The complexity of Japan's interaction with its Asia-Pacific neighbours defies easy categorization and analysis, but understanding the interrelationships is crucial to assessing the broader implications of Japan's growing role. This chapter first examines Japan's overall regional economic strategy and its interaction with individual countries or sub-regions. Then it considers the overall systemic and functional linkages in order to better appreciate the profound impact of Japan's rapidly rising aid and investment on the wider political economy of the Asia-Pacific region.

“Flying geese” and the new division of labour

Flush with growing self-confidence, a number of Japanese academics, bureaucrats and political leaders have openly articulated new concepts for the organization of production and trade in Asia. These notions are based on implicit acceptance of the superiority of Japan's production system and the explicit desire to integrate those countries of the Asia-Pacific region that have favourable economic policy and labour conditions into a greater Japanese economy. Over the longer term, Japanese economic managers appear to seek a “division of labour” that maximizes each country's comparative advantage, thus fostering complementary rather than competitive patterns of industrialization.

One notion, popularized a decade ago by Dr Saburo Okita, foreign minister under the Ohira government in the late 1970s, is the concept of the Asian countries as part of a formation of flying geese. Japan, with its larger economy and higher technological level, is in the lead position. Ranged behind it in order of their economic strength and levels of technological sophistication are the NIEs, the ASEAN countries and, finally, the lower income countries of South Asia and Indochina. As seen by Okita, the successive waves of “geese” will gain from the experience of the leaders and tend to close the technological gap, leading to the eventual horizontal integration of the Asia-Pacific region. This outcome is viewed as a direct result of the pro-investment, marketoriented, export-led growth policies followed by the most economically dynamic Asian countries.