Inter-City Networking Strategy in the Yellow Sea Sub-Region

KRIHS Research Monograph 2000-1

Kim, Won Bae

Editor

Korea Research Institute for Human Settlements

in Collaboration with

Institute of Spatial Planning and Regional Economy, China Kyushu Economic Research Center Pusan Development Institute Inchon Development Institute

All right reserved. Printed in the Republic of Korea. No part of this book may be reproduced in any manner without written permission except in the case of brief quotations embodied in critical articles and reviews. For information address Korea Research Institute for Human Settlements, 1591-6, Kwanyang-dong, Tongan-gu, Anyang-shi, Kyonggi-do, 431-712, Korea.

Inter-City Networking Strategy in the Yellow Sea Sub-Region / Edited by Won Bae Kim - Anyang : Korea Research Institute for Human Settlements, 2000 p. cm Includes bibliographical references ISBN 89-8182-114-3 Preface

Economic exchanges have rapidly grown across the Yellow Sea in the past decade. Political changes such as China’s open-door policy and the normalization of Sino-Korean relations obviously helped the rapid growth of economic exchanges. But economic complementarity, geographical proximity, and cultural affinity existent in the Yellow Sea Sub-Region were underlying factors in the deepening economic cooperation. With increasing volume of trade and travel across the Yellow Sea, there are now 11 air connections and 10 ocean routes among the cities in the Yellow Sea Sub-Region.

Despite these achievements, cross-border economic cooperation in the sub- region faces a few constraints and potential problems. One of the most serious problems is high transaction costs, which stem from differences in social, institutional, and technical systems between China, Japan, and Korea. Furthermore, trade and investment across the border within the sub-region is constrained by the lack of formal agreements among the three countries. In addition to the lack of institutional infrastructure, the underdeveloped physical infrastructure constrains efficient flows of goods and movements of people in the Yellow Sea Sub-Region. Inter-city and inter-national competition for markets and investment is also rising, posing a threat to the co-prosperity of cities and nations in the sub-region.

Recognizing the need to deepen economic cooperation across the border, all three nations and localities in the sub-region have been considering ways and means to promote economic cooperation and cultural understanding. Although inter-state relations still govern the scope and depth of cross-border cooperation, private and local initiatives play an increasingly important role in cross-border economic, technological, and cultural exchanges. The best approach to cross-

i border cooperation in Northeast Asia would be a multi-tiered one, in which private, local, and national institutions pursue cooperation for the common interests at various sectors and levels.

This monograph is a product of a year and half joint research among the three institutions—the Institute of Spatial Planning and Regional Economy under the State Development Planning Commission, the Kyushu Economic Research Center in Japan and the Korea Research Institute for Human Settlements. It is perhaps the first attempt to bring in local, national, and supra-national perspectives together on the cross-border cooperation in the Yellow Sea Sub- Region. Even though the joint study does not cover macro-issues of trade and investment and the constituent cities and provinces of the Yellow Sea Sub- Region in sufficient depth, it does shed light on the importance of the sub- region in Northeast Asia and provide some practical suggestions to improve cross-border economic cooperation at the level of cities. Rather than dwelling upon grand concepts of Free Trade Area or Customs Union, the study focuses on the logistics and tourism sectors, which will facilitate trade and investment in the sub-region. Apart from the substantive matter, it sets an example of trilateral research cooperation among China, Japan, and Korea, which is rarely seen in the research community of Northeast Asian countries.

WBK June, 2000

ii Acknowledgement

On behalf of the Institute of Spatial Planning and Regional Economy, the Kyushu Economic Research Center, and the Korea Research Institute for Human Settlements, research coordinators would like to thank the municipal government of Dalian and Qingdao for their support. The participation and support of Inchon Development Institute and Pusan Development Institute representing the two cities was a big boost for the study both substantively and morally. Research coordinators would also like to thank those who participated in the workshops held in Pusan in November 1999 and in Fukuoka in April 2000 as moderators, discussants, and presenters of special papers. They include Park Jae Yoon (President, Pusan National University), Ha Woong Soo (Pusan National University), Kim Chang Soo (Pusan National University), Lee Cheol Yeong (Korea Maritime University), Moon Seong Hyeok (Korea Maritime University), Park Myeong Sub (Pukyong National University), Song Gye Eui (Dongseo University), Kim Chang Nam (Dong-A University), Yhang Will Joo (Silla University), Choi Yeol (Pusan National University), An Young Myeon (Dong-A University), Tsumori Takyuki (Okayama University), Dai Erbiao (International Center for the Study of East Asian Development), Kabu Takayuki (Kyushu Economic Research Center), and Ogawa Yuhei (Seinan Gakuin University). Finally, the leadership provided by the head of the three aforementioned institutes was essential for the success of the joint study.

iii iv Contributors

CHINA Institute of Spatial Planning and Regional Economy, China Du Ping Gao Guoli Shi Yulong Shen Bing Wang Qingyun Wang Yanghong Yang Jie

JAPAN Kyushu Economic Research Center Chen Shuang Imamura Akio Kabu Takayoshi Takaki Naoto

KOREA Korea Research Institute for Human Settlements Kim Gyeong Seok Kim Won Bae Kwon Young Sub Lee Jeong Sik

Pusan Development Institute Keum Sung Keun Lim Jung Duk Park Chang Ho

Inchon Development Institute Hong Chul Kim Beon Uk v vi Contents

Preface i

Acknowledgement iii

Contributors v

Contents vii

List of Tables ix

List of Figures xi

Ⅰ. Introduction

1. Background 1

2. Research Topics 3

3. Research Scope and Purposes 4

4. Research Methods and Collaboration 5

Ⅱ. Dynamics of the Yellow Sea Sub-Region Formation

1. Regionalization of the World Economy and Northeast Asia 7 2. The Emergence of Sub-Regional Economic Zones (Cross- Border Regions) and the Position of the Yellow Sea Sub- Region in Northeast Asia 12 3. Geographical Boundary and Major Characteristics of the Yellow Sea Sub-Region 14 4. Recent Development and Future Prospects for Economic Cooperation in the Yellow Sea Sub-Region 18

Ⅲ. Status of and Prospects for Inter-City Linkages between Major Port Cities in the Yellow Sea Sub-Region

1. Enlarged Spaces of Production, Distribution, and Travel 25 2. Cities as a Basic Unit for Networking and Regional Integration 26

3. Profile of Six Port Cities 28

4. Dalian 29

5. Qingdao 34

6. Inchon 40

7. Pusan 44

vii

8. Fukuoka 50

9. Kitakyushu 55 10. Prospects for Inter-city Linkages and Cooperation in the Yellow Sea Sub-Region 60

Ⅳ. Current Conditions and Issues of Logistics and Tourism Industry in the Yellow Sea Sub-Region 1. Transportation and Logistics Development in East and Northeast Asia 64 2. Inter-Port Competition and Linkages in the YSSR and Northeast Asia 66

3. Tourism Development in Northeast Asia 72 4. Opportunities for and Obstacles to Inter-Local Cooperation in Tourism Industry in the YSSR 79

Ⅴ. Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR 1. Rationale for Cooperation in the Logistics and Tourism Industry 83

2. Measures to Promote Cooperation in the Logistics Industry 84

3. Measures to Promote Cooperation in the Tourism Industry 89

4. Inter-City Networking Strategy 94

Ⅵ. Conclusions and Policy Recommendations

1. General Conclusion 103

2. Policy Recommendations 106

Joint Policy Recommendations 109

References 111

Appendix : Workshops and Conferences 115

viii List of Tables

Table 2. 1 Major Indicators of Northeast Asia Table 2. 2 Northeast Asia Compared with Major Regional Blocs Table 2. 3 Trade among China, Japan, and Korea Table 2. 4 Investment Trend in Northeast Asia Table 2. 5 Major Indicators of Yellow Sea Region Table 3. 1 Profile of Six Major Port Cities Table 3. 2 Situation of Tourist Source Markets for Dalian Table 3. 3 The Structure of Export Goods From Dalian (1997) Table 3. 4 The Geographical Distribution of Export and Import Goods from Dalian (1997) Table 3. 5 Foreign Capital in Dalian Table 3. 6 Sources of Direct Foreign Investment in Dalian (1997) Table 3. 7 Sectoral Distribution of Foreign Capital in Dalian Table 3. 8 Export Amount of Qingdao with Major Trade Partners Table 3. 9 Qingdao’s Utilization of Direct Foreign Investment Table 3. 10 Growth Trends of Trade in Inchon Table 3. 11 Trends of Incoming and Outgoing Cargo Volume at Inchon Port Table 3. 12 Trends of Container Cargo Volume at Inchon Port Table 3. 13 Export Records of Pusan with Major Trade Partners Table 3. 14 Outward Foreign Direct Investment of Companies in Pusan Table 3. 15 Inward Foreign Direct Investment of Pusan (June 30, 1996) Table 3. 16 Trends of Container Cargo Volume at Pusan Port Table 3. 17 Visitor Arrivals in Pusan by Nationality Table 3. 18 Foreign Companies in Fukuoka Table 3. 19 The Number of Kitakyushu’s Business Abroad Table 4. 1 Changing Places of the World Top 20 Ports Table 4. 2 Change of Trade Volume between NEA and Other Regions Table 4. 3 Container Cargo Volume of Three Nations in NEA Table 4. 4 Growth Trends of Container Cargo Flows in Asia Table 4. 5 Transport Volume between Port Cities of China and Korea (1998) Table 4. 6 Characteristics, Functions and Hierarchy of the Port System in East Asia

Table 4. 7 Arrivals of Tourists from Abroad by Regions Table 4. 8 The Status of Economy and Tourism in Korea, China and Japan (1997) Table 4. 9 The Tourist Share of Korea, China and Japan (1995~1998) Table 4. 10 Purpose of Travel within the YSSR Table 4. 11 Air Routes in the YSSR (Flight Time & Frequency per Week) Table 4. 12 Regular Passengers Routes by Sea between Korea, China and Japan Table 4. 13 Foreign Visitors of Major Port Cities in the Yellow Sea Sub- Region Table 4. 14 Prospect for Tourism Economy of the World and Northeast Asia Table 4. 15 Northeast Asia Tourism Arrivals Matrix (1997~2020) Table 5. 1 International Festival of Main Cities in Yellow Sea Sub-Region Table 5. 2 Conferences and Forums of Cities & Provinces in East Asia Table 5. 3 Summary of Policy Recommendation by City

x List of Figures

Figure 2. 1 The Yellow Sea Sub-Region and the East Sea Sub-Region Figure 2. 2 The Geographical Boundary of the Yellow Sea Sub-Region Figure 3. 1 The Change of Total Trade at Qingdao Port Figure 3. 2 National Composition of Qingdao’s Foreign Tourists Figure 3. 3 Trends of Export Amount at Hakata Port Figure 3. 4 Industrial Composition of Export and Import at Fukuoka Airport Figure 3. 5 The Value of International Trade at Kitakyushu Port Figure 3. 6 Container Throughput at Kitakyushu Port Figure 4. 1 Hierarchy of the Port System in NEA Figure 4. 2 Intra-regional Tourism Flow in Korea, China and Japan (1990-1997) Figure 4. 3 Air and Sea Connections between Major Port Cities in the YSSR Figure 5. 1 Movement of Containers in the Container Pool System Figure 5. 2 Culture and History Tours

xii

CHAPTER 1

Introduction

1. Background

The world economy is increasingly affected by globalization and regionalization. With the establishment of common currency in the European Union (EU) in 1999, global competition is expected to intensify between EU and North America. Although East Asia is perceived to be another pole to compete with the above two major economic blocs, it does not appear to have reached a stage to exert its power in the strategic maneuvering of the world economy. If Northeast Asia forms a closely-knit economic region, it will result in a tri-polar structure of the world economy. Because of political and economic reasons, however, a formal institution for Northeast Asia seems unlikely to be established in the near future. Instead, informal institutions and sub-regional economic zones are more likely to emerge. As a matter of fact, several sub- regional economic zones or natural economic territories are emerged or emerging in East Asia. Successful examples of these sub-regional economic zones are the growth triangle linking Singapore with Johor of Malaysia and Riau of Indonesia (SIJORI) and the Southern China Economic Zone (SCEZ) centering on Hong Kong and Guangdong. Pooling production factors of the neighboring areas, the core cities of Singapore and Hong Kong have repositioned themselves in global competition. As such, inter-city or inter-local (provincial) cooperation became an effective means to enhance international competitiveness. Other sub- regional economic zones considered are the Greater Mekong Sub-region, the

