By Franz Schurmann, October 12, 2000

Today's economic giants -- the countries able to draw the most investment capital -- are Asian-Pacific rather than Euro-Atlantic: China, Japan and the United States. Despite the considerable differences among the three, this triangle could become a stable base for peace, provided Korea's reunification becomes a reality. PNS commentator Franz Schurmann, emeritus professor at UC-Berkeley, has written on international affairs since the early 1970s.

As violence grows in the Middle East, even spreading to Europe, an old economic giant, the United States, grows bigger and calmer as does the new economic giant, China. A middle-aged giant, Japan is so calm that it verges on apathy. But in the Southeast Asian countries that weathered great financial crises three years ago, worries about shrinking economies and unstable currencies are returning.

One reason the giants are thriving is revealed in a report just published by the Paris-based Organization for Economic Cooperation and Development (OECD). Between 1979 and 1999, the United States was the world's number one recipient of foreign investment. China was number two, receiving some U.S.$360 billion.

In other words, the American economy is so robust partly because of heavy foreign investment from Europe and Japan. Europe and Japan, however, along with the U.S. and Hong Kong, have also been heavy investors in China during this 20-year period, attracted to the potential of the market, according to the report.

China is still -- and prefers to be -- seen as a developing country, a status that entitles it to special trade considerations. But the OECD report says China absorbed 30 percent of all foreign investment in developing countries. Countries in South and Southeast Asia have long been worried that so much capital going into China leaves much less for them.

The U.S. has pressured Japan to jump-start its economy in part to force the Japanese to build more firms and factories in developing countries, especially Southeast Asia. But deflationary apathy in Japan is so strong people would rather save than buy, and those savings get invested in the U.S. and China.

George W. Bush, outlining his foreign policy objectives, said that as president he would abrogate the U.S.-China Strategic Partnership and instead initiate closer military cooperation with Japan. Some ultra-right wing politicians, like Tokyo governor Ishihara Shintaro, believe the only way to revive Japan is to build a new military-industrial complex. But most Japanese oppose this.

One thing that increases Japan's apathy and pulls down Europe's euro is the big returns investors can get in U.S. markets. The same is true of China -- Chinese stocks are "hot." A major U.S. firm surveying 40 brokerage houses throughout the world over the last three months found that the number one performer was Shanghai B stock, which appreciated 62 percent. Number two was a Venezuelan stock that only appreciated by 27 percent.

Since the bubble burst in 1992, Japanese leaders have made solemn promises to jump-start their economy. So far the economy has not restarted. Yet despite high (by Japanese standards) unemployment, Japan remains a wealthy nation. Its savings are said to amount to one half the world's investment capital, and the rock-hard value of the yen translates into stability, though not into growth.

But there is another possible scenario. Many U.S. experts on East Asian affairs have been calling for a triangular relationship between Japan, China and America as the best recipe for peace and prosperity in the region. Chinese Prime Minister Zhu Rongji -- now on a five-day trip to Japan -- is known for his economic policy achievements. Since he is likely to retire soon, Zhu does not have much time left to work out such a triangle.

A triangle is feasible because economic power has been shifting from the Euro-Atlantic to the Asia-Pacific. One gauge of such power is currency: 30 years ago no currency could match the dollar; 20 years ago the mark moved up; 10 years ago the yen joined the mark as the world's second most solid currency.

Today, the U.S. dollar and the Japanese yen are the most powerful currencies in the world; the euro that grew out of the mark is no longer in the running.

The Chinese RMB cannot be ranked because it is not yet a fully free currency. But, it must become freely traded when China joins the World Trade Organization early next year. Former German chancellor Helmuth Schmidt recently predicted the RMB would eventually replace the yen.

Once the line-up becomes dollar, yen, RMB -- or dollar, RMB, yen -- the whole world will see clearly that the economic center of gravity has shifted to the Asia-Pacific.

Yet that is not enough to push the three countries into an economic triangle. What could do the trick is the two Koreas.

Together, South and North Korea number some 65 million people, a population somewhat larger than that of France. The two Koreas have embarked on an exciting but perilous journey. If reunification succeeds, it would be miraculous; if it fails, there could be renewed conflict.

This worst-case scenario could lead to flashpoints of conflict between the Asia-Pacific big three.

Zhu goes next to Seoul, officially to attend the annual Euro-Asian summit. However, his real reason may be to sound out President Kim Dae Jung on whether the two Koreas might be interested in turning the triangle into a pentagon.

A five-sided East Asian bloc would become an economic powerhouse. Even better, it would assure peace among peoples and states that warred against each other in the not too distant past.