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Part 1. Global - Asia - Pacific functional linkages

Global restructuring and emerging urban corridors in Pacific Asia
International transport and communications interactions between Pacific Asia's emerging world cities

Global restructuring and emerging urban corridors in Pacific Asia

Introduction
Global restructuring and uneven growth
A new Asia-Pacific economic interdependence
Emerging Pacific-Asia urban corridors and formulation of the functional city system
Towards the twenty-first century
Notes
References

Yue-man Yeung and Fu-chen Lo

Introduction

When Jean Gottmann published his celebrated study, The Megalopolis, in 1961, he perceived the megalopolis to be the incubator of new urbanization and a new urban form not only on the North Atlantic seaboard, which was the focus of his enquiry, but also in other parts of the world that were to experience similar development processes that enveloped the study area (Gottmann, 1961; Gottmann and Harper, 1990). Since then, megalopolises have been identified to have been formed in many parts of the world. In the closing years of the twentieth century and the dawn of a new one, a new urban form appears to be in the making in Pacific Asia. This region has been growing rapidly over the past few decades and, going by recent trends and portents, will likely remain a growth region to be reckoned with in the world in the twenty-first century.

Traditionally, cities, metropolises, or megalopolises took shape and character largely as a result of economic and social processes operating within national territorial confines. Over the past two decades a new set of production and economic processes operating at the global level have been impinging on some of the cities and have given rise to new urban forms, particularly as they affect very large or mega cities.

In recent years, increasing attention has been devoted to mega-cities of the world, generated by their unabated growth in population and the deteriorating urban condition. It is suggested that, despite various efforts,¹ there is still at best a feeble attempt to capture the dynamic changes in Pacific Asian cities, in particular how long-term structural changes, regionally and globally, might affect them in the future. What roles will these cities play in the twenty-first century in the development of the region and beyond? There is a need to create an awareness of change in these cities if their future is to be directed in positive ways. This is one of the modest aims of this volume, so that not only do we know what forces are working and will continue to shape our cities, but, by gaining a deeper understanding of the forces at work, we shall also be in a better position to chart our future.

Cities in Pacific Asia have been growing rapidly and transforming themselves functionally and physically. As an especially vibrant growth region of the world, its cities have felt the full impact of global economic restructuring and enhanced economic interdependence among nations. These new and powerful global forces have differential impact on the cities in the region and, for some, have heightened their roles and importance in national economic development and international linkage.

In order to realize the goals of the project to examine the spatial consequences of global restructuring in the Asia-Pacific region, this chapter is divided into four parts. First, it will outline and highlight the salient trends in global structural adjustment in so far as they affect the growth and role of cities. Second, the changing regional economy in Pacific Asia and its strengthening relative importance globally will be described. Third, as a result of the interaction of the first two sets of forces, emerging urban forms in Pacific Asia will be explored. Finally, a futuristic statement will be offered on what are the likely factors that will bring further changes in urban scenarios.

Global restructuring and uneven growth

Although the past two decades witnessed worldwide economic upheavals unleashed by the oil crises of the 1970s, there have also been fundamental adjustments in production, resource utilization, and wealth accumulation so that global interdependence and regional economic blocs have emerged as notable consequences, with profound social and economic impacts on life everywhere at present and in the future. At least several worldwide trends with far-reaching implications may be distinguished.

First of all, the prices of oil and other primary commodities began to collapse in the early 1980s, an outcome that may be attributable to the long-run decline of material input in production in industrially advanced economies. For example, the material input in most of the high-valued trade manufacturing products, machinery, and electronic-related goods has declined in relative terms. According to one estimate, Japan now requires 50 to 60 per cent of resource input to produce the same level of GNP compared with 10 years ago. The effect of these reinforcing tendencies has contributed to the precipitous decline in the share of fuels and non-fuel primary commodities in world trade from 43.5 per cent in 1980 to 28.4 per cent in 1987 (Lo and Nakamura, 1992). In fact, Drucker (1987:21) was most perceptive in pointing to three fundamental changes that have occurred since the 1970s in the very fabric of the world's economy. First, the primary products economy has come "uncoupled" from the industrial economy, thereby diminishing the role of resources. Second, in the industrial economy itself, production has come uncoupled from employment, with industries shifting from being labour intensive to being knowledge intensive. Third, capital movements rather than trade in goods and services have become the engines and driving force of the world economy. The "symbol economy" of financial flows and transactions has emerged to overshadow the "real economy" of the production of trade in goods and services.