1 Indonesia-Malaysia-Thailand growth triangle, the Brunei-Indonesia-Malaysia- Philippine growth area, and the Yellow Sea Sub-Region(YSSR). These sub- regions, however, have a larger geographical scope than city-centered sub- regions of SIJORI and SCEZ. For this and other reasons, they are not making as rapid a progress as SIJORI and SCEZ. In particular, candidate sub-regions in Northeast Asia include the Yellow Sea Sub-Region, the East Sea (Japan Sea) Sub-Region, North-South Korea Cooperation zone, and the Korea-Japan Strait Sub-Region. Although these sub- regions overlap each other, they have been discussed either singly or in combination. Among these, the Yellow Sea Sub-Region has been most extensively discussed. Examples are: a study jointly conducted by the Korea Research Institute for Human Settlements and the East-West Center of Honolulu (1991), the research carried out by the International Centre for the Study of East Asian Development (1991), and a study jointly conducted by the Institute of Geography, Chinese Academy of Sciences and the Korea Research Institute for Human Settlements (KRIHS, 1998). All these studies have envisioned a sub-regional economic zone around the Yellow Sea and have dealt with issues of trade, investment, and industrial cooperation. Recognizing the need to coordinate development efforts by national or local governments, those studies have proposed diverse strategies and policy measures to promote cooperation between city-regions within the Yellow Sea Sub-Region. However, the scope of subject of those studies dealt with only general matters due to wide geographical scope and the lack of city-region data. Only the recent study by the Institute of Geography, China Academy of Science and the Korea Research Institute for Human Settlements dealt with city-level issues. In the mean time, individual cities in the Yellow Sea Sub-Region have formulated their own development strategies and plans to raise their relative position vis-à-vis other cities in the sub-region. Dalian strives for a second Rotterdam in Asia, Tianjin for a major technology and international business center, Qingdao for a financial and trade center, Inchon for a major air-hub city in Northeast Asia, Pusan for a port logistics hub, Fukuoka and Kitakuyshu for centers of logistics and advanced industries. An enormous sum of capital has been committed to support mega-projects within the sub-region. Lacking

2 Introduction coordination and collaboration, some of these projects led to redundancy and unnecessary competition within the sub-region. Even though inter-city associations such as the Mayor-Governor Association of the Korea-Japan Strait Zone and East Asian City Conference are formed, rivalry between cities is still intense. To convert such redundancy and unnecessary competition into a positive force, it is necessary to form inter-city networks within the Yellow Sea Sub- Region. As the trend of global economy moves from independence to interdependence, networking is a key for firms, cities, and nations. Considering the difficulties involved in inter-state relations, it is relatively easier to build networks between cities. In addition, cities are in fact the locus of globalization and regionalization. Through inter-city networks, the Yellow Sea Sub-Region will reap the benefits derived from network economies and synergy effects. Inter-city networking within the sub-region will contribute to regional cooperation and integration in Northeast Asia.

2. Research Topics

Inter-city networks are justified on many grounds. Cities forming network can benefit from each other through increased flows of information, expanded scope of industrial cooperation, close cooperation in infrastructure development, sharing transport and logistics facilities, joint utilization and marketing of resources, and united efforts against external threats to the network. Even though there have been progress in inter-city linkages within the Yellow Sea Sub-Region, the cities in the sub-region did not reach a stage to realize the benefits of network economies. Differences in institutional settings, barriers to the free flows of information and capital, lack of coordinating organizations are some of impediments to inter-city networks within the sub-region. To establish a functioning network of cities, we need to first understand the current status and future development prospects for the cities and regions within the Yellow Sea Sub-Region. Specifically, we will examine the following items in this research.

3 1) Current inter-city linkages and interactions (trade, investment, information, transport, etc.) 2) Industrial structures and infrastructure endowments of the major coastal cities 3) Current logistics conditions in and around the major coastal cities (mainly marine transportation) 4) Current conditions of tourism industry in the major coastal cities and the possibility of inter-city linkages 5) Inter-city cooperation strategies of major coastal cities in the Yellow Sea Sub-Region

3. Research Scope and Purposes

Based on the investigation of the above items, this research will look into ways to coordinate the logistics and tourism function of major coastal cities so as to create synergy effects of logistics and tourism industries of the sub-region as a whole. The desirable pattern of cooperation between the cities and regions within the sub-region will be sought, which means the establishment of an inter-city network in the Yellow Sea Sub-Region. Urban development strategies of individual cities can then be readjusted according to a shared vision of the inter-city network in the Yellow Sea Sub-Region. Although trade and investment are the foremost concern for the cities and provinces within the sub-region, the study does not directly deal with trade and investment issues. Rather, the study focuses on trade and investment facilitation measures such as logistics and tourism. The reason is simple. First, trade and investment cooperation is basically inter-state issues rather than inter-local issues. Removing trade barriers and establishing freer investment environment are current concerns of the national governments of China, Japan, and Korea. Japan has proposed an establishment of Free Trade Agreement between Japan and Korea, whereas Korea’s counter proposal is to establish a larger Free Trade Area including China. At any rate, three countries recently agreed to study the idea of Free Trade Area, which will take some time until the idea is fully discussed.

4 Introduction

Even without such an agreement to free trade and investment, the three countries can benefit greatly through cooperating with each other in transportation and logistics of commodity flows and people movement. Such measures as standardization of logistics system, simplifying exit and entry procedures, and joint use of port and airport facilities would facilitate more efficient transport of people and goods between cities and countries in Northeast Asia, which will reduce intra-regional transaction costs significantly. Even if a free trade agreement is made in the future, it will not be effective without closely integrated transportation system and logistic procedures within the region. The above explanation—essentially less political sensitivity of logistics and tourism—constitutes the second reason for emphasizing logistics and tourism. Given the global trend of integrated logistics across the border, there will be no country to oppose to the principle of cooperation. Opinions can vary between countries depending on the status of logistics infrastructure development. For example, China, being a latecomer in economic development and lacking modern logistics system, may need more time to become fully integrated in regional or global logistics system. Nonetheless, China will benefit greatly from integrating with neighboring countries. Tourism has similar characteristics. Since tourism resources are non- movable, cooperation does not pose a threat to any city or country. Instead, cooperation brings benefit to all participating parties. On the other hand, logistics and tourism share more or less the same set of transport infrastructure and institutional environment concerning the movements of goods and people. This is why we have chosen these two specific areas as the first target of inter- city cooperation in the Yellow Sea Sub-Region.

4. Research Methods and Collaboration

The major coastal cities in the Yellow Sea Sub-Region include Dalian, Tianjin, Qinhuangdao, Qingdao, Inchon, Pusan, Fukuoka, and Kitakyushu. 1 These

1 Tianjin and Qinghuangdao are important gateway cities for the Beijing region and Hebei Province. Because of practical constraints in conducting a joint research among the three

5 cities, with million-plus population, play an important role in industrial production and logistics in the Yellow Sea Sub-Region. Other large cities such as Beijing and Seoul located within the YSSR may be included for analysis when needed. Since those cities mentioned above serve as a gateway to a larger hinterland respectively, we assume it will be sufficient to examine the possibility of cooperation among them at an initial stage. As mentioned earlier, the primary objective of the research is to derive joint policy recommendations among the cities under investigation. To achieve this objective, it is essential to conduct a joint research with those cities and relevant research institutes within the YSSR. Therefore, the research has been carried out jointly by the three research institutes: the Korea Research Institute for Human Settlements (KRIHS), the Institute of Spatial Planning and Regional Economy (ISPRE) under the State Development and Planning Commission of China, and Kyushu Economic Research Center (KERC) in Japan. Each institute conducted analyses on the selected cities and proposed policy recommendations for individual cities as well as for the whole sub-region. In order to facilitate discussion among researchers, meetings were held in Beijing, Pusan, and Fukuoka. Secondary data published by the official governmental agencies were used and additional information on the logistics and tourism industry at the city level were collected through a small field survey, which was jointly conducted by KERC and ISPRE in China and by KERC and KRIHS in Korea. Since the research attempts to provide policy inputs for both central and local governments and business communities in the YSSR, local participation is actively sought. During the research process, we could manage to have local institutions involved in the research such as Dalian and Qingdao municipal governments, Pusan and Inchon Development Institutes representing the local views. In Japan, Fukuoka and Kitakyushu’s key research institutes such as Asia-Pacific Center and the International Center for the Study of East Asian Development participated in the meeting. Reflecting upon the inputs provided by the local institutes, the study is expected to provide more balanced views on inter-city cooperation in the YSSR sharing local, national, and regional

institutions, they were not included for analysis.

perspectives.

CHAPTER 2

Dynamics of the Yellow Sea Sub-Region Formation

1. Regionalization of the World Economy and Northeast Asia

Together with the globalization trend supported by the advance of information technology, regionalization is now a worldwide phenomenon. Although regionalism may become an obstacle to the global economic integration, regionalization can be interpreted as an intermediate stage before global integration. It is known to be more than 150 regional economic blocs of one form or another. Out of these, EU (European Union), NAFTA (North America Free Trade Agreement) and MERCOSUR are major ones. Even though AFTA (ASEAN Free Trade Agreement) exists in Asia, it is not as cohesive as EU or NAFTA. Despite a substantial population and economic share of the world, economic complementarity, and geographical proximity, countries in Northeast Asia— mainly China, Japan and South Korea—have not formed any regional bloc or free trade agreement yet(Table 2.1). Historical, political, and psychological factors in addition to economic factors such as trade imbalance are responsible for the absence of formal regional institutions. Given the fact that intra-regional trade and investment have increased rapidly in recent years and the recognition for economic cooperation has been shared among the countries in Northeast Asia, it is not outrageous to expect some kind of regional economic bloc in the future, if not in the near future. As

shown in Table 2.2, Northeast Asia has a much larger population than EU and NAFTA. Although Northeast Asia has a smaller share of world GDP, its share in world trade is larger than that of NAFTA. The position of Northeast Asia in world trade is estimated to be more pronounced in the future (DRI, 1997).

Table 2.1 Major Economic Indicators of Northeast Asia

Country or Area Population GDP Export Region (km2) (1000persons) (billion $2) (million $) Year 1996 1999 1998 1998 China 9,596,960 1,265,979 959.0 183,757 Hong Kong 1,070 6,339 166.4 174,175 Taiwan 361,790 21,983 261.4 109,809 Japan 377,800 126,187 3783.0 387,965 South Korea 99,260 46,858 320.7 133,223 North Korea 120,540 23,566 22.3* 560 Mongolia 1,566,500 2,680 1.0 418 Russia 17,075,400 146,720 276.6 73,900 Far East 6,200,000 7,630# - - Note : ‘*’ means GNP and ‘#’ figure for the Russian Far East is for 1995. Source : Far Eastern Economic Review (2000. 4. 20) National Statistical Office, Republic of Korea / International Statistics Yearbook (1999) IMF / International Financial Statistics (1999. 6) Taiwan / Financial Statistics (1999. 4) World Bank, 2000 World Development Indicators CD-ROM

Table 2.2 Northeast Asia Compared with Major Regional Blocs

% Share of % Share of % Share of Intra-regional World World GDP World Trade Trade

Population Dependency 1997 1997 1997 1997* NAFTA 6.8 33.2 19.1 44.1 EU 6.5 28.0 36.1 59.9 NEA 18.6 19.2 24.0 18.79** Note : * Amount of intra-regional trade divided by the total amount of trade. ** This is only trade among the three countries of China, Japan, and South Korea. Source : Lee, 1999 and Chung, 1999

In addition, the trend of growth in intra-regional trade and investment in

2 The currency in $ is U.S dollars hereinafter.

8 Dynamics of the Yellow Sea Sub-Region Formation recent years indicates an increasing degree of economic integration within Northeast Asia. At the moment, Northeast Asia, however, is behind EU or NAFTA in terms of intra-regional trade dependency, which is often used as an indicator of regional bloc formation. These three countries—China, Japan, and Korea—reveal a high trade dependency on the U.S. Certainly, this makes them difficult to form an economic bloc (Chung 1999). But the trend in the 1990s indicates an increasing intra-regional interdependency in Northeast Asia and this trend is expected to continue in the 21st century. An interesting point to note is that Japan’s role as an import market is not significant despite its economic size. Furthermore, there will be a larger role to be played by the Chinese economy and a lesser role by Japan in the coming decades. In other words, China will post its importance in intra-regional trade in Northeast Asia (Chung 1999).

