China, India and Japan: the greater game: Stuart McMillan and Michael Powles consider relationships that will dominate the Asia-Pacific region's future.

• Author: McMillan, Stuart

While the world's attention is focusing on the global financial crisis, its interest in China and India is on whether they are going to avoid the worst impacts of the crisis and on whether they will be in a position to contribute significantly to a recovery of the world economy. Seen through the same lens, Japan has assumed the status of an example of an economy in which the population is avoiding spending and a road not to be taken. All of which misses the point that in the longer term it will be the relationship among China, India and Japan that will determine the stability, peace and prosperity of Asia. The Asia-Pacific region is being fundamentally transformed by the emergence of China and India to join Japan in the front rank of global powers. This has been brought about by the successful pursuit of economic growth over several decades by governments in both Beijing and Delhi.

The financial crisis may delay recognition of the importance of that triangular relationship. It may disguise but will not postpone significantly the effects of the forces propelling the three towards accommodating or failing to accommodate one another.

It takes scarcely a moment's reflection to recognise that Japan and China are already so integrated into the world economy, and India, though a long way behind, is increasingly so, that stability or instability among so many peoples and among such strong nations will have profound repercussions for the rest of the world and for the world environment. China has had the most dramatic growth rates of the three major Asian powers. Some had hoped that China could maintain sufficient growth to rescue the global economy from the North American/European-induced recession. The New Zealand Herald, for example, proclaimed on 6 March 2009 that 'World takes heart as dragon roars'. Unfortunately, Chinas economy has been hit too hard for these hopes to be realised. While China is widening the GDP gap between it and India, the latter has outperformed all other developing countries economically. Japan remains the world's second largest economy, a fact often overlooked in the many discussions of the dramatic rise of China and India. But certainly Japan has been badly hit by the current recession, suffering a heavy reduction in its GDP.

Credibility loss

There is a separate question about whether the crisis will accelerate the trend towards centres of power moving east. There has been a major loss of credibility in the economic systems and financial practices of the West. (1) Other models of economic development may gain higher standing. Much of the developed world is markedly less rich than it was. In relative terms China and perhaps India are richer and stronger in influence. As a developed nation Japan is in a different category and China and India will gain in relative economic strength and influence in relation to Japan. Although Japan and India are democracies, unlike China, the forces driving the three will continue whatever their systems of government. China is using its capital-rich situation to buy up assets in the Western world, which will significantly strengthen its long-term economic position in relation to the West.

If the three countries were in different parts of the world, the propelling forces would still ultimately force them to deal with one another, but the impact of this dealing would be subdued. Because they are close geographically, their responses will be more robust and obvious. The growing power and range of interests of China and India will make them bump into one another as they seek to assert or protect their interests. Their military presence in the region will grow. They will not be expanding into a vacuum because another major regional power, Japan, is already there. It would not have been a vacuum in any case because the US Navy already has a powerful presence in the whole of Asia, but that is a different issue, though one intimately entwined with the argument this article advances.

Prime driver

While influenced by external developments, foreign policies are driven primarily by domestic demands and pressures. China and India have the mammoth task of continuing to lift substantial proportions of their populations, amounting to hundreds of millions of people, out of poverty. Moreover, the governments of both countries depend for political support, and in China's case for legitimacy itself, on maintaining improvements in their populations' living standards year after year. For Japan, the driving forces are different, but after long periods of minimal growth and more recently severe recession there is also a strong political incentive to pursue policies that will be the most conducive to economic growth.

This article will identify and discuss the forces driving the three towards dealing with one another. The constraining factors will also be touched on. A brief final section will discuss how New Zealand, with its vital interest in regional stability and prosperity, should respond to these developments.

The task of lifting people out of poverty and providing employment is itself one of the driving forces. China has announced, perhaps optimistically, that its economy will grow at 8 per cent this year. While most other countries would eye such a growth rate with envy, it is widely...