The Yellow Sea Economic Basin - a sea of stars

From a distance, the regions bordering the rim of the Yellow Sea are a matrix of separate countries that include China, Korea, and Japan - countries that have long competed, fought and intrigued with each other and with foreign powers for hegemony over the Yellow Sea. From a different perspective, made possible only through the tectonic changes of the past two decades, one gains a new understanding of the extraordinary changes occurring within what now is referred to as the Yellow Sea economic basin (YSEB); a region lying within 300 miles of the Yellow Sea rim and encompassing China’s Bohai region, the Korean peninsula and Kyushu, Japan.

Dramatic changes in economic conditions within the YSEB have forced component countries to accept the thesis that the economic and political stability of each member is in the long-term interests of all. Each country has come to realize economic goals will necessarily depend on the ongoing stability of the entire YSEB.

Adding to this new realpolitik are the facts that the world’s second-, sixth- (for now, in the case of China) and tenth-largest economies border the YSEB and that the world’s largest militaries are concentrated in the area of the YSEB. From these facts alone, one can see what the dragon truly represents - the economic, cultural, military and political epicentre of Asia.

It is increasingly evident that China’s economic landscape depends primarily on two sub-economic zones - the YSEB and the Pearl River Delta, once dominated by Hong Kong but now an increasingly integrated megalopolis encompassing the cities of Guangzhou, Shenzhen and Macau. Accounting for only 0.5% of China’s land area, the very small, vital and vibrant Pearl River Delta region provides nearly 33% of China’s total exports and 10% of its total gross domestic product (GDP). Therefore, investors looking to participate in the explosive growth of north Asia no longer need think in terms of complex, far-flung markets but can focus instead on two concentrated trade zones - the YSEB and the Pearl River Delta. Viewed in these terms, the logistics of trade within what appears at first to be an almost incomprehensible geographic area become far less onerous.

Located within the YSEB are most of Asia’ greatest political and financial centres:

Shanghai, Beijing and Seoul; in addition, Tokyo is in close proximity to the YSEB rim. Demographically, no place in the world exhibits so high a population density, with such concentrated economic growth in so condensed a region.

The YSEB, the rising dragon of north-east Asia, is therefore a sub-regional powerhouse with a population of more than 200m who are changing and challenging the economic and political landscape of Asia. Already north-east Asia makes up the majority of the population and produces more than 90% of the GDP of north Asia. Through the heat of its economic expansion, north-east Asia now influences and challenges the current world economic order.

With this new perspective in play, one can take a macroeconomic view and envision the YSEB as comprising not so much component countries as a region of mega-cities positioned around the dragon constellation like a sea of stars. These stars exert a powerful gravitational influence on each other. This new view does not argue, nor does it attempt to present, a case for political union but, instead, predicts an eventual regional integration among the component YSEB economics along the lines of the North American free trade area. The implications of this process for the YSEB countries and the world are immense.

Within the YSEB like pearls on a necklace around the Yellow Sea are more than 60 mega-cities, each boasting a population of more than 1m. Among them are some of the world’s fastest-growing and increasingly influential financial and political megalopolises, including the fabled Shanghai (with a population of 13.3m); the broodingly powerful political centre of China, Beijing (9.8m), and the ever-ambitious and frenetically energetic city of Seoul (9.9m), all lying just over one hour’s flight from each other, all within one day’s shipping of each other’s major ports.

The YSEB is very important to its component countries. It is almost surprising that nearly 57% of China’s total trade volume emanates from within the Yellow Sea. In 2003, South Korea depended on the free flow of goods within the YSEB for 71% ($30.5bn) of its exports to China and nearly 67% ($13.4bn) of its imports from China. Korea’s most important exports to China are computers, mobile phones, and liquid crystal displays; and its major imports from China comprise solid fuels, metals, textiles and electronic circuitry.

The story of Kyushu Island, the region of Japan that lies within the YSEB, is the same. With an economy the size of the Netherlands and a population of more than 15m, Kyushu and its two principal cities are heavily dependent on the YSEB for their economic wellbeing. For example, the city of Fukuoka depends on the YSEB for 16% of its exports and nearly 34% of its imports while Kitakyushu looks to the YSEB to absorb 27% of its exports and provides nearly 50% of its imports.

Because distances in the YSEB are not great, the significant variance in economic development exhibited within the region and the dense population concentration provide unmatched opportunities for efficiencies and opportunities in manufacturing, distribution, marketing and trade. If an investor wishes to establish a vertically integrated IT base in the YSEB, these advantages become evident. Taking advantage of Korea’s famously educated and highly skilled workforce, for example, a firm could establish a research and design facility within the city of Incheon. Then, taking advantage of low labour costs, the same firm could locate manufacturing plants in places such as Kaesong, North Korea, or Dalian, China. This entire endeavour could be financed through a consortium of institutions in Shanghai, Seoul and Beijing.

Any problems of product design or production could be easily handled by a highly paid technician living in one of the increasingly cosmopolitan urban centres of the YSEB. A marketing team could then oversee the distribution of products throughout the region on daily visits to key markets within the YSEB. By leveraging complementary advantages, not competitive disadvantages, the extraordinary market forces of the YSEB are unleashed. It is these internal mechanisms of trade, all depending on peace and stability within the YSEB, that are now driving the economic integration of the region.

The black hole of the YSEB universe is North Korea. What South Korea and China are trying to tell the world is: leave this to the economic and political forces of the YSEB to deal with; change is inevitable and is only a matter of time.

From the YSEB perspective, no component of the YSEB is insulated from any destabilisation of Korea’s northern half. The ramifications for all of Asia from any adverse situations occurring within such a concentrated region are not difficult to comprehend. Therefore, if one understands that North Korea is the target of a pincer movement of economic forces, driven by the correlated self-interest of both China and South Korea (aided through this same self-interest by Japan), one also understands that political and economic changes in North Korea are inevitable.

Again, from the perspective of the dragon: if the head is sick, the body will suffer. The instinct for self-preservation will drive the pragmatics of change; and a new era of stabilisation, economic integration and, eventually, even political unification within the Korean component of the YSEB region appears inevitable.

Serious issues remaining just outside the YSEB continue to present a threat to regional stabilisation; of major concern is Taiwan. Although Taiwan lies just outside the YSEB rim, destabilisation of Taiwan’s status quo with China could act as a gate that conceivably could slam shut and bottle up the economic flows of the Yellow Sea. China has already expressed clearly that it is willing to sacrifice economic expansion and, therefore, regional stabilisation to maintain its claim over the island, a small but vital doorway to Northeast Asia.

Through all these forces, the realisation that the YSEB region is the platform and determinant of stability within north-east Asia allows a new perspective on the extraordinary opportunities and potential challenges inherent in harnessing the latent power of this vital arena. The future of one component of the YSEB is indelibly linked to all others, and the dragon, in turn, now exerts an ever-increasing influence on the direction of stability, peace and prosperity throughout Asia.

For Korea, a vital component of the Yellow Sea area, harnessing the momentum of the rising dragon promises an unmatched opportunity to overcome 50 years of traumatic internal schism, with the aim of achieving long-cherished unification.

For China, stability within the YSEB is a cornerstone to achieving its goals to become a major political and economic force. For Japan, YSEB stability and growth represent enormous market opportunities to feed its own industries. For east Asia as a whole, the rising dragon represents both opportunities and challenges as the drivers of economic growth throughout Asia continue to shift from south to north. The dragon is rising, and the world is on notice.