Table 2.3 Trade among China, Japan, and Korea

unit : million $, % 1991 China Japan S. Korea World Intra-regional share China 20,249 3,242 135,633 17.3 export 10,218 2,176 71,842 17.3 import 10,031 1,066 63,791 17.4 Japan 22,809 32,399 548,498 10.1 export 8,593 20,060 314,395 9.1 import 14,216 12,339 234,103 11.3 S. Korea 4,442 33,466 152,923 24.8 export 1,002 12,355 71,672 18.6 import 3,440 21,111 81,251 30.2

1998 China Japan S. Korea World Intra-regional share China 58,025 21,287 323,894 24.5 export 29,718 6,266 183,589 19.6 import 28,307 15,021 140,305 30.9 Japan 57,261 27,542 668,411 12.7 export 20,182 15,400 387,927 9.2 import 37,079 12,142 280,484 17.5 S. Korea 18,428 29,078 225,595 21.1 export 11,944 12,238 132,313 18.3 import 6,484 16,840 93,282 25.0 Source : For 1991, UN, International Trade Statistics Yearbook(1992) and for 1998, IMF, Direction

of Trade Statistics Quarterly (1999. 12)

10 Dynamics of the Yellow Sea Sub-Region Formation

Furthermore, intra-regional investment is still relatively low despite high economic complementarity. For example, Japan’s direct investment in China and Korea recorded only 2.6% and 0.7% of total Japanese overseas direct investment in 1998, which has increased until 1997 (Table 2.4). China, however, became an important destination of Korea’s overseas direct investment, consistently taking up more than 10% of Korea’s total overseas direct investment since 1992. China, on the other hand, is mainly a receiving end of foreign direct investment. For the time being, intra-regional investment will depend on Japan and Korea’s investment in China and the two countries’ investment in each other. Investment in the manufacturing sector accounts for a major portion of Japanese and Korean investment in China. Anticipating China’s rapid economic growth and industrial restructuring, more Japanese and Korean investors will be interested in China’s manufacturing capability. If China opens up its construction market, foreign direct investment in infrastructure building will become activated and Japan and Korea are likely to be major investors in China’s social overhead capital construction. Apart from the factual basis, there is a shared recognition for some kind of economic cooperation among Northeast Asian countries such as China, Japan, and Korea at least. There have been rising concerns about financial stability after the Asian economic crisis in 1997. A recent meeting among financial ministers in Chiang Mai discussed ideas of foreign currency lending and currency swap to help out each other for any future financial emergency in Asian Development Bank member countries (Chungang Daily May 7, 2000). Another idea of long-term economic cooperation was discussed during the summit in Manila late 1999. The leaders of three countries—China, Japan, and Korea—agreed to carry out a joint study to look into the possibility of free trade area among the three countries.3

3 President Kim of the Korean government made this agreement in the summit of the three countries in Manila in 1999. Japan has earlier proposed to Korea for a free trade area between Japan and Korea.

Table 2.4 Investment Trend in Northeast Asia unit : million $ Inbound Investment Country 1991 1992 1993 1994 1995 1996 1997 1998 1999 China World 4,366 11,007 27,515 33,767 37,521 41,726 45,287 45,487 - Japan World 4,339 4,084 3,078 4,155 3,930 7,085 5,605 10,239 - World 1,116 803 728 991 1,358 2,309 3,088 5,215 10,357 South China 1 3 2 2 7 3 3 3 13 Korea Japan 203 174 157 340 338 279 236 423 806

unit : million $ Outbound Investment Country 1991 1992 1993 1994 1995 1996 1997 1998 1999 World 42,211 34,989 37,333 41,882 52,698 49,728 54,739 39,851 - Japan China 584 1,090 1,757 2,625 4,592 2,600 2,015 1,041 - S. Korea 265 230 260 411 460 430 449 296 - World 1,115 1,219 1,262 2,300 3,072 4,248 3,230 3,893 2,482 South China 42 141 264 632 824 836 633 631 289 Korea Japan 12 28 6 58 105 81 64 23 48 Note : ‘*’ data of Korea are set on the basis of ‘total invested cases’. ‘-’ means ‘not available’. Source : Ministry of Finance & Economy, Republic of Korea, Outward Direct Investment (1999.12) Ministry of Commerce, Industry & Energy, Republic of Korea, Trends in Foreign Direct Investment (2000.2)

Despite these encouraging signs, the short-term prospect for forming a free trade area in Northeast Asia is not bright hindered with obstacles and problems. Foremost of these is China’s reluctancy in joining a free trade agreement. We have to wait until China integrates further with neighboring economies, resolves the Taiwan-Mainland question, and transforms its socio- economic system compatible with those of neighboring economies such as Japan and Korea. Nationalism prevalent in those three countries is also an obstacle to economic integration. Trade imbalances between these countries are pending problems to be resolved before making an agreement on free trade area.

12 Dynamics of the Yellow Sea Sub-Region Formation

2. The Emergence of Sub-Regional Economic Zones (Cross-Border Regions) and the Position of the Yellow Sea Sub-Region in Northeast Asia

In more general terms, the absence of formal regional economic organization in Northeast Asia reflects the difficulties involved with the state-led economic cooperation. Because of diverse political interests, historical backgrounds, and socio-economic systems, East Asian countries including China, Japan and Korea are unable to form either trading blocs or an integrated region. An alternative approach, which led to successful results in East Asia such as SIJORI (growth triangle composed of Singapore, Johor in Malaysia, and Riau in Indonesia) and SCGT (Southern China Growth Triangle composed of Hong Kong, Guangdong, Fujian and Taiwan), is possible in Northeast Asia. Unlike inter-state agreements to trading blocs, sub-regional economic zones do not require national changes in institutional and administrative arrangements. Moreover, sub-regional economic zones can be established at lower cost and in less time than formal trading blocs (Tang and Thant 1998). This alternative approach, which may be characterized as locally-driven model, is already in place in Northeast Asia. Even though the locally-driven approach does not mean the exclusion of the central government, 4 it is basically governed by local and sub-national actors such as local authorities, firms, and residents of cities and provinces.5 As observed in SIJORI and SCGT, private and local initiatives play much more important roles in shaping inter- local exchanges and cooperation in sub-regional economic zones. The role of large companies, in particular, multinational companies, is crucial in bringing a sub-region into an integrated economic zone. Such a locally-driven and spontaneous process of economic integration is in progress in Northeast Asia. One is centered around the Yellow Sea and the other centered on the East Sea (Japan Sea). The Korean peninsula is involved in both sub-regions. The YSSR (comprising China’s Bohai region, the western

4 The political will of the national governments of Singapore, Malaysia, and Indonesia was an important element in the formation of SIJORI. 5 McGee et al. (1999) discount the possibility of region building based on state initiatives. Instead, they emphasize the potential to build a virtual region based on spontaneous interactions & local actions by citizens.

part of the Korean peninsula, and the southwestern part of Japan) seems to have better prospect than the ESSR (comprising China’s northeastern part, the eastern part of the Korean peninsula, the Russian Far East, and the western part of Japan) in two respects.6 One is the existence of large cities and the other is better infrastructure endowment. As will be discussed in detail later, the YSSR with a population of approximately 300 million persons is a potential powerhouse capable of rivaling both EU and NAFTA (Friedmann 2000). In fact, the YSSR has a strong industrial base and a potential to become a leading manufacturing zone in the world. Therefore, a successful formation of an integrated economic zone in the YSSR will pave the way for a successful economic cooperation in Northeast Asia.

YSSR

ESSR (JSSR)

Figure 2.1 The Yellow Sea Sub-Region and the East Sea Sub-Region

6 The population of the ESSR is about 100 million persons.

14 Dynamics of the Yellow Sea Sub-Region Formation

In contrast, it will take some time until the ESSR realizes its potential despite its huge potential for resources development. The constituent parts of the ESSR are relatively underdeveloped and sparsely populated: the western part7 of Japan is underdeveloped compared with its eastern part; the eastern part of the Korean peninsula8 is also less developed in comparison with its western part; and the Russian Far East is also underdeveloped and sparsely populated. Local and international efforts made by UNDP in the past decade did not bring significant results in the sub-region.9 The above comparison of the YSSR and ESSR clearly indicates the importance of the YSSR in the economies of Northeast Asia. This does not, however, mean to devaluate the potential role of the ESSR in the future. Since energy is an important element for sustainable economic development of the countries in Northeast Asia, the joint development and utilization of Russia’s natural gas will be a catalytic project that will promote economic cooperation in the ESSR as well as in Northeast Asia as a whole.

3. Geographical Boundary and Major Characteristics of the Yellow Sea Sub-Region

The geographical boundary of the YSSR is not clearly set. Some define the boundary in an extensive manner to include Shanghai, Jiangsu, Shandong, Hebei, Liaoning, Beijing and Tianjin in China, the southwestern part of Japan, and the whole Korean peninsula (Kyushu Bureau of MITI 2000). If we focus on the coastal part of the Yellow Sea rim, we can define the sub-region more narrowly, including only Liaoning, Hebei, Tianjin, Shandong, the northwestern part of Kyushu, and the western part of the Korean peninsula.10 This study,

7 The western part of Japan includes the area facing the East Sea (The Sea of Japan). 8 Hambuk, Hamnam, Kangwon, and Kyongbuk provinces can be included in the eastern part of the Korean peninsula and their combined population is about 5 million persons. 9 Local-level efforts in Niigata in Japan, Kangwon Province in South Korea, and Hunchun in China did generate some positive results in inter-local linkages and cooperation but they did not produce a critical mass to sustain the momentum of cross-border regional formation. The thawing of North-South Korean relations and infrastructure investment in key nodal points would certainly give a boost to the sub-regional economic cooperation in the ESSR. 10 If we focus on port cities, we may exclude the eastern part of the Korean peninsula. In terms of

however, covered a little wider geographical area for the sake of analysis including Liaoning, Hebei, Tianjin, Beijing, seven prefectures11 of Kyushu plus Yamaguchi prefecture, and the Korean peninsula. The assumption behind this definition of geographical boundary lies in the hinterland of major port cities in the Yellow Sea. For the reasons of the non-availability of information and its political isolation, North Korea is not included in the analysis.

1000km Vladivostok ●

Shenyang

Beijing Qinhuangdao N.KOREA Dalian Pyongyang Tianjin Nampo 500km Inchon Seoul Jinan Yantai

Qingdao S.KOREA Kwangyang JAPAN Pusan

CHINA Fukuoka Kitakyushu

Shanghai

Figure 2.2 The Geographical Boundary of the Yellow Sea Sub-Region

trade and investment, the whole Korea perhaps with an exception of Kangwon and Kyongbuk provinces is involved in the YSSR. This is why we do not attempt here to delineate the western part of Korea arbitrarily. 11 The seven prefectures are Fukuoka, Saga, Nagasaki, Kumamoto, Oita, Miyazaki and Kagoshima.