Concomitant with the decline in the role of material resources in production has been the rise of capital, in particular the internationalization of capital, as a major driving force in the global economy (Wallace, 1990:6). Similarly, production processes, services, even domestic currency and the state have vital international dimensions in order to be in tune with the global economy. The Plaza Accord of 1985, and the resultant dramatic appreciation of the Japanese yen against the US dollar, had an especially beneficial effect on some countries in the Asia-Pacific region. Currencies were realigned and foreign direct investment (FDI) from Japan increased spectacularly in the region as well as in other parts of the world. With this huge increase in capital movement, countries and cities in Pacific Asia have been more tightly wedded in a web of economic relationships, indeed interdependence, whose long-term consequences are profound. Capital mobility is one facet of the new international division of labour (NIDL) in which cities are perceived to play pivotal roles in an interconnected network of multinational firms and cities (Friedmann and Wolff, 1982; King, 1990). The world of modern capitalism is both a worldwide net of corporations and a global network of cities (Smith and Feagin, 1987:3).

As a result of the structural adjustments touched upon above, each country/city finds itself in a situation of changing comparative advantage in terms of cost and technological considerations for the location of production. The best illustrative example is the experience in Pacific Asia during the past two decades. Japan in the 1960s, followed by the Asian newly industrializing economies (NIEs) of Hong Kong, South Korea, Singapore, and Taiwan in the 1970s, finding escalating labour costs in their own countries, began to relocate manufacturing plants to places within the region with abundant but relatively inexpensive labour supply. This pattern of shifting comparative advantage has been vividly described as the "flying geese." Japan led the pack in a consecutive take-off sequence of economic development in first relocating light manufactured goods industry to NIEs in the 1970s (Yamazawa, 1990).² Then the NIEs shifted from light manufactures to durable consumer goods and machinery products and the ASEAN (Association of South East Asian Nations) group shifted from raw material exports to manufacturing exports. Consequently, Japanese inter-industrial linkages with the NIEs and ASEAN in chemical products, metal products, machinery and transport equipment, and construction have strengthened over time at the expense of the United States (fig. 2.1). An East Asian industrial belt comprising Japan, the NIEs, and ASEAN has been formed with strong intra- and interregional structural linkages (Lo and Nakamura, 1992). With a strong presence of the relocated investment in the form of FDI, ASEAN countries were able to gain a quick recovery from the slump in the price of primary commodities in the early 1980s. For other countries, strong economic incentives provided an effective bridge between technological know-how and production. Added to these was the technological leadership offered by Japan, which possessed 60 per cent of the world's industrial robots.

Underlying most of the trends identified above is technological change seen as a determinant of structural change. In this respect the range and speed of innovations in micro-electronics and communication since the late 1980s have been breathtaking. The cluster of new innovations in computers, electronics, robotics, telecommunications, new materials, and biotechnology has been facilitating production processes, speeding up and revolutionizing business trans actions, and permitting creativity. In fact, the new micro-electronics "chip" technology is resource saving and maximizes diseconomies of scale and flexibility in production. Being knowledge intensive, a new techno-economic paradigm coinciding with the fifth Kondratieff cycle is said to have been created, providing a formidable challenge to the Fordist mass production paradigm of massive resource utilization and scale economies of standardization. A new era of telecommunications, information technology, and widened opportunity is generally considered to have arrived (Lo, 1994). This technological frontier is predicted to expand rapidly in the years ahead into the twenty-first century, with promising prospects of economic growth and return. Japan and the NIEs are already investing heavily in high-technology industries in preparation for the future (Lo and Nakamura, 1992).

Fig. 2.1 Comparison of Japanese and US inter-industrial linkage with East and South-East Asian countries (measured by inducement coefficient from an international input-output table) (Source: Roland Fuchs et al., eds., Mega-City Growth and the Future, Tokyo: United Nations University Press, 1994, p. 113, based on Shunichi Furukawa, International Input-Output Analysis, Tokyo: Institute of Developing Economies, 1986)

+ Inducement coefficient of more than 0.4
O Inducement coefficient of between 0.2 and 0.4
• Inducement coefficient of between 0.1 and 0.2

The uneven spatial, economic, and social effects of the global restructuring trends adumbrated above have been played out in a variety of ways in different regions, countries, and cities, with some standing to benefit whereas others lose. With the acceleration of these trends, the uneven growth that has become evident is likely to persist and intensify.

