The Framework o f Analysis

The creation of definitions, concepts and categories is necessary in order to analyse the phenomenon of economic régionalisation. Although there is an enormous literature on régionalisation, most books and articles are concerned with the development of the EU. There has been a neglect of broader comparative studies, and our understanding of the development of cross-border economic relations, especially outside the EU, remains poor. What is needed is a categorisation of different forms of régionalisation and their distinctive charactenstics.

Higgott and Reich (1998) suggest that the concept of régionalisation embraces three

distinct dimensions: (1) de facto processes of economic integration, firm-led and

network-led processes, and de jure processes o f state-led instutionalised governance; (2)

emerging (vertical) meso-levels o f authority between the state and the global order (trans- or supra-national régionalisation), and between the state and the local level (sub-national régionalisation); and (3) emerging (horizontal) authority across extant territorial

jurisdictions. The major interest of this thesis is in the increasing interplay between de

facto processes of economic integration and de jure processes of state-led institutionalised governance at the sub-national and micro-regional level.

This thesis therefore concentrates first of all on the importance o f de facto processes of

economic integration, the organisation of production and allied activities, and the clustering of industry through the expansion of international (cross-border) production networks. The case of the electronics industry, which has played a major role in the East Asian economy, is chosen to illustrate these changing geographical patterns. In particular, the locational strategies and production system of Japanese and Taiwanese electronics firms need to be highlighted. It is important to identify the strategic differences between Japanese and Taiwanese firms. While there are various elements causing differences, to a large extent, these are derived from the characteristics of the home country’s governance. The Taiwan Strait conflict remains a politically unresolved area, and thus we need to consider why Taiwanese firms have taken a risk by investing in mainland China. The desire to minimise transaction costs cannot be the only reason.

This thesis focuses on the increasing role of SNGs in co-ordinating the relations between economy and society in cross-border economic relations. In particular, it seeks to

distinguish between two different de jure processes: vertical and horizontal régionalisation

between the state and the local level. It also seeks to identify the emerging horizontal authority across extant territorial jurisdictions (i.e. national boundaries) at the sub-national level. A sub-national level o f analysis in the régionalisation debate is essential in order to bridge the divide between the macro- and micro-regionalisation perspectives (see Chapter 2). In East Asia, through the development of economic relations between cross-border regions, the sub-national level has changed both qualitatively and quantitatively. Behind the rapid development of urban areas in East Asia there are fundamental changes in industrial structure. Industrialisation based on export-led strategies, and the international, regional and hiearachical division of labour, mainly in the production system, has become the foundation of the continuous upgrading of industrial structure and rapid urbanisation. The resulting quantitative economic growth has in turn led to quantitative change at the sub-national level. One problem here, however, is that in China the discretion of the sub-national level has invariably been limited by the state. Accordingly, the vertical dimensions of régionalisation (decentralisation and recentralisation) within a country are

extremely important. This restructuring leads the domestic governance structure towards multi-level in nature.

Why, then, does the rise of cross-border economic activities require new forms of governance? One of the reasons is that the state and sub-national levels have faced an increasing burden of new regulations. For example, when MNCs set up regional headquarters or local corporate bodies, they seek to establish interface functions and a new business infrastructure, e.g. in finance, telecommunications, transportation, legal services, research and development, and distribution, in selected areas. As a result, foreign and domestic business interests increasingly agglomerate at the sub-national level. A SNG seeking to attract foreign capital must ensure that the economic infrastructure is in good condition in order to support both domestic and international use. Therefore, international airports and ports, as part of the urban infrastructure, also assume the characteristics of international public goods (Imasato, 1999: 18-21). In this way, SNGs reinforce the development o f firms’ regional relations and in turn promote their own internationalisation. Furthermore, the programme of economic build-up and foreign economic strategies quantitatively supports the activities of cross-border firms by reducing the problems caused by national boundaries. While the main economic actors in régionalisation are firms, as the production system is incorporated in a certain local area (localisation) the sub-national area can no longer escape the influence of the internationalisation of the production system. The relations between the state and firms cannot be examined at only the state or firm level of analysis, because the impact of MNCs on the regional economy occurs mainly through the localisation processes in the production system. Localisation stresses the importance of territoriality and local political space, and the embeddedness of firms in the specific social and cultural milieu in which they operate. The effective co-ordination o f inter-firm networks can thus best be achieved by local government rather than central government. Consequently, SNGs are emerging as vitally important economic actors in both the domestic political economy and the international political economy.

