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.