The Pan Yellow Sea Region (PYSR ) covers the coasts of northern China (Bohai Rim), south-western Japan (the Kyushu area) and western and southern Korea. It had a population of 256 million people in 2006. It is one of the fastest growing economic zones in East Asia with a regional GDP of USD 1.5 trillion in 2006. Rapid economic integration began in the early 1990s when the Chinese economy opened its markets to the world. Since then, the PYSR has made significant progress in economic exchange across its borders. This achievement has principally been driven by the private sector, which has taken advantage of the variations in factor prices within the region. In particular, Japan and Korea’s multi-national enterprises (MNE s) have played a key role in turning the region into an integrated economic zone. China has an abundant labour force, vast natural resources and huge markets, while Japan and Korea have ample capital and advanced technologies. This process has been further driven by the industrial restructuring of Japan and Korea. Japanese firms relocated production sites overseas following sharp rises in the yen, land prices and unit labour costs. A similar approach was taken by Korean companies. At the same time, the Chinese government has provided a wide array of incentives to promote investment by foreign companies, such as creating special development zones in coastal areas, providing infrastructure and tax incentives. Matching interests among business sectors in the three countries has resulted in rapid economic integration in the region.

Unlike other locally-driven sub-national economic blocs in East Asia – such as the Southern China Growth Triangle (SCG T) and SI JORI  – the Pan Yellow Sea Region (PYSR ), spanning the coastal areas of the Yellow Sea in Northeast Asia, has a relatively short history. Its spontaneous process of economic integration only began in the early 1990s, when the Chinese economy opened up and began functioning as the world’s factory. In this short period, however, the PYSR has made significant progress in pursuing trans-border economic exchange. Intra-regional trade amongst the three PYSR countries (hereafter, China, Japan and Korea) has exploded, almost doubling from 12.7% of total trade volume of all three countries in 1990, to 23.9% in 2005. In terms of intra-regional investment, as of 2006, Korea and Japan were the world’s largest and second largest providers of foreign direct investment (FDI ) to China respectively, excluding Hong Kong. In addition, these three countries have jointly forged an extensive and dense production network to become a leading global manufacturing base. In 2007, the three countries’ global share in the output of their key industries of shipbuilding, electronics and automobiles was 85.2%, 41.6% and 33.6% respectively (see Section 2.1 for more).

As we described in the previous chapter, regional integration in the PYSR has been primarily driven by business sectors taking advantage of economic complementarities across borders, combined with the favourable waves of decentralisation and globalisation since the 1990s. Following this economic integration, many other sectors in the PYSR have also built extensive interregional networks. One notable case is the transportation network. Having benefited from their world-class port facilities, many cities in the PYSR have actively constructed dense port linkages to be the backbone of regional integration. Another example is the socio-cultural network, inspired by historic ties and intensified further by the increasing movement of people and goods across borders. Especially among the younger generation in the PYSR , cultural exchanges are sharply growing. The environmental co-operation network has also had substantial outcomes. Many dialogue channels are being created and several projects to address common environmental concerns in the PYSR have been launched. Against this background and a conceptual framework developed in Section 1.4, in this chapter we first analyse the PYSR ’s production network (Section 2.1), then move on to the transportation network (Section 2.2) and the socio-cultural network (Section 2.3). Finally in Section 2.4 we discuss environmental co-operation.

As globalisation blurs national boundaries and blunts the state’s power to lead development strategies, many OECD countries see regions as the core economic actors and have concentrated on enhancing national competitiveness by using regional capacities. The tide of globalisation has forced the state to weaken its grip on the flow of capital, labour and goods across borders, and decreased its traditional role of redistributing national resources to lagging regions. In fact, many OECD member countries are shifting the paradigm of regional development policy from one of subsidising resources to achieve balanced regional development, to the enhancement of local competitiveness and the creation of regional wealth (OECD , 2009). Strategies for achieving this have also changed from conventional sectoral approaches to place-based integrative development strategies. As such, the region has emerged as a leading player in resolving individual countries’ complicated economic and social problems.

OECD member country experiences could provide useful lessons for East Asia(Table A 1). For example, European and North American cases tell us that borderlands come to the fore under increasingly globalised markets. Their peripheral and remote location from the national centre has tended to leave border regions underdeveloped. Legal and institutional factors have erected barriers to the smooth flow of people and goods across borders in order to protect domestic (mainly security) interests. However, with increasing pressure for free trade and integrated markets, borders are now increasingly being re-defined as bridges or communication channels, rather than barriers. This brings new economic opportunities for border regions. There are different degrees of border openness across Europe and North America.1 In the US -Canada case, tightened border control after the “9/11” attack on the US has hampered the smooth trans-border flow of people and goods. In the US -Mexico case, other issues such as illegal immigration and drug trafficking, have made governments fearful of open borders. In Europe, many barriers to the movement of people and goods have been lifted through measures such as the Schengen Convention. In Europe, virtually all border regions are involved in some type of trans-border co-operation activity. There are more than 70 such arrangements, operating under names like “Euroregions” or “Working Communities” (Perkmann, 2007).