Chapter III.
Regional Developments

A. Asia and the Pacific

a) The People's Republic of China and its vicinity

Although China has sustained a high economic growth rate in recent years while keeping inflation in check, at the same time, it is also faced with various problems requiring structural reform. Responding to this situation, the new national leaders chosen at the National People's Congress in March 1998 decided to complete reform of state-owned enterprises, financial reform and reform of government institutions within three years, also indicating their intention to reduce the People's Liberation Army by 500,000 within three years. Such reforms, however, are likely to create new unemployment problems and other issues, and all will depend on the extent to which China can overcome these difficulties and realize reform. In addition, yuan (RMB) rate trends were under close observation in the context of the Asian currency and financial crisis, but China has maintained its policy of non-devaluation.

President Jiang Zemin carried off smoothly such important events as the National People's Congress and the subsequent visit of U.S. President Clinton (June-July), also riding out the massive flood damage which occurred over summer and fall, and the administration seems to be getting increasingly stable. In addition to China-U.S. relations, where both 1997 and 1998 saw mutual visits among leaders, China worked actively on its diplomacy toward securing good foreign relations, with Premier Zhu Rongji visiting Europe immediately after his appointment, and President Jiang Zemin's visits to Russia and Japan, etc. China also indicated some sensitivity to the concerns of the international community through, for example, its release of "China's National Defense" (the equivalent of a white paper on national defense), and signature of the International Covenant on Civil and Political Rights.

On the political front in Hong Kong, the first Legislative Council elections since Hong Kong's return to China were held in May, and the "one country, two systems" principle can in general be said to be functioning smoothly, but the economy saw developments such as sluggish stock prices and a slump in real estate prices.

Some progress was made in China-Taiwan relations, with exchange reopened between the counterpart liaison institutions in April, and Koo Chen-fu, head of the Taiwanese Straits Exchange Foundation, visiting China in October, where he met with head of the Chinese Association for Relations Across the Taiwan Straits Wang Daohan and President Jiang Zemin, etc. In addition, a series of elections were held in Taiwan in December, including Taipei and Kaohsiung mayoral elections and elections for Legislative Yuan members, with the Kuomintang maintaining its majority in the Legislative Yuan.

Mongolia engaged in active diplomacy, including the visits of President Bagabandi to Japan and China, but in terms of internal politics, a situation arose whereby Mongolia was not able to select a prime minister from July through December.

b) Korean peninsula

In the Republic of Korea, President Kim Dae Jung came to power in February amidst harsh economic conditions, and a coalition government was inaugurated between the National Congress for New Politics and the United Liberal Democrats. This was the first election-led change of hands between the ruling party and the opposition in the ROK's history of constitutional government, but with the new opposition holding more seats in the National Assembly than the ruling party, the two sides engaged in a tussle in regard to the designation of Honorary President Kim Jong Pil of the United Liberal Democrats as Prime Minister and Speaker of the National Assembly, with the National Assembly remaining idle for around six months after the inauguration of the new administration. Due to the subsequent series of defections of opposition party members to the ruling party, the ruling coalition finally gained a majority over the opposition Grand National Party in September, but fierce confrontation continues between the two sides. In terms of the economy, the ROK broke free of a temporary currency crisis, stabilizing the won/dollar rate and increasing foreign currency reserves. The ROK Government is currently concentrating on efforts to overcome the difficult situation posed by factors such as rising unemployment and bankruptcy rates and sluggish domestic demand, while also tackling financial reform and the structural adjustment of chaebols and other companies.

The situation in North Korea is becoming increasingly opaque and unpredictable. At the Supreme People's Assembly in September, General Secretary of the Workers' Party Kim Jong Il was re-elected as Chief of the National Defense Commission, considered to be North Korea's highest position of authority. Foreign Minister Kim Yong-nam was also elected as the President of Presidium of the Supreme People's Assembly, and now takes the forefront in representing North Korea in diplomatic duties. General Secretary Kim Jong Il sets great store upon the army, the influence and role of which are apparently expanding. The Korean Workers' Party, on the other hand, has yet to hold a general meeting of the Party Central Committee, and no new personnel have been appointed to party leadership, with the position of the party within the power structure unclear. There are also no signs of economic improvement, and shortages remain severe in terms of foreign currency, energy, raw materials, and so on. Cereal production was slightly up in 1997, but North Korea remains dependent on assistance from the international community. Constitutional amendments strengthened the powers of the Cabinet, which is in charge of the economy, and attempts are being made, if on a limited scale, to institute partial changes in the economic management system. Since October, General Secretary Kim Jong Il has been making an increasing number of economy-related local visits, displaying some drive toward economic recovery, but it will be difficult to achieve any startling results without a shift away from army-led resource allocation.

c) Southeast Asia

The Association of South East Asian Nations (ASEAN) has been forced to deal with the extremely serious impact on political, economic and other spheres imposed by the Asian economic crisis which began in 1997, and is currently in the process of adjustment. In terms of working toward recovery from the economic crisis, the dominant cause of concern, ASEAN has decided to introduce concrete economic recovery measures within the ASEAN framework, such as the liberalization of intra-regional economic activities and the strengthening of the financial system. At the Sixth ASEAN Summit too, held in Hanoi in December, members agreed to promote intra-regional cooperation toward recovery from the economic crisis, including the front-loading of the target years for realization of the ASEAN Free Trade Area (AFTA) and the ASEAN Investment Area (AIA).