In becoming major economic actors, SNGs need the continuing political protection of the modem sovereign state system. However, at the same time, in this situation the power dynamics come from two seemingly opposite directions. The state is seen to be under the influence of the power of both relativism and absolutism. The forces of relativism are seen as régionalisation brings in various rules about competitiveness and complementarity.

norms, identity and organic regionness. This relativises state autonomy and monopolistic territoriality. This in turn can lead to growing political tensions within a country. On the other hand, the forces o f state absolutism are seen in the way in which the state utilises régionalisation in order to strengthen its power, national interest and territoriality on the basis of rationality and nationalism. However, this study does not adopt a deterministic viewpoint, but instead seeks to reveal the empirical processes of the evolution and reform of governance taking place beneath the state level in the context of globalisation. Of crucial significance is the way in which international cross-border production networks are adjusted and institutionalised into the state system through localisation, and the way in which the internationalisation of SNGs is adjusted into the state or beyond the state’s capability. This requires an investigation of the evolution of governance in both the vertical (central and local government) and horizontal (local horizontal authority) regionalisatioin processes.

A particularly important question concerns the the interplay between the de facto and de

jure régionalisation processes, and the respective roles of the central (vertical), local

(horizontal) and external actors (state or firms). A related question is whether the size of the sub-national unit directly influences the unit’s role in régionalisation processes. This

study focuses on two levels of SNG in China: the provincial level (sheng) and the

sub-provincial level (sht). It argues that under the impact of globalisation, SNGs are

playing an increasingly important co-ordinating role between MNCs and the state, and are becoming economic actors in their own right, defending their own economic interests and expanding their territoriality. The analysis therefore seeks to clarify the difference between two contrasting régionalisation processes in China: from above (the national process: vertical) and from below (the sub-national process: horizontal). Decentralisation and recentralisation are seen as the primary measures of Chinese régionalisation from above, and the sub-national responses to this movement can be seen as an expression of sub-national régionalisation from below. The study seeks to show that China needs a further restructuring of the domestic developmental system and centre-periphery relations in order to adjust to globalisation. In considering the power configuration through the effects of production networks on the state system, the aim is to give an account of the roles of different levels of SNG in providing MNCs with international public goods. Thus, the analytical viewpoint of this study is the role of Chinese SNGs as economic actors in

bridging micro-regionalisation and IPE through emerging networks of cross-border governance.

The framework of analysis in this study employs concepts of network and governance as

key characteristics o f the emergent cross-border networking between SNGs and firms, and intra- and inter-firms relations. (These will be elaborated in more detail in Chapter 2.) The

first of these concepts, network, denotes a ‘complex of organizations connected to each

other by resource dependencies and distinguished from other ... complexes by breaks in the structure of resource dependencies’ (Benson, 1982: 148). Put another way, it refers to regularised interactions among independent agents, nodes of activity and sites o f power

(Castells, 1996). The concept o f governance is used to indicate the ways in which networks

are ordered, co-ordinated and regulated, both formally and informally. Governance is not the same as institutionalised government, although governments - in this case SNGs play a major role in the conduct of governance. Governance suggests that a variety of actors and agencies - both public and private - are involved in order to create order. In one sense, therefore, governance denotes a complex and fragmented set of institutional and agency-based relationships in a particular field o f activity. This gives rise to key issues concerning how such relationships are organised and how they function.