16 Dynamics of the Yellow Sea Sub-Region Formation

According to the above definition, the YSSR has a total population of 280 million persons, which accounts for 19% of the total population in Northeast Asia. In terms of Gross Domestic Product, the YSSR’s share in Northeast Asia is about 18%. The YSSR is also an important sub-region in terms of export, accounting for close to 20% of Northeast Asia’s total export. In the world economy, the YSSR’s position is not outstanding but it has a great prospect to become a manufacturing zone, possibly with a strong knowledge component in the near future. As of 1998, the YSSR accounted for 4.7% of the world’s population and only 3.6% of the world’s gross domestic product. Notable, however, is the importance of the YSSR in a few manufacturing industries. The combined output of China, Korea, and Kyushu accounted for 46.5%, 20.3%, and 8.2% of the world’s shipbuilding, steel production, and automobile production respectively. Given with such a large industrial production capacity and numerous urban agglomerations of population over one million persons, the YSSR has a potential to become a major manufacturing zone in the world. As envisioned by a few planners (Kim 1991 and Kyushu Bureau of MITI 2000), this potential of the YSSR can be realized when efficiently supported by technological, production, and logistics networks within the region. Looking into the three constituent parts of YSSR closely, we find a great potential for economic cooperation as well as concerns with imbalances in the long-run (Table 2.5). For example, the Chinese part, accounting for 78% of the YSSR’s total population, produced only 22% of the YSSR GDP and generated 19% of the YSSR export in 1998, whereas the Kyushu region accounted for 45.6% of the YSSR GDP with only 5.4% population. Korea produced and exported much more than its population share in the YSSR. In other words, the Chinese portion of the YSSR provides a source of labor supply and a base for land-consumptive activities with its large population and land area. Japan and Korea in the YSSR, on the other hand, provide a source of capital and technology. Although we expect that Chinese portion of the YSSR will catch up with Kyushu and Korea sooner or later, those macro-level intra-regional imbalances will raise an issue regarding the mode of economic cooperation within the YSSR. The Chinese part of the YSSR covering Liaoning, Hebei, Shandong,

Beijing and Tianjin is known as the Bohai economic region occupying one of the three important economic regions together with the Shanghai region and the Pearl River Delta region (Kim and Kwon 1998). Although the Bohai region has a large population and industries, it is lagging behind the Shanghai and the Pearl River Delta region in terms of economic growth and external opening. One negative feature in the Bohai region, especially in Liaoning province, is a large share of state-owned heavy industries in the regional economy. In other words, the Bohai region’s future depends on the successful transformation of those state-owned industries. The region’s population over 200 million and a strong industrial base, however, provides a big enough market and production potential. As indicated in the export and FDI figures, the Bohai region has been catching up with its southern counterparts through actively seeking economic cooperation with neighboring countries such as Korea and Japan. Japan’s Kyushu region, which occupies roughly 10 percent of Japan’s economy and population, has served as a base of Japan’s heavy industries such as steel and chemical industries. Recently, however, the region attracted many automobile and IC (integrated circuit) -related firms, making the region one of the important car assembly bases in Japan. On the whole, Kyushu is not a manufacturing-centered but a service-centered economy. The service industries made up a 71.9% share of gross regional product in fiscal 1996. With well- endowed infrastructure and advanced technology base, Kyushu is expected to play a leading role in industrial cooperation in the YSSR (Kyushu Bureau of MITI 2000). Korea, which has 47 million population and $ 321 billion GDP, plays an important role in the YSSR. Geographically and economically, Korea is located between Japan and China. Korea’s medium technology and modest capital are one of the important sources for the economic development of the Bohai region. The geographical position of Korea is also important in constructing networks within the YSSR, whether they are tangible or intangible. As revealed in the inter-country trade among China, Japan, and Korea, there exists an economic complementarity within the YSSR. The degree of complementarity is much higher between Japan and China, while somewhat lower between Japan and Korea and between Korea and China. Taking a long- run view, Korea’s position is relatively weak compared with those of Japan and

18 Dynamics of the Yellow Sea Sub-Region Formation

China because it has an overlapping area to compete against both China and Japan (See the section below). In a sense, Korea has to make more efforts towards building up cooperative economic networks than China and Japan.

Table 2.5 Major Indicators of Yellow Sea Region

Foreign Direct Area Population GDP Export Investment

Utilized,

2 (million Cumulative at the Region (1000km persons) (billion $) (billion $) End of '91 & '98 ) (billion $) 1991 1998 1991 1998 1991 1998 1991 1998 China 9,600 1,158 1,248 406.3 958.9 62.1 183.8 43.7 454.6 Liaoning 147.5 39.9 41.6 20.2 46.9 5.6* 8.1 3.5 21.9 Hebei 187.9 62.2 65.7 18.1 51.4 1.7* 3.1 0.4 14.3 Shandong 157.2 85.7 88.4 29.5 86.5 3.5* 10.4 1.8 22.0 Beijing 16.4 10.9 12.5 10.5 24.3 1.3* 10.5 2.4 21.7 Tianjin 11.9 9.1 9.6 6.3 16.1 1.8* 5.5 1.3 21.1 Subtotal 520.9 207.8 217.8 84.6 225.2 13.9 37.6 9.4 101.0 Japan 377.8 124 126 3,478.6 4,672.7# 314.5 386.9 - - Kyushu 7 prefecture 48.3 14.9 15.0 331.6 458.7# 14.6 23.9 - - + Yamaguchi Korea 99.3 43.3 46.9 295.1 321.3 71.9 132.3 - 32.5^ YSR Total 668.5 266.0 279.7 711.3 1,005.2 100.4 193.8 - - Note : * indicates figures for 1990. # indicates figures for 1996. ^ indicates the cumulative foreign direct investment figures up to January 2000. ‘-’ means ‘not available’. Source : compiled from various sources provided by ISPRE and KERC.

4. Recent Development and Future Prospects for Economic Cooperation in the YSSR

The Process leading to the formation of the YSSR

Although the YSSR is not emergent yet like the growth triangle of Singapore- Johor-Riau or the Southern China Growth Triangle, it has been in formation since the 1990s. The normalization of diplomatic relations between China and

the Republic of Korea in 1992 gave an impetus to the process of sub-region formation, although Japan already established closer economic cooperation with China in the 1980s. The timing was also favorable because China’s Bohai region was actively seeking foreign direct investment and Korean firms were seeking low production costs sites due to industrial restructuring in the country. The process leading to the sub-regional formation since the 1990s has been fundamentally market-driven. It was private firms who sought to exploit natural economic complementarities, even though governments unilaterally helped reduce barriers of trade and investment. The locally-driven process indeed has made a significant progress during the 1990s. For example, trade and investment across the Yellow Sea have increased remarkably over the years to exploit economic complementarity among the three partners. In terms of trade, information is not available at a city or provincial level, but we can infer from the volume and structure of trade between the countries. Between 1991 and 1998 (Table 2.5), there has been a remarkable growth in trade between China and Korea. Trade between China and Japan has also substantially increased. Trade volume between Japan and Korea, however, was up till 1997 but fell in 1998 because of the Asian financial crisis. We can observe a similar trend at the sub-national level. For example, Kyushu, which publishes data on trade, has been deepening its trade relations with China and, in particular, with the cities in the YSSR (KERC 2000). Although Kyushu’s trade with Korea has not recently been growing much, its share in the total amount of trade between Japan and Korea has continued to mark around 40% in the 1990s. National trade statistics reveal that Japan has comparative advantage in industrial machinery, communication equipment, steel, plastic, rubber and precision machinery, while Korea has comparative advantage in steel, apparel, electrical machinery, and communication equipment. As such, there exists a competition between Japan and Korea in certain industries also with a strong complementarity between both China and Japan and China and Korea (Kim et al. 1998). This complementarity is clearly revealed in trade between Kyushu and China. Kyushu exports to China mostly general machinery, chemicals, steel, electrical and precision machinery, while it imports from China fishery, apparel, electrical machinery, and fuels. Given the heavy-industry oriented structure of

20 Dynamics of the Yellow Sea Sub-Region Formation

China’s Bohai region, we may guess trade within the YSSR contains both elements of vertical and horizontal division of labor. In fact, national-level data indicate that intra-industry trade has been growing among the three countries in such commodity groups as steel, chemicals and electrical machinery (Kim 1998). With regard to investment, China’s Bohai region hosted about two-thirds of Korea’s foreign direct investment in China, while it attracted about 40% of Japanese investment. Korea’s investment in the Bohai region is largely from the capital region of Korea, where industrial restructuring took place rapidly. In terms of investment, the Chinese cities along the Yellow Sea Rim are Kyushu firms’ favorite destinations, accounting for almost 40% of Kyushu’s direct investment in China (KERC 2000). Both Korean and Japanese investors have shown a greater interest in China’s manufacturing sector, indicating the possibility of closer economic integration within the YSSR. One nagging point, however, is the meager presence of Japanese investment in Korea, especially between cities and provinces across the Korea-Japan Strait. Although high labor costs in Korea is one reason, Korea’s unfavorable investment environment until 1997 would have been another reason for low interest of Japanese investors in Korea.

Underlying forces and motives for cross-border cooperation

As alluded above, economic complementarity among China, Japan, and Korea constitutes an important reason for forming an integrated region in the Yellow Sea rim. In addition, we can list two more reasons. One is geographical proximity. For example, the distance between Pusan and Fukuoka is only 200km, while that between Inchon and Qingdao is about 600 km. It takes about 7 hours by fast-speed boat. Another reason for supporting the emergence of an economic region lies in the history of coastal trade and cultural exchange along the Yellow Sea rim. Sharing common cultural roots, cities and provinces in the YSSR have a bright prospect for inter-local cooperation across the sea. Indeed, we can trace back to the history more than two thousand years ago, when coastal cities in the YSSR exchanged commodities, technology, and people. The focal points of this coastal trading included the Liaodong peninsula,

the Shandong peninsula, the Korean peninsula, and the Kyushu island of Japan. Even though there were battles over the control of sea routes, the Yellow Sea was most times the channel for trade and travel. The heyday of the coastal trading was the period of Shilla in Korea (669-935 AD), Tang in China (618- 907 AD), and Yamato-Nara-Heian period in Japan (646-856 AD) (Yoon 1999). It was ironically since the 15th century, during which cross-border inter-city networking began in Europe along the Mediterranean Sea, that Northeast Asian countries lost impetus for cross-border inter-city networking. This period can be characterized with the stabilization of centralized administrative systems in Northeast Asia, namely Ming and Qing Dynasty in China, Choson Dynasty in Korea, and Tokugawa Bakufu in Japan. Based on these reasons, namely economic complementarity, geographical proximity, and cultural affinity, 12 it is not presumptuous to assume the emergence of the YSSR or the revival of inter-city networks along the Yellow Sea, as one phrased it as “Mediterranean of East” (Yoon 1999). On top of this, we observe strong economic motives among cities and provinces within the YSSR. Cross-border cooperation can help create conditions for growth by enlarging local markets, pooling resources, and more efficient use of labor and capital.

Obstacles to the full integration of the YSSR

Different socio-economic systems, relatively closed national markets, weak local authority and responsibility, and underdeveloped and less-integrated infrastructure in Northeast Asia still hinder inter-city network formation in the YSSR (Rozmann 1999a). Trade barriers are still high in China, Japan and Korea and some markets are closed for non-tradable goods and services. Entry and exit procedures are cumbersome and time-consuming. These barriers and relatively closed markets (notably air transport market) are not conducive to international and inter-local cooperation. Furthermore, short-run profit motivation and weak internationalism combined with preoccupation with local and national interests are hindering

12 Although these three are not sufficient and necessary conditions, they are important qualities for successful sub-region formation in East Asia (Thant, 1998).

22 Dynamics of the Yellow Sea Sub-Region Formation cross-border cooperation in the YSSR. For example, most of internationalization efforts made by China, Japan, and Korea are designed to secure local or national interests rather than inter-local or inter-national interests. There have been few genuine efforts exerted by localities and residents to fully understand the culture and institutions of other localities in neighboring countries despite the rhetoric of internationalization and regionalization (Rozmann 1999b). Cross-border cooperation is often conceived as a promotion strategy of a city or a province in all three countries. Although self-interest or self-promotion is inevitable to a certain extent, narrow self-interest is not conducive to creating agreements, let alone common goals and visions, among cities across the border.