Global restructuring is related to shifting industrial location. Take the example of the Japanese consumer electronics industry. Innovations and continuous technological changes are used to create new growth markets as mature products decline, a verification of Vernon's product life cycle (Vernon, 1966). The commercialization of many more new innovations based on this new techno-economic paradigm awaits economic incentives to create new mega-demands.

One of the more direct effects of the new capitalist world economy is the erosion of the economic base of cities in the advanced economies at the core. The cities in the United States and Western Europe have been suffering from the effects of deindustrialization since the 1970s accompanied by a continuous decline in blue-collar jobs in the traditional industrial centres. It is also evident that the structural change in those metropolises has coincided with the increasing role of the service sector. Lately a new trend towards information-processing and high-technology industries has begun to serve as the new impulse for future growth. However, this does not necessarily occur in some of the old metropolises. Some old cities are no longer competitive in their manufacturing plants built in a past era based on often outdated technology. Los Angeles, for example, witnessed the progressive tertiarization of its urban core, selective deindustrialization, and reorganization of capital and labour (Soja et al., 1983; Soja, 1987).

More telling, however, has been the loss of manufacturing jobs in London and plant closures because it is no longer favoured in industrial investment. The same experience was repeated in major US cities such as Detroit, Houston, Los Angeles, and New York. Employment and production have been "uncoupled," with chronic high levels of unemployment and jobs created primarily in the service sector (Wallace, 1990:6-8). Urbanists in these countries began to look beyond national boundaries to the larger economic system that supported them for explanations. This has led to a flurry of globally oriented urban research over the past decade (Timberlake, 1985; Friedmann, 1986; Meyer, 1986; Wallerstein, 1987; King, 1990).

The converse of the relative decline of major cities in core economies has been peripheral industrialization by core country transnational corporations facilitated by such measures as free trade zones, tax holidays, and ready infrastructure. The past two decades witnessed, for the first time, the historical switch to production of manufactured products in third world cities for re-export to the home markets in core cities (Smith and Feagin, 1987:10).3 Equally important, NIEs have developed their own transnational corporations to exploit undeveloped markets. For them, economic and spatial integration have gone hand in hand. They have extended beyond their national confines to capitalize on new economic opportunities. The internationalization of production, finance, banking, and services, coupled with cheap labour and advances in telecommunications and information, has minimized the importance of national boundaries in the decision to locate production plants (Friedmann, 1986; Nakakita, 1988). The borderless economy has become a distinctive feature of the new global economic system. From this standpoint, the Asia-Pacific region has been a major beneficiary of these trends, as later paragraphs will show.

The uneven growth across regions and cities has given rise to a host of issues that confront the world community, including the massive current account surpluses in Japan, West Germany, and the Asian NIEs (especially Taiwan), the United States' twin fiscal and trade deficits, the developing countries' mounting cumulative debt burdens, the deterioration in commodity prices, and the worsening savings-investment gap in developed economies (Shinohara and Lo, 1989:46; Lo and Nakamura, 1992). What has, however, emerged in the new global economy is a bipolar structure of development, with the United States, or more broadly the North American Free Trade Area, the European Union, and an Asia-Pacific regional bloc as three main clusters of economic and productive forces. With politics playing second fiddle to economics since the collapse of communism in Eastern Europe and the Soviet Union, geo-economics has apparently superseded geopolitics (Chin, 1991). It is in this changing climate of a new reorganization of world development that the next section will focus on Pacific Asia. With increasing integration consequent upon global adjustment over the past two decades, a new pattern of world economy has emerged. A new economic world is taking shape.

A new Asia-Pacific economic interdependence

Since 1970 the value of trade across the Pacific has grown far faster than that across the Atlantic. By 1983, trans-Pacific trade became larger in absolute terms, signalling the beginning of the age of Pacific dominance in the world economy (Lo et al., 1989:93). Pacific Asia has become one of the fastest-growing core regions of the world, with progressive restructuring of production linkages, trade relations, and foreign investments representing a transitional phase in the broader restructuring process occurring in the world economic system.

