India on military terms," said Guha. "But India also knows it will never be taken seriously as a great power in Asia while it's locked in this conflict with Pakistan."
U.S. engagement is central to any prospects for peace, he added; while the U.S. may not be accepted as a formal mediator, it is extremely important in applying behind-the-scenes pressure on both countries.
Considering the larger Asian picture, Guha said that he's seen increasing evidence over the past two or three years of a rapprochement between India and China. "There's increasing recognition that the future of Asia may not be the usual question of India or China, but India and China," he said. 