Competition and cooperation in the YSSR

The main thrust among the cities in the YSSR is at the moment competition rather than cooperation. Every city in the region attempts to win from the inter-city competition. The major problem in this competition-based approach can be described by the prisoners’ dilemma. A zero-sum game resulting in winners and losers is bound to escalate competition, which in the end is likely to hurt not only losers but also winners, since resources and energies are unnecessarily spent for excessive rivalry and redundancy. Ambitious port expansion plans in major coastal cities of the YSSR, for example, illustrate the possibility of excessive competition. Another case of excessive competition can be anticipated in a few manufacturing industries such as electronics, car assembly and components, and machinery. If this happens, the YSSR as a whole will suffer from excess capacity and the resultant overall inefficiency. Such win-or-lose game may be avoided if cooperation is in force. Through cooperation, we may find an alternative solution. For instance, if port cities in the YSSR came to agreements to utilize each other’s port facilities, they would avoid duplicating investment in the same facilities. Even though not all the cities recognize this potentiality yet, all the cities agree to the principle of competition with cooperation. Thus, the task ahead is to promote dialogue and discussion among cities and nations in the YSSR. Although we are not necessarily advocating that inter-local cooperation is the only mode of

cooperation, we nonetheless promote a locally-driven approach in conjunction with inter-state approach. A few promising signs can be noted in the YSSR. For instance, there has recently been significant growth in the number of inter-city sisterhood relations and larger associations of cities and provinces in the YSSR. 13 As the democratization and decentralization trend in Japan and Korea continues, more latitude and discretion are given to local authorities. In turn, this will help these localities pursue cross-border cooperation without relying too much on the central government. In the longer-term, with high regional consciousness among the residents of the YSSR and a strong will of local authorities, the process of cross-border cooperation and consequently, sub-region formation is likely to be accelerated.

13 Examples are the East Asian City Conference including the cities of Kitakyushu, Shimonoseki, Dalian, Qingdao, Inchon and Pusan (Tianjin, Yantai, Ulsan joined later) and the Governor’s summit of the Korea-Japan Strait including Fukuoka, Saga, Nagasaki, Pusan, Chollanamdo, Kyongsangnamdo, and Chejudo.

24 Dynamics of the Yellow Sea Sub-Region Formation

CHAPTER 3

Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

1. Enlarged Spaces of Production, Distribution, and Travel

Although national boundary is much more rigid in Northeast Asia than in EU and NAFTA, it has recently become porous. Now, capital is almost free to move around and in fact firms are investing across the national boundary. As discussed in Chapter II, Japanese and South Korean investors have established joint ventures or independent firms in China. These joint ventures and independent firms procure raw materials and parts partially from China, mother companies, or third countries. In case of Korean-invested firms in Shandong Province, the ratio of local procurement is known to be relatively low. Also low is the Korean-invested firms’ sales of products in Chinese market. In comparison, Japanese-invested firms tend to procure larger proportion of raw materials and parts from China and to sell more products to the Chinese market (Kim and Kwon 1998). Despite these variations, integrated production networks are developing in the YSSR through foreign direct investment. Trade, on the other hand, promotes the international division of labor along comparative advantages. Industrial specialization is taking place within the YSSR, although there exists competition in certain industries. Increased trade requires an efficient transportation of goods between countries and between port cities and inland cities within a country. The rapid growth of marine and air transport among China, Japan, and Korea in the 1990s attests the close relationship between trade and transportation. There are now 10 marine

25 connections among the ports within the YSSR, together with 11 air connections among the major cities within the YSSR. These transport linkages are growing in parallel with the growth of trade, investment, business and tourist travel. In other words, the geographical scope of production and travel has enlarged substantially in the YSSR since the 1990s. In fact, the YSSR can become a one-day travel zone with the availability of round-trip air transport. Businessmen can fly from Fukuoka in the morning, do business in Dalian, and come back to Fukuoka in the evening. Even a one-day boat trip is possible between Pusan and Fukuoka. As such, the YSSR has an opportunity to become an integrated region with networks of trade, investment, business, logistics, tourism, and so forth. Yet, there are obstacles and shortcomings to overcome. Some are related to hardware such as port facilities and others to software such as entry and exit procedures.

2. Cities as a Basic Unit for Networking and Regional Integration

Inter-city networking by the public sector is seen as being primarily in economic intent and is designed to generate network economies, lower transaction costs, and economies of scale through sharing resources and controlling competition (Cappellin 1994a). More broadly, the main purpose of inter-city networking can be understood to promote and facilitate the integrated and sustainable development of the region encompassed by such a network (Friedmann 2000). This is indeed what has been observed in the formation of European Union. It was not just nation-states but cities as well that played an important role in European integration. Cities, a basis for regional integration, are the first and essential political and institutional contact for those who choose to move. Local authorities in cities can play a vital role in developing dialogue between cities of different cultures and political-economic systems (Eurocities 2000, Friedmann 2000). Such conception of inter-city networking follows closely the notion of inter-firm or inter-institution networks. 14 A basic assumption of network

14 Network concept is mostly developed in the literature on organizational theory. The concept is often discussed with reference to markets and hierarchy, which were fully elaborated in

26 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR relationship is that parties involved are mutually dependent upon resources controlled by another and that there are gains to be had by the pooling of resources, whether they are capital, technology, management know-how, or infrastructure (Powell 1990). This interdependency is a criterion, by which we can distinguish two types of inter-city networks. One type is of common interests such as combating for industrial decline, promoting economic growth, and protecting urban environment. The other is to improve competitive position or sustainability of cities included in the network. The latter involves some degree of integration, while the former may not necessarily require interdependency and integration. For example, EUROCITIES15 is the former type. Networking in EUROCITIS aims to open up new horizons and generate great ideas and innovative solutions to tackle common problems and seize common opportunities (EUROCITIES 2000). The latter type pursues regional integration and thereby network economies. Cross-border inter-city networks include the Transmanche region between the southeastern England and the northwestern France (Church and Reid 1996), along the U.S./Mexican border (Herzog 1990), the North European Oresund region (Maskell and Tornqvist 1999) and a few in Asia (Thant, Tang and Kakazu 1998). All these examples demonstrate that cross-border cooperation encourages a more general internationalization of local spatial development strategies. They also suggest that inter-city cooperation and networking should lead to an improved international profile, which will allow them to operate more effectively in a global arena. We should not, however, forget that cooperative initiatives bring with them new forms of constraint that can affect local autonomy. Also the initiatives pursued by local authorities may face the constraints imposed by the central government. This is why inter-city cooperation in the YSSR is slow. Cooperation clearly requires the resolution of potential political conflict within a network of cities. How to resolve these conflicts would be a complicated issue touching upon the governance over shifting territorial boundaries, which requires another research in the future.16

Williamson’s work (1985). 15 It currently represents 90 cities from 26 European countries and 17 associated members. 16 On the political ramifications of cross-border regional development in the European context, see

3. Profile of Six Port Cities

As introduced in Chapter I, we chose six major port cities to examine the possibility of inter-city networking in the YSSR. Although they are occupying only 3.9% of the land area of the YSSR, they have a population of 21million (7.5% of the YSSR population), produce 16.5% of the YSSR GDP, and export about 15% of the YSSR (Table 3.1). These port cities function as a gateway for much larger hinterland area (for example, Dalian for China’s Northeast region) and they are nodal points for foreign trade and business. This means they share common concerns with the logistics of goods within and outside the YSSR. Also shared among them is a concern with the conservation and proper development of resources such as waterfront. The foremost concern of these cities is, however, sustainable economic growth. With different industrial structures, levels of development, and locational assets, they adopt different strategies for urban development and international collaboration. Nonetheless, all of them aspire to become a hub port in the YSSR. In the following, we will examine briefly the general features of the six port cities in terms of population, economy and industrial structure. External economic relations of these cities are also examined with available information on trade, investment, and travel. The current condition and future plan for logistics and tourism industry are also briefly discussed.

Table 3.1 Profile of Six Major Port Cities

Area Foreign Direct Population GDP Export Investment Utilized, 2 (1000km Cumulative at the End City (mil. persons) (billion $) (billion $) ) of '91 & '99 (billion $) 1991 1998 1991 1998 1991 1999 1991 1998 Dalian 12.6 5.2 5.4 3.8 11.3 1.7 4.5 3.9 14.2 Qingdao 10.6 6.7 7.0 3.7 10.6 0.3 3.8 0.9 8.5 Inchon 0.96 2.0 2.5 11.8 25.5 3.1 5.7 - 0.8 Pusan 0.75 3.8 3.8 21.5 24.2 6.5 5.1 - 1.0 Fukuoka 0.34 1.2 1.3 42.5 59.4 2.2 3.7 - - Kitakyushu 0.48 1.0 1.0 27.6 34.9 4.2 5.8 - - Note : ‘-’ means ‘not available’. Source : Compiled from data supplied by each city

Church and Reid (1996) Cappellin and Batey (1994).

28 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

4. Dalian

Dalian with a population of 5.4 million is a key industrial and trade city in China’s northeast region. Dalian’s port serves the whole northeast China comprising Liaoning, Jilin, Heilongjiang, and the eastern part of Inner Mongolia, the population of which is approximately 120 million. Dalian is the origin of the Dalian-Harbin railway and Dalian-Shenyang highway, which constitute the backbone of transport system in the northeast China. Posting the rapid growth rate of 10.8% per annum between 1979-1998, Dalian is gradually changing into a service-oriented economy.17 Dalian, however, is still an important industrial center for petroleum refining, general machinery, electrical machinery, electronics, chemical, and textile industries in China. Within the service sector, tourism is one of the most rapidly growing industries. Given tourist resources such as seashore, urban attractions, hot spring, modern war relics, and cultural sites, Dalian is placing an emphasis on tourism industry. In 1997, there are 400 tourism-related enterprises employing 45,000 persons. The total income generated by both domestic and international tourists was 6.5 billion yuan in 1997, accounting for close to 8% of Dalian’s GDP and 18% of its tertiary sector income. Receipts from 205,000 international tourists alone amounted to $ 200 million. Japan is the major source country for Dalian’s international tourism. 72,000 tourists (accounting for 35% of the total foreign visitors) were from Japan, while 57,400 were from Korea in 1997. Japan and Korea are thus perceived as target markets for Dalian’s tourism industry (Table 3.2 ). The importance of tourism industry in the future urban economy is clearly recognized by the local authority in Dalian. In addition to the direct benefits enumerated above, tourism industry helps improve the investment environment of Dalian through better quality urban environment.18 In line with Dalian’s natural geographic features, the local authority intends to enhance tourism

17 The sectoral composition of Dalian’s economy was 16.2% in the primary sector, 65.8% in the secondary sector and 18.0% in the tertiary sector in 1978, which changed into 11.0%, 45.4% and 43.6% respectively in 1998. 18 Quality urban environment or “created assets” plays an increasingly important role in attracting foreign investment as well as improving the economic competitiveness of cities (Douglass 1999). Created assets not only include physical assets but also entail intangible assets such as innovative

Table 3.2 Situation of Tourist Source Markets for Dalian

Number of overseas tourists Share of overseas (1000 person-time) tourists in Dalian 1996 1997 1997 as % of 1996 1996 1997 Dalian 162.5 205.0 126 100.0 100.0 Japan 77.9 72.0 92 47.9 35.1 Korea 47.8 57.4 120 29.4 28.0 Hong Kong & Macao 19.1 22.3 117 11.8 16.7 Taiwan 10.3 19.0 184 6.3 9.3 Source: Dalian Statistical Yearbook (1998) capacity through the development of two key tour areas —Jinshitan State Tourism and Holiday Zone and Lushunkou Modern War Relics— and five tourism development zones. Convention functions and major events such as Dalian International Fashion Festival will be expanded to attract more visitors and tourists. As one of the 14 open coastal cities, Dalian has achieved a remarkable growth in foreign trade and investment. The value of export reached to $ 44.9 billion in 1998 from $ 1.4 billion in 1985, which is almost 32-fold increase. Dalian’s main export items include mechanical instruments, light industry goods, food and garments. The major trade partners of Dalian are currently Japan, U.S., Norway, and Korea but diversification of trade relations are intended (Table 3.3).

Table 3.3 The Structure of Export Goods from Dalian (1997) unit : million R.M.B. Yuan Items Value Items Value Total 36,069.60 Cereals edible oil and foods 4,261.80 Medicines 582.49 Local and livestock products 1,807.82 Chemicals 1,058.32 Light industry's goods 4,461.34 Equipment 15,528.18 Arts and crafts items 362.12 Mineral goods and metallurgy 2,953.41 Textile products 809.05 Silk 105.85 Garments 4,129.00 Others 10.22 Source: Dalian Statistical Yearbook (1998)

capacities and social capital.