To begin with, it is instructive to highlight the remarkable economic miracle that Japan has been able to achieve since 1945. With an area only 4 per cent that of the United States and a population 51 per cent of the United States', Japan's GDP soared from 8.4 per cent in 1960 to 20.2 per cent in 1970 and to 60 per cent in 1989 of that of the United States. Japan has become the biggest creditor country, with approximately US$400 billion of net credit since 1989, as opposed to the United States, which has sunk to become the biggest debtor country since 1986, with a net national liability surpassing US$400 billion at the end of 1990. Also, the centralization of economic power in Japan is formidable. Japan leads the United States in the three interrelated foundations of global economic power: finance, manufacturing, and technology. Japan possesses the world's 10 largest banks and 315 of the world's top 1,000 corporations, and leads in 25 of 34 technologies considered essential for a post-industrial world (Nester, 1990). Japan as the leader has helped to give new prominence to Pacific Asia and the role of the country in the world economy that the region has helped to shape. Klein (1989:27) sums up the situation well:

The economic centre of gravity has moved eastward. During the next decade or two, I expect to see the centre squarely in the Asian-Pacific area. There will be more nations classified as having advanced (developed) industrial status.

The above statistics are meant to help understand the recent restructuring of trade relations in the Asia-Pacific region. In the past two decades regional growth and expansion have been driven by what is sometimes termed the bipolar trade relation, linking Pacific Asia with the United States and the European Community. With the relatively slow growth of the US economy and the European Union market in the coming decade, it is widely believed that a more balanced regional trading system with increasing inter- and intra-industrial trade in Pacific Asia centred around Japan will be developed and strengthened in the years ahead (Lo et al., 1989).

Indeed, during the past two decades there have been many developments in Pacific Asia that have drawn the countries towards greater structural interdependency from the standpoint of linkages in production and marketing. By the mid-1980s, Japan had already outstripped the United States in inter-industrial relations with the NIEs and ASEAN in finished goods and raw materials. Since 1973 ASEAN countries have become net exporters of non-durable consumer goods and have continued to expand rapidly in this direction. The NIEs that first began with the export of non-durable consumer goods in the 1960s have since 1970 developed with considerable success an export market in durable consumer goods. Japan, on the other hand, began to import non-durable consumer goods in 1970 but capital goods and durable consumer goods continued with their consistent and high export performance. This pattern of regional functional specializations represents part of the division of labour resulting from structural change and locational shifts of comparative advantage that have the effect of increasing complementarily and structural interdependence among countries in the region (figs. 2.1, 2.2, and 2.3). With Japan currently importing only 5 per cent of its intermediate goods requirement, there is much scope for further increasing trade between it and the NIEs and ASEAN countries in the future (Lo et al., 1989). The obvious leading position of Japan in Pacific Asia as a pace-setter of development and innovations and as the first of the "flying geese" pattern of development in the region is illustrated in figure 2.4, in which all pertinent countries in the region are arrayed along the GNP curve for Japan with a time-lag of achieved levels reached by the other countries.

Export-led growth adopted by many countries in the region as a vital development strategy has been a generator of wealth. In the past two decades, Japan and the NIEs were high exporters to the United States and the European Community, binding them in what has been referred to earlier as the Pacific Triangle trade relation. Yet by the mid-1980s, gradual change in this structure became necessary as the United States began to experience serious twin deficits and pressured Japan and the NIEs to stimulate their own domestic demand and restructure their economies. Meanwhile, the Pacific Asian trade surplus against the United States and the European Community increased in momentum. By 1987, the US trade imbalance with the Japan-NIEs-ASEAN axis exceeded US$100 billion, while the European Community suffered a US$30 billion trade imbalance (Grosser and Bridges, 1990; Lo et al. 1992). As part of the adjustment strategy, Japan sharply appreciated the yen in 1985 against the US dollar, which had the effect of benefiting the NIEs that achieved rapid growth because of the "three low" phenomena, namely, low effective currency exchange rates, low cost of raw material imports, and low cost of production. They became the direct beneficiaries of the Japanese expansion in manufacturing imports as the continued openness of the US economy also became a concern.