Laos and Myanmar acceded to ASEAN in 1997, but trouble arose between ASEAN and the United States and European countries over Myanmar in particular, provoking vigorous discussion within ASEAN itself how to respond. Agreement was reached at the ASEAN Summit in December on concrete arrangements for the accession of Cambodia, bringing the realization of the "ASEAN 10" within view. Japan hopes to see ASEAN develop as a stabilizing force embracing the entire Southeast Asian region both in name and in reality, contributing to the stability and prosperity of the region.

The social impact of the economic crisis on the Southeast Asian countries surfaced in 1998. In particular, economic turmoil in the wake of the crash of the rupiah, shortages of daily necessities and soaring prices severely shook Indonesian domestic politics, resulting in the resignation of President Soeharto in May after more than 30 years in power, with Vice-President B.J. Habibie taking over the presidential reins. President Habibie made clear his intention to promote sweeping reform in political, economic and judicial areas, and the decision by the People's Consultative Assembly in December was followed by a decision by President Habibie to hold the next general elections on 7 June 1999.

d) Southwest Asia

Although a series of nuclear tests conducted by India and Pakistan in May escalated tension between the two countries, the India-Pakistan Summit meetings at the Tenth SAARC Summit in July and at the UN General Assembly in September, together with the resumed India-Pakistan vice-ministerial level consultations in October, brought about some progress toward rapprochement. On the economic front, on the other hand, the region continued to work on economic liberalization and intra-regional cooperation, as shown by a business summit in January with the participation of leaders from India, Pakistan and Bangladesh, as well as the Tenth SAARC Summit in July, which reaffirmed the commitment to the realization of the South Asian Free Trade Area (SAFTA).

e) Oceania

The Asian economic crisis did not prevent Australia from sustaining a favorable economic situation, and the current conservative coalition government achieved another victory in the October federal elections while losing a few seats along the way. In these elections, the far-right One Nation Party, which had shot to the forefront of the political world in recent years, gained one new seat in the Senate, but party leader Pauline Hanson lost the party's only seat in the House of Representatives, revealing a waning of party strength. New Zealand, on the other hand, saw economic growth slip below zero this year in response to the Asian economic crisis, and the coalition government dissolved in August, with the National Party barely sustaining its single-party minority grasp on power. Australia and New Zealand have maintained Asia-Pacific-oriented foreign policy courses, participating actively in fora such as the Asia-Pacific Economic Cooperation (APEC) and ASEAN Regional Forum (ARF). Despite different positions in regard to such issues as the controversy over Southern bluefin tuna resources, solid, wide-ranging cooperative relations continued to develop between Japan and these two countries through, for example, the March visit to Japan by New Zealand Prime Minister Jenny Shipley, Foreign Minister Koumura's visit to both countries in November, and the first regular summit held between Prime Minister Obuchi and Australian Prime Minister John Howard at the time of the APEC Economic Leaders' Meeting the same month.

Domestic politics in the Pacific Island countries remain generally stable, but reform of vulnerable economic structures continues to constitute a common challenge for these countries. The Pacific Island countries are also strongly concerned over environment-related issues and nuclear disarmament, and are actively involved in the formation of international opinion.

f) Asia-Europe cooperation

The Asia-Europe Meeting (ASEM), launched in March 1996, held the Second Asia-Europe Meeting (ASEM 2) in London in April, solidifying its foundations as a forum of dialogue between Asia and Europe. One central theme of the ASEM 2 was the Asian economic situation, and leaders affirmed a shared awareness that the Asian countries would restore the credibility of their markets and, even in those circumstances, eliminate protectionism and further promote trade and investment liberalization. In particular, Japan announced that it would work to expand domestic demand with a view to Asian economic recovery. In the context of the ASEM Trust Fund which was established to support financial sector reforms by the Asian countries, Japan also announced that it would increase the amount of assistance through the Japan Special Fund established in the World Bank and the Asian Development Bank. In terms of political dialogue too, leaders engaged in a frank exchange of views on international and regional issues of common interest to both Asia and Europe. Asia-Europe cooperation was also considered from a medium- to long-term perspective, with leaders adopting the Asia-Europe Cooperation Framework, which lays out a framework for ASEM activities, and launching the Asia-Europe Vision Group to create a medium- to long-term vision toward the 21st century.

Japan has contributed to ASEM throughout the forum's history, serving together with Thailand, for example, as a coordinator for the Asian side in the lead-up to the ASEM 2, and will continue to work together with the related countries toward the further development of cooperative relations between Asia and Europe, including a successful Third Asia-Europe Meeting in Seoul in 2000.

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