INTRODUCTION

When China adopted an open-door policy in 1978, Asian countries were not particularly concerned with the policy owing to the unsettled political uncertainties within China. After Deng's visit to Southern China in 1992, a political atmosphere in favour of drastic economic reform emerged in earnest. Foreign direct investment (FDI) started to pour in and reached a peak in 2005. Initial focus on manufacturing activities was directed at light manufacturing such as textiles, clothing, apparels, sport goods and toys. As multinational corporations (MNCs) from Taiwan, Hong Kong, Korea and Japan began to relocate their electronics plants to China, China switched its focus to the manufacturing of electrical, electronics and telecommunication products and was subsequently integrated into the Asian production networks. The rapid expansion of manufacturing exports from China has raised the concern among Southeast Asian countries that their exports might be crowded out by Chinese exports in third-country markets, in particular the U.S. market. This is because China's comparatively cheap labour may wipe out Southeast Asian labour-intensive industries. The concern is further aggravated by the accentuation of China serving as a magnet for attracting massive FDI at the expense of Southeast Asia as a region. With the accession of China into the World Trade Organization (WTO) in 2001, such fear of the “China threat” has caused much anxiety within the region and various policy proposals were adopted in response to the emergence of China as an economic powerhouse.

China has attempted to allay the fear by showing its willingness to join ASEAN's free trade zone as early as December 2000 so as to establish the ASEAN-China free trade zone by the year 2010. China also participated in other regional cooperation efforts such as the “Early Harvest Programme” in October 2003 and Chiang Mai Initiative (CMI) for financial cooperation in 2000. All these economic cooperations were well documented and updated by a recent book edited by Saw (2007).

INTRODUCTION

Globalization is not a new phenomenon. As far back as the Tang Dynasty in the seventh century, trade routes of the Silk Road had brought together Eastern and Western civilizations through trade. Since the visit of Marco Polo to China in the thirteenth century, global economic integration had accelerated, amidst interruptions during World Wars I and II in the early part of the twentieth century. However, globalization continues to be a rising trend, with occasional outbursts of protectionism and anti- globalization rhetoric. From the historical perspective, World Bank (2002) identifies three major waves of globalization. The first wave of globalization occurred in the period 1870–1914, resulting from decreases in tariff barriers and transportation costs with the advent of steamships and railways. The progress of globalization ended abruptly with the outbreak of World War I, starting from 1914. International trade was severely disrupted. After the war in 1918, the Great Depression of the 1930s gave rise to protectionism among major trading countries. Again, globalization was in disarray when World War II broke out in 1942. After the war in 1945, the second wave of globalization which took place between 1945 and 1980 ignited a hope for acceleration in economic integration at a global scale. With falling transportation costs and a reduction in trade barriers among developed countries, there was a sharp increase in international trade in manufactured goods, apart from the usual primary commodity trade. Of significance was the spread of agglomeration economies arising from clustering of related industries in specific locations, thus facilitating vertical and horizontal integration within an industry. The other important occurrence during this period was the emergence of multinational corporations (MNCs) in facilitating international trade and capital flows. Globalization process went into a new peak after 1980 when information and communication technologies breakthroughs cut communication costs dramatically. Together with digitalization, information-based activities are “weightless” so that inputs and outputs can be traveled vast distances at virtually not cost.