30 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

Table 3.4 The Geographical Distribution of Export and Import Goods from Dalian (1997) unit : million $ Countries or Regions Value Countries or Regions Value Total Exports 3,015.69 Total Imports 2,086.46 Japan 1,629.80 Japan 1,105.35 Norway 233.62 Indonesia 376.20 USA 169.29 Korea 177.99 Singapore 155.03 Hong Kong 101.91 Hong Kong 144.35 Singapore 77.21 Korea 126.15 USA 52.52 Malaysia 102.19 Norway 43.37 Germany 83.46 Source: Dalian Statistical Yearbook (1998)

Regarding the utilization of foreign capital, Dalian has made a significant progress since 1985. The total contract value of foreign capital reached $ 2,520 million in 1998 (Table 3.5). The utilized foreign capital has increased from $ 10 million in 1985 to $ 1,410 million in 1998. In cumulative terms, Dalian attracted $ 9.2 billion by the end of 1998, out of which $ 6.7 billion was foreign direct investment. As such, Dalian ranks fourth in the 15 vice-provincial level cities in China. In result, the share of foreign capital in fixed asset formation in Dalian is high (accounting for approximately 40%). Foreign-invested enterprises numbering 3,600 produced more than 30% of total GDP in Dalian in 1998. They employed about 236,000 persons and generated $ 590 million tax revenue. The major source countries of foreign capital are Hong Kong, Japan, U.S., and Korea, indicating closer relations of Dalian with Japan and Korea. Although these countries place a different sectoral emphasis, manufacturing is the number one sector that drew most foreign investors. Japanese investors showed a particular interest in the service sector such as financing, real estate, and social services.

Table 3.5 Foreign Capital in Dalian unit : million $

1978 1985 1990 1995 1998

The total amount of foreign capital to be utilized - 150 540 2,550 2,520 through the signed agreements and contracts

The total amount of foreign capital actually used - 10 520 910 1,410 Source: Dalian Statistical Yearbook (1998)

Table 3.6 Sources of Direct Foreign Investment in Dalian (1997) unit : thousand $ Countries or Number of Contract Countries or Number of Contract Region Projects Value Region Projects Value Total 812 2,569,970

Hong Kong 157 621,290 Canada 22 77,150

Japan 178 484,910 Singapore 17 73,240

USA 136 458,330 Germany 8 65,300

Korea 159 445,660 Malaysia 5 11,160

Australia 13 99,060 New Zealand 1 18,640

Taiwan 60 90,040 Mauritius 1 12,040 Source: Dalian Statistical Yearbook (1998)

Table 3.7 Sectoral Distribution of Foreign Capital in Dalian unit : thousand $ No. of Contract No. of Contract Sector Sector Projects Value Projects Value Wholesale, Retail & Total 812 2,569,970 153 293,240 Food Agriculture 52 94,080 Banking & Insurance 1 15,000

Mining 1 150 Real estate 32 517,010

Manufacturing 450 1,236,610 Social Service 58 300,270 Science & Building 19 8,270 3 2,210 Technological Service Communication & 1 14,840 Others 42 88,290 Tele Communication Source: Dalian Statistical Yearbook (1998)

32 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

As a gateway to Northeast China, Dalian is one of the 5 largest trade ports in China. Dalian port handled 75 million tons of cargo in 1998, ranking fifth in China. Container cargo handled was 453,000 TEU in 1998. In terms of passenger transportation volume, Dalian is the second in China. In order to meet the growing trade volume, Dalian port has been expanding its facilities since 1980s. After the completion of second-stage expansion scheduled in 2000, the handling capacity will increase by 15 million tons. In the early part of the 21st century, Dalian attempts to establish itself as one of transport hubs in Northeast Asia with a handling capacity of more than 100 million tons. Currently, Dalian port has eight international container lines to Japan, Hong Kong, Korea, and so on. With its several specialized berths, Dalian handles the export and import of grain, oil, container, bulk minerals, timber, cement, and sundry goods for Northeast China. Japan and Korea are the closest partners to Dalian in terms of marine transport. Dalian has container shipping lines to and from Kobe, Yokohama, Nagoya, and Tokyo in Japan and Inchon and Pusan in Korea. Dalian’s container shipping to Japan’s major ports accounted for 43% of Dalian’s total container export in 1998, while to Korea about 22%. In terms of passenger transportation, Dalian ranks number one in China and mainly offers domestic services within the Bohai Sea including the major line connecting Dalian to Yantai. For international passengers, Dalian has a connection to Inchon.19 Although Dalian is not a major international airport, it has international flight connections to ten major cities in Asia. Among them, flights to Japan account for more than 60% of total air travel. Seoul, the only connection to Dalian from Korea, makes about 20% of total air passenger traffic. In the foregoing description, it is evident that Dalian is transforming itself into an open urban economy with closer connections to the international economy. Although the economy of Dalian recorded a two-digit growth rate over the last two decades, a few problems remain to be resolved. Reform and modernization of large state-owned enterprises are the most important ones. Water shortage is another serious problem facing Dalian. As China enters the WTO, Dalian’s industries and enterprises are required to be internationally

19 Cargo ferry between Dalian and Inchon opened in 1995.

competitive. Foreign assistance, especially foreign investment from Japan, Korea, and the U.S., is perceived as essential to rationalize state-owned enterprises and more broadly to accelerate the economic modernization of the city. Clearly recognizing these problems, Dalian’s planners put forward grand strategies for development with four key words: external orientation, port-based economy, economic rejuvenation by science and technology, and cooperative regional development (Wang 1998). They also envision the city as a center of trade and business as well as a transportation hub for Northeast China and Northeast Asia.

5. Qingdao

As a key port to the open economic area of Shandong Peninsula, Qingdao occupies a pivotal position in the economic development of Shandong Province, the population of which is close to 90 million. Taking the full advantage of its geographical location and well-developed land transport network, Qingdao together with Tianjin and Dalian contributes greatly to the development of the Bohai region. With its land transport connection to the trunk rail line of China through Jinan, Qingdao offers an advantage over other port cities in China, perhaps next to Shanghai. Of all the ports in China, Qingdao is the nearest to South Korea. The distance between Qingdao and Inchon is only 96 nautical miles. It is also not far from the port in Kyushu, Japan. As such, Qingdao has an advantageous position in the triangle composed of China’s Bohai region, the Korean peninsula, and Japan’s Kyushu region. Like Dalian, Qingdao has the status of vice-provincial level cities. It covers a total area of 10, 645 square kilometers. Out of Qingdao’s total 7 million population, 2.3 million are living in urban areas. A deep, ice-free, and silt-free port, the temperate climate, and beautiful natural landscape are major assets of Qingdao and they were partly the reasons for German occupation during the early 20th century. With its strong industrial base in textile and other light industries, Qingdao has enjoyed the benefits of China’s economic reform and opening. Indeed, the two-digit economic growth rate of Qingdao in the past two decades testifies

34 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR that. The GDP in 1998 was over $ 10.6 billion. In terms of GDP composition, Qingdao is still dominated by the secondary industry, even though the proportion has declined from 53.3% in 1978 to 46.6% in 1998. The service sector has grown from 23.7% in 1978 to 37.6% in 1998. Based on these features of Qingdao, city planners aim at building a diversified economy comprising port trade, modern industry, well-developed agriculture, financial services, and tourism. As already mentioned, Qingdao is one of the key ports in the northern part of China. The handling capacity of Qingdao port in 1999 was over 100 million tons, ranking sixth in China. In terms of container cargo handling, Qingdao is the second largest in China next to Shanghai, recording the handling volume of 1.5 million TEU in 1999. Out of the total volume of cargo handled in 1998, 43.2% was for foreign cargo. Major export items from Qingdao port include coal, crude oil, ore, cement, grain, and container cargo, while importing mostly cement, fertilizer, steel, grain and aluminum oxide. Given the rapidly growing demand for ocean shipping, local authorities are planning to expand the port capacity to handle 150 million tons by 2010, with container handling capacity of 2.7 million TEUs (Qingdao City 1998). Qingdao is somewhat behind other major cities in China in terms of air transportation. Nonetheless, the growth of passengers by air transport has been very rapid in the 1990s, from 281,000 persons in 1990 to 1,847,000 persons in 1998. Also rapid was the increase in air cargo (averaging about 30% between 1990 and 1998). The current facilities at the Liuting airport are too small to accommodate the growth of air traffic. They require substantial renovation and expansion in order to meet the growing demand for air transport. Recognizing this shortage, local government plans to expand the airport to accommodate 9 million persons by 2010. With such expansion of port and airport, Qingdao attempts to become one of the centers of logistics in the Bohai region. Together with the expansion of port and airport, Qingdao plans to expand its land transport links with the major cities in North and East China. Exploiting the terminal function of Qingdao port in the railway network, Qingdao’s planners envision a logistics center of North China. Qingdao has relatively well-developed highway system in China. By adding more radial routes and loops, a more efficient and faster road network is planned by Qingdao transport

planners. Qingdao is well known for its beautiful natural landscape such as scenic seashore and Laoshan Mountain. Also famous are its German style architecture and attractive urban landscape. An easy connection from Qingdao to Shandong’s other famous tourist attractions such as Taishan Mountain and Qufu (the birthplace of Confucius) is an additional merit. As of 1998, Qingdao’s tourism industry accounted for less than 8% of GDP. The number of domestic tourists exceeded 10 million in 1998, making a major contribution to Qingdao’s tourism revenue. In contrast, the number of foreign tourists amounted to only 200,000 persons in 1998, indicating a need for marketing its tourism potential abroad. Not surprisingly, more than 40% of total foreign tourists were from Japan and South Korea. The local authority of Qingdao recognizes the potential of the tourism industry in its future economy. It has an ambitious plan, for example, to increase the number of foreign tourists to 470,000 persons and foreign currency income of $ 500 million by 2010. Domestic tourism is projected to increase to 24 million persons with tourists receipt of 27 billion yuan by 2010. By developing key tourist projects and constructing tourist development zones, the local authority of Qingdao hopes to achieve the targets set above. Shilaoren National Tourist and Resort Area is the focal point of Qingdao’s tourism industry development. Marketing efforts abroad will be strengthened to further develop the Asian source markets including Japan and Korea and to open up American and European markets. As one of the 14 open coastal cities in China, Qingdao has remarkably increased its trade with foreign countries. In 1997, Qingdao’s total trade volume reached $ 15 billion (9 billion export and 6 billion import) (Figure 3.1). Local export increased to $ 3 billion in 1998 from $ 0.3 billion in 1991. The leading export items of Qingdao are textiles and other light industry products. The share of manufactured goods in total export took up 84%, indicating a fast transition of export commodity composition from consumption goods to intermediate goods. Qingdao’s top 4 trading countries are Japan, South Korea, U.S. and Hong Kong, accounting for more than 30% of total export (Table 3.8).