Fig. 2.2 Percentage share of manufacturing exports in Asian NlEs and ASEAN, 1965-1988 (Source: Fu-chen Lo and Naronchai Akrasance, eds, The Future of Asia-Pacific Economies Emerging Role of Asian NIEsand ASEAN, Delhi: Allied Publisher, 1992)

There are, as well, changes in trade relations within the region. By 1987, Japan's trade with the NIEs had increased so sharply that it was of roughly the same magnitude as that with the 12 countries of the European Community, with imports from the NIEs having grown from 5 per cent in 1980 to 13 per cent in 1987. Japan's trade with the ASEAN countries declined in relative terms because of the general decline in raw materials and fuel per unit of production. Consequently, the ASEAN countries shifted from commodity exports to manufacturing exports, thanks to substantial increases in FDI in this period, giving birth to a new phase of industrialization. Among the NIEs, trade grew in absolute terms during the 1980s but did not increase in relative terms. In part a reflection of the NIEs' export-oriented development strategy, ASEAN trade has been more concentrated in Pacific Asia than that of the NIEs. In all, there have been efforts by both the NIEs and the ASEAN countries to move import sources away from Japan and export shipments away from the United States (Grosser and Bridges, 1990).

Fig. 2.3 Changing comparative advantage in NIEs and ASEAN (trends in trade specialization coefficients) (Source: Fu-chen Lo and Naronchai Akrasance, eds., The Future of Asia-Pacific Economics: Emerging Role of Asian NIEs and ASEAN, Delhi Allied Publisher, 1992) - KOREA

Fig. 2.3 TAIWAN

Fig. 2.3 THAILAND

Fig. 2.3 MALAYSIA

Fig. 2.3 PHILIPPINES

Fig. 2.3 INDONESIA

Fig. 2.4 Trend in GNP per capita in Japan and other Asian countries, 1988 (Note": (1) based on IMF International Financial Statistics and other national statistics; (2) estimated figures in the year 2010 based on projection undertaken by EPA, Japan; (3) ANIEs 4 = Korea, Taiwan, Hong Kong, and Singapore; ASEAN 4 = Thailand, Philippines, Indonesia, and Malaysia. Source: Economic Planning Agency [Japan], Year 2010 Committee Report, 1991)

A major source of dynamism that has powered much of the economic restructuring and trade relations within the region has been FDI, which has made up a higher proportion of total capital flows than in other developing regions, in preference to borrowing from world capital markets. An indication of the attraction of Pacific Asia to FDI and of intra-Asia differentiation is that, in the period 1981-1985, 92 per cent of all FDI to Asia was destined for the NIEs, the ASEAN group, and China. Also, more than 70 per cent of the annual flow of Japanese total FDI is directed to the same countries (Panchamukhi, 1990). Investment flows are a key indicator of growing regional interdependence, and offer the opportunity of access to new technology, management, and marketing skills. Japan has become the largest single investor in Pacific Asia, despite the importance of the United States and the European Community in certain countries (table 2.1). Pacific Asia's catch of Japanese FDI has declined in relative terms but still reached 11.7 per cent in 1988 at US$5.2 billion. Another variant of the FDI flows is that the NIEs themselves have begun to invest heavily in ASEAN since the mid-1980s. South Korea invested over US$250 million in cumulative stock in 1988 and Taiwan US$86 million in 1987 in ASEAN. South Korea's overseas investment worldwide hit a record of US$959 million in 1990, an increase of 68 per cent over the previous year (Clifford, 1991). Hong Kong has been reported to be a leading provider of FDI in the region, especially in the Pearl River Delta. All these sizeable FDI flows emanating from within Pacific Asia have contributed markedly to growing regional economic integration and interdependence (Grosser and Bridges, 1990). A non-treaty trading bloc is fast becoming a reality in Pacific Asia, which may be viewed in stark contrast to trading bloc formation elsewhere. There is every prospect that this region will grow even stronger as Australia and New Zealand pursue strategies of "Asianization" and as China further advances its economic reforms and open policy. In this restructured and increasingly integrated regional economy, the role and importance of the cities, mega-cities in particular, cannot be overemphasized.

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