36 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

(unit : billion $) 18 Total Amount of Trade 16 Total Amount of Export Total Amount of Import 14 12 10 8 6 4 2 0 1990 1993 1994 1995 1996 1997

Source : Qingdao Statistical Yearbook (1998)

Figure 3.1 The Change of Total Trade at Qingdao Port

Table 3.8 Export Amount of Qingdao with Major Trade Partners unit : thousand $ Countries 1990 1993 1994 1995 1996 1997 Japan 72,500 254,240 481,050 709,050 804,520 776,790 Korea 440 168,810 348,290 515,920 1,021,860 1,234,500 Hong Kong 93,840 178,040 249,600 416,910 194,100 202,980 USA 31,400 170,500 270,900 342,470 362,790 597,050 Germany 8,800 29,940 54,640 67,330 67,890 63,270 Singapore 15,730 18,400 23,030 53,840 46,250 36,450 Canada 3,600 26,040 37,210 41,870 21,140 31,530 Taiwan 2,100 16,500 5,960 35,890 11,980 21,580 France 5,900 10,580 15,290 30,090 37,640 30,350 Indonesia 320 5,410 7,720 25,690 22,940 21,390 Netherlands 4,300 16,740 36,840 23,090 22,870 30,650 United Kingdom 9,200 12,340 14,050 18,430 29,460 30,950 United Arab Emirates 1,480 5,730 6,400 14,690 10,130 7,360 Australia 1,730 7,810 7,660 13,730 17,420 24,360 Belgium 1,400 8,880 10,970 12,300 17,040 19,290 Source : Qingdao Statistical Yearbook (1998)

Foreign investment has been a driving force for Qingdao’s open economy. In 1997, foreign capital actually utilized stood at $ 906 million. Of this total, foreign direct investment amounted to $ 792 million. At the end of 1997, the number of joint ventures in Qingdao was 5,279 and the total foreign capital utilized in cumulative terms was $ 3.77 billion. Qingdao’s strategy of hosting the world’s top 500 corporations has made some success. In 1999, there were 31 foreign enterprises invested by the world’s top 500 companies. These foreign enterprises are expected to provide Qingdao’s economy with advanced technology or management know-how. In addition to the 14 Korean and Japanese large corporations which set up joint ventures, there are a great number of Korean- and Japanese-invested small and medium size enterprises in Qingdao. Although Korea’s investment in China has significantly declined after the 1997 financial crisis, the remaining share of Korean-invested firms in Qingdao is still high. For example, the number of Korean-invested firms in Qingdao at the end of 1997 was close to 1,200 with the actually utilized capital of $ 1.1 billion. Similarly, Japanese investment in Qingdao by the end of 1997 reached $ 0.42 billion in cumulative term, ranking third in the list of foreign countries who made investment in Qingdao (Table 3.9).

Table 3.9 Qingdao’s Utilization of Direct Foreign Investments

Number of Enterprises Utilization of Foreign Foreign Capital Actually Which Have Signed Capital through Signed Utilized Contracts with Foreign Contracts by Investment Country (thousand $) Investment (thousand $) (Region) Accumulative Accumulative Accumulative 1997 Total by the 1997 Total by the 1997 Total by the End of 1997 End of 1997 End of 1997 Hong Kong 93 1,672 102,190 2,814,440 12,8470 1,023,310 Macao 2 39 450 49,620 - 25,650 Taiwan 56 831 38,610 660,620 3,5560 298,960 Japan 55 383 57,800 738,800 7,7450 421,980 Singapore 11 153 76,280 573,920 1,6630 181,180 USA 71 587 63,590 663,210 1,5460 171,910 Korea 255 1,170 192,570 1,918,980 29,7390 1,113,230 Germany 6 37 1,230 150,200 330 33,090 Source : Qingdao Statistical Yearbook (1998)

38 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

Qingdao’s Bonded Area, Economic and Technological Development Zone, New and High Technology Development Zone, and Shilaoren Tourist and Resort Area constitute four focal points of Qingdao’s externally-oriented economic development. With active hosting of foreign capital in and around the above 4 focal points, Qingdao is striving to develop its service sector such as trade, financing, and tourism. It also intends to modernize traditional industries such as machinery, chemical, food, and textile. One notable feature of Qingdao’s external strategy is the emphasis on the technological cooperation with large foreign corporations. R&D centers of large corporations are encouraged to be located in Qingdao. As indicated by trade and investment, Korea and Japan are top two partners of Qingdao in economic and technological cooperation. In fact, export from Qingdao to Korea has grown tremendously —from $ 0.44 million in 1990 to $ 1.24 billion in 1998. Qingdao’s trade with Japan has kept a steady growth— from $ 75 million to $ 777 million in 1997. Korea and Japan are top two source countries of foreign investment in Qingdao excluding Hong Kong. These close economic relations between Qingdao, Korea and Japan are reflected in cargo movements. In 1998, the volume of import and export between Qingdao and Japan reached 5.9 million tons, the major share of which was handled in Hakata, Kobe, Yokohama, and Osaka. In Korea, Pusan, Inchon, and Pohang ports handled most imports and exports from and to Qingdao. Major commodities exported to Japan and Korea were raw materials such as coal, oil, and steel, while main imported items were sundry goods from Japan and oil, steel, and fertilizer from Korea. Reflecting Qingdao’s close economic relations with Korea and Japan, direct international flights are available between Qingdao and Seoul in Korea, and Osaka and Fukuoka in Japan. Through these air linkages, Koreans and Japanese visit Qingdao in great numbers. Out of total 200,000 foreign tourists in 1998, Koreans and Japanese were 46,000 and 40,000 respectively (Figure 3.2). Qingdao’s tourism agencies perceive that more direct air linkages with secondary cities in Korea and Japan are necessary to further entice Korean and Japanese tourists to Qingdao. In order to fully exploit tourist resources within the YSSR, Qingdao considers it necessary to develop multi-country tour programs, for example, Beijing - Tianjin - Taishan - Qingdao - Inchon - Pusan -

Fukuoka route. Joint ventures between China, Korea and Japan are perceived to be essential to promote such multi-country tour programs.

(unit : 1000 persons) 50 46 40 40

20 10 10 10 10 1 0 Southeast Korea Japan USA Europe Australia Canada Asia

Source : Qingdao Statistical Yearbook (1998)

Figure 3.2 National Composition of Qingdao’s Foreign Tourists

6. Inchon

Inchon was forced to open to Japan and Western powers in 1883 and has since developed as a port city and a gateway to Seoul and West Korea. In 1981, Inchon was designated as a directly administered city under the national government. As seen in the growth of population, Inchon has grown fast from 1 million in 1979 to 2.5 million persons in 1998. With its advantageous geographical location, Inchon has developed close ties with China especially since the late 1980s. As a manufacturing-based city, Inchon produced $ 25 billion GDP in 1997. Between 1991 and 1997, the average annual growth rate of GDP was 14%. Industrial composition of Inchon’s GDP indicates a manufacturing-centered urban economy (close to 50% of GDP produced by mining and manufacturing in 1996). This manufacturing-heavy economic structure of Inchon is distinct from other million plus Korean cities, in which usually the service sector takes

40 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR account more than 60% of local GDP. Such structural characteristics of Inchon pose an issue of industrial restructuring in the coming years. As the second largest trading port in Korea, Inchon plays a key role in Sino-Korean trade. Trade volume between Korea and China began to surge from the middle of 1980s. Strategically located in the Yellow Sea facing China’s Shandong peninsula, Inchon has become a center of Sino-Korean trade. Total foreign export value through Inchon port reached $ 5.7 billion in 1999, out of which $ 440 million were with China (Table 3.10). Import value from China amounted to $ 459 million. Because of import demands from Korea’s Capital Region, Inchon has substantial trade linkages with Japan ($ 451 million export to and $ 896 million import from Japan).

Table 3.10 Trends of Trade Growth in Inchon unit : million $

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Export 3,032 2,892 3,132 3,700 4,180 4,510 6,849 7,869 7,261 6,545 5,679

Japan 415 391 414 471 442 547 646 757 584 449 451

China 18 15 43 160 465 395 538 560 655 503 440

Import 4,273 4,881 5,613 5,789 6,057 6,679 8,822 9,611 9,401 5,291 5,597

Japan 973 1,011 1,107 989 961 1,246 1,645 1,462 1,318 755 896

China 75 116 232 357 398 429 533 779 1,088 550 459 Balance △1,241 △1,989 △2,481 △2,089 △1,877 △2,167 △1,973 △1,742 △2,140 △1,254 △82 of Trade Japan △558 △620 △693 △518 △519 △699 △999 △705 △734 △306 △445

China △57 △101 △189 △197 △67 △34 △5 △219 △433 △47 △19 Source : Provided by the Inchon Branch of Korea International Trade Association

In terms of foreign investment received, Inchon has close linkages with Malaysia, Japan, and the U.S. (200, 184, 172 million dollars respectively as of June 1998). Even though investment from Kyushu is not significant at the moment, Inchon anticipates more investment from Kyushu. The reason is that Kyushu firms are interested in making investment in the capital goods industry, which is consistent with Inchon and Korea’s intention to promote the capital

goods industry. As mentioned earlier, Inchon faces a task of industrial restructuring moving away from traditional manufacturing to high-tech and information-based industries. Many on-going development projects such as Songdo Media Valley attempt to upgrade Inchon’s industrial structure. Foreign investment is considered to be a key for such efforts. With the liberalization of investment regime in 1998, Inchon and Korea now seek foreign investment. As a gateway to the western Korea, Inchon has relatively well-developed land transport networks. Although traffic congestion is a problem between Inchon and Seoul, major cities in the western and central parts of Korea are accessible within one day from Inchon. Inchon’s importance, however, lies in its close sea transport linkages with Chinese port cities. Among the ports in the YSSR, it is only Inchon which has 6 regular shipping lines with Chinese ports of Tianjin, Dalian, Weihai, Qingdao, Shanghai, and Dandong. Except for the Inchon-Dandong route, all the routes are carrying both cargo and passengers. In 1997, the total number of passengers and the volume of cargo transported along the four routes (Inchon with Tianjin, Dalian, Weihai, and Qingdao) amounted to 234,000 persons and 82,427 TEUs (Table 3.11). In addition to transport links with China, Inchon has extensive sea connections to other foreign countries. Its total volume of cargo handled in 1997 was 123 million tons (a significant jump from 21 million tons in1980) and container cargo handled was 433,000 TEUs (Table 3.12). To accommodate such a fast growing cargo volume, the city of Inchon with the cooperation of the central government plans to expand its port capacity of 36 million tons to 69 million tons in 2011. Given the projection that travel and trade volumes in Northeast Asia will grow the fastest in the world, Inchon aims to become a logistics center of Northeast Asia. The key element in this vision is the completion of a new international airport at Inchon in 2001. The new international airport was planned in the early 1990s to replace the existing Kimpo International Airport and is scheduled to open in the early 2001. The new airport will have an annual handling capacity of 27 million passengers and 1.7 million tons of cargo. By 2020 when two additional runways are added, the Inchon International Airport will have the capacity handling 100 million passengers and 7 million tons of cargo annually. Provided with competitive prices for landing and using airport facilities and convenient services, the Inchon Airport may be able to capture

42 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

Table 3.11 Trends of Incoming and Outgoing Cargo Volume at Inchon Port unit : 1000 tons Annual Increase Rate (%) 1980 1985 1990 1995 1997 1998 ’80~’90 ’90~’97 ’80~’97 Import 15,206 18,952 30,384 39,928 48,029 37,155 7.2 6.8 7.0 Export 2,081 1,889 3,086 11,008 13,077 13,568 4.0 22.9 11.4 Summation 17,287 20,841 33,470 50,936 61,106 50,723 6.8 9.0 7.7 Other Cargo 4,141 11,020 26,867 54,241 62,304 43,226 20.6 12.8 17.3 Total 21,428 31,861 60,337 105,177 123,410 93,949 9.3 10.1 9.6 Source : The Office of National Fisheries Administration, Fisheries Statistical Yearbook

Table 3.12 Trends of Container Cargo Volume at Inchon Port unit : TEU, % Average Annual 1991 1993 1995 1996 1997 1998 Increasing Rate (1991~1997) Export 56,039 52,892 102,364 167,000 196,000 161,000 23.2 Import 62,835 59,968 134,277 182,000 237,000 241,000 24.8 Total 118,874 112,860 236,641 349,000 433,000 402,000 24.0 Source : The Office of National Fisheries Administration, Fisheries Statistical Yearbook substantial portion of passengers and cargo originating from China, Japan and other Northeast Asian countries and bounded for either Europe or North America. Recognizing this unprecedented opportunity, the city of Inchon considers various strategies to develop airport-related international business functions, tourism and leisure activities, and residential accommodations. Against this background, Inchon places an emphasis on its tourism industry. In spite of rich tourism resources such as Kanghwa Island for history and culture tour, tideland in the islands of Kanghwa, Baikryong, and Daechung for eco-tour, and the Inchon Landing Memorial during the Korean War, Inchon is not well-known as a city of tourism domestically and abroad. As a result, foreign tourists numbered only 300,000 in 1998. Among them, two largest groups were Japanese and Chinese. In fact, the history of migration between China’s Shandong Province and Inchon dates back years ago in the early 20th century. The revival of Sino-Korean trade and the provision of transport links between Inchon and Chinese cities add a new opportunity for Inchon to seize.

Provided with faster boats and newly renovated passenger terminal, more Chinese traders and travelers are likely to come to Inchon. Clearly understanding the importance of the logistics industry in the future economy of Inchon, the city administration strives to build an integrated and efficient logistics system linking sea-air-land. In particular, the potential of using sea-air combined logistics in Inchon is underlined in the development strategies of Inchon. For example, high-value and small-volume parts and components can be delivered from China by air, assembled in Inchon, and exported to third countries by sea. Tourism and logistics development are the other side of the same coin. Exploiting derived demands from airport and port- related functions is considered to be important. It is well understood by the local authority and business organization in Inchon that foreign investment is a key to develop such functions. Two major ideas are in consideration. They are free customs zone at the new International Airport and/or at the Inchon port and free tour zone nearby the new Airport (Yongyu-Muei Island).

7. Pusan

As a gateway to the Korean peninsula, Pusan has been playing a role of locomotive in the export-oriented Korean economy. Although its contribution to the national economy has been shrinking in the 1990s, Pusan occupies an important position as the largest trading port in Korea. The most difficult problem that Pusan faces is to restructure its economy from a labor-intensive manufacturing based one to a knowledge-intensive service based one. How to utilize its locational asset and comparative advantage is perhaps the key for Pusan’s future. However, opportunity is arising for Pusan, given the trend of burgeoning trade and higher economic interdependency within the Asia-Pacific region. In particular, the strategic location of Pusan provides comparative advantage over other nearby ports in Japan or China in terms of hub port position in Northeast Asia. Korea took an export-oriented strategy in the beginning of 1960s, focusing on mostly labor-intensive products. Pusan was one of Korea’s export platforms in the 1960s and 1970s, when garments, textile, and footwear were the major

44 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR export items from Korea. Since the Korean government took an industrialization drive based on the heavy and chemical industries in the mid- 1970s, Pusan was sidelined in this heavy-industry drive phase. Pusan’s economic base, since then, has been declining without finding substitute industries. Furthermore, local authority, business organizations, and residents did not fully recognize the importance of port—Pusan’s core asset. The port was perceived just as a facility to serve the traffic between Korea and other countries. No explicit efforts were made to link port activities with the urban economy of Pusan. This is revealed in the statistics of exports: Pusan’s share of national export in 1970 was 26.3% but fell to 3.8% in 1998. Because of weakening linkages with nearby cities and provinces, the growth of heavy industries in the southern part of Korea, especially in the cities such as Ulsan, Changwon, and Pohang was not channeled into the regeneration of the Pusan economy. The rise of China and Southeast Asian countries as major exporters of labor-intensive products was another contributing factor to the decline of Pusan’s export industries. While Pusan has been undergoing structural changes, its external economic relations have been changed as well. In 1985, Pusan’s export dependence on North America was high accounting for 42% of total export. Now, as of 1998, Asia is the major export destinations of Pusan, accounting for 57%. The rise of China and Hong Kong is noticeable (Table 3.13). Pusan’s composition of export commodities, which is similar to those of China and developing Asian countries, indicates increasing competitive relations between Pusan and those countries. In terms of imports, Pusan is highly dependent upon Japan, North America, and Europe. Recently, however, imports from China are increasing, indicating a possibility of both cooperation and competition. Pusan’s overseas investment was directly related to its industrial restructuring. Pressured by international competition, Pusan’s labor-intensive, price-sensitive industries began to move to China and other Asian countries for low wage labor in the 1990s (Table 3.14). While losing some of its industrial base, Pusan has been desperately seeking foreign investment. The record of foreign investment into Pusan was clearly below expectation. As of June 1996, there were 132 enterprises with the total investment of $ 478 million (Table

Table 3.13 Export Records of Pusan with Major Trade Partners unit : % 1985 1990 1995 1998 Total 100.0 (4,087) 100.0 (7,805) 100.0 (6,463) 100.0 (5,084) Asia 24.7 28.8 38.4 56.5 Japan 14.2 18.2 20.7 18.0 Hong Kong 1.9 2.5 8.6 7.2 Indonesia 0.2 3.2 7.6 5.0 China 0.2 0.6 8.4 13.0 Middle East 5.6 1.6 3.3 5.0 Europe 12.1 17.0 17.1 13.3 Anglo America 42.1 45.1 29.6 15.7 Latin America 10.5 2.8 6.2 6.7 Africa 4.0 1.0 0.7 1.1 Oceania 1.1 1.5 1.7 1.6 Other Regions 0.0 2.1 1.9 0.1 Note : Contents in ( ) is total export amount of Pusan. (unit : million $) Source : The Pusan Chamber of Commerce and Industry, Economic indicators of Pusan

Table 3.14 Outward Foreign Direct Investment of Companies in Pusan unit : case, thousand $ 1991 (Total) 1992 1993 1994 1995 1995 (Total)

Case Amnt Case Amnt Case Amnt Case Amnt Case Amnt Case Amnt Total 97 88,802 34 20,403 61 37,388 93 49,961 92 62,123 358 235,962 Asia 52 60,303 26 16,354 52 35,071 80 44,924 83 48,237 286 197,761 Japan 8 3,280 - - 1 94 1 30 1 30 9 2,691 China 2 3,860 11 6,719 41 19,806 58 32,689 66 33,261 179 96,315 Hong Kong 3 3,048 4 1,669 0 4,896 2 1,356 - - 7 9,745 Philippines 6 3,398 2 1,317 1 2,260 8 833 4 806 20 7,505 Vietnam - - - - 1 700 3 2,618 4 8,066 8 11,384 Malaysia 4 7,540 5 5,050 0 1,776 0 200 1 494 9 14,951 Thailand 7 6,066 0 500 4 1,555 1 3,325 2 2,106 13 12,508 Indonesia 15 31,345 3 1,049 2 2,332 2 2,426 3 3,061 25 36.655 Europe 3 797 1 4 6 524 5 1,248 4 1,565 17 4,081 N-America 23 11,545 1 37 2 1,310 3 942 2 677 25 9,898 L-America 16 15,743 6 4,008 1 483 3 1,925 1 10,190 24 21,530 Africa 1 116 - - - - 1 72 0 1,241 2 1,429 Oceania 2 298 - - - - 1 850 2 213 4 1,263 Note : There is no published data after 1996. Source : Pusan Branch of the Bank of Korea , Overseas Direct Investment in Pusan

46 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

3.15). Most of them were in the service sector rather than the manufacturing sector preferred by the local authority.20 Japan was the number one investor in Pusan with the total of $ 387 million. Despite a much more liberalized investment regime since the 1997 financial crisis in Korea, there is no indication that foreign investors are attracted to Pusan in any significant quantity (Kim 2000).

Table 3.15 Inward Foreign Direct Investment of Pusan (June 30, 1996) unit : case, thousand $ Total Manufacturing Service

Case Amount Case Amount Case Amount Total 132 478,460 70 53,333 62 425,127 Subtotal 117 475,663 64 52,215 53 423,448 Japan 71 408,890 49 21,416 22 387,474 USA 13 21,612 6 10,674 7 10,938 Netherlands 2 12,859 1 12,712 1 147 Hong Kong 4 12,468 - - 4 12,468 UK 3 9,234 - - 3 9,234 Germany 9 6,935 6 6,514 3 421 Russia 12 1,337 1 242 11 1,095 Sweden 1 1,176 - - 1 1,176 Denmark 2 1,152 1 657 1 495 Other Countries 15 2,797 6 1,118 9 1,679 Note : ‘-’ means ‘not available’. Source : Ministry of Finance & Economy, Government of Korea

In consideration of the weakening economic base and rising pressure from developing Asia, the local government of Pusan places an emphasis on the logistics and tourism industry. First, the potential of Pusan as a port-logistics center in Northeast Asia is noted. The direct effects of port activities on the local economy were estimated to be 280,000 of employment and 7.5 trillion won of value added in 1995, which amounted to 16.8% of the city’s total employment and 31.1% of the city’s total value added (The City of Pusan 2000). As such, the role of the port logistics industry in the local economy is quite substantial.

20 Major motivations of foreign investors in Pusan are known to be market possibilities and sufficient demand arising from 4 million population.

More importantly, the role of Pusan in the broad regional economy can be emphasized. For example, Pusan port ranked number 4 in 1999 surpassing Rotterdam in terms of container cargo handled. In 1998, the Pusan port handled 5.8 million TEUs (Table 3.16). Out of this total, exports were 2.4 million TEUs and imports were 2.2 million TEUs. Transfer cargo was 1.2 million TEUs. The proportion of transfer container cargo has increased from 11.8% in 1993 to 21.1% in 1997. Also the annual average growth rate of transfer cargo between 1993 and 1999 was much higher than that of total container cargo (43.1% compared with 16.1%). The distribution of container cargo revealed a heavy concentration in Northeast Asia (28.7%) and North America (20.4%).21

Table 3.16 Trends of Container Cargo Volume at Pusan Port unit : 1000 TEU 1993 1994 1995 1996 1997 1998 Whole Country 3,203 4,034 4,800 5,202 5,820 6,372 Total 3,070 3,825 4,502 4,760 5,234 5,753 Import 1,275 1,537 1,750 1,838 1,993 2,154 Pusan Export 1,532 1,694 1,893 1,981 2,136 2,385 Port Transshipment 263 594 859 941 1,104 1,214 National Share (%) 95.8 94.8 93.8 91.5 89.9 90.3 Source : Korea Public Corporation of Container Wharf

Taking its locational advantage in the Asia-North America shipping routes (as revealed in the increasing proportion of transfer cargo in its total container shipping), Pusan has a potential to become a hub port in Northeast Asia. However, a few problems such as the absence of land connections to China’s northeast region and the Russian Far East, a weak economic centrality (compared to Japanese ports), and insufficient port facilities and services make Pusan difficult to fully exploit the locational advantage. Recognizing these problems and constraints, city administration put forth many proposals including the construction of new port at the Kaduk Island and the establishment of a Customs Free Zone and an independent Pusan Port Authority. By the time when the new Kaduk port is completed, Pusan will have a handling capacity of 9 million TEU a year. If land transport linkages are made with

21 Japan (12.6%), Europe (11.9%), and Southeast Asia (10.5%) were the next largest concentrations.

48 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

China and Russia through North Korea in the near future, Pusan’s position in taking a hub position (may not be a mega-hub for Asia) will be much more secured. Second, the potential of the tourism industry is recognized by the city of Pusan. Pusan is at the center of Korea’s southeastern tourism belt, which offers a variety of tourist attractions in addition to Pusan’s own tourism resources such as beach, historical and cultural sites, and a series of events. Another important advantage is Pusan’s geographical proximity to the large tourists source market of Japan. In fact, Japanese visitors account for more than 50% of all foreign visitors to Pusan (Table 3.17). Russians constitute the next largest group. Chinese are not in big numbers but they are steadily increasing over time. In 1996, for the first time in Pusan’s history, the number of foreign visitors exceeded one million. Local authority expects the growth trend will continue in the future. In fact, the city of Pusan plans to improve various aspects of the tourism industry including marketing and developing new attractions such as convention center, deep sea theme aquarium, marine recreation and folklore resorts. Utilizing the forthcoming events such as the 2002 World Cup Soccer and the Asian Games, Pusan intends to significantly enhance its tourism industry.

Table 3.17 Visitor Arrivals in Pusan by Nationality unit : persons, % Overseas Total Japan China Russia USA Others Korean 992,673 514,921 13,554 - 12,825 133,046 318,327 1991 (100.0) (51.9) (1.4) ( - ) (1.3) (13.4) (32.1) 963,252 484,132 16,660 70,678 17,093 101,971 272,718 1992 (100.0) (50.3) (1.7) (7.3) (1.8) (10.6) (28.3) 936,774 474,283 31,100 104,132 30,607 98,387 201,265 1993 (100.0) (50.5) (3.3) (11.1) (3.3) (10.5) (21.4) 961,768 482,358 45,668 108,855 24,065 92,023 208,799 1994 (100.0) (50.2) (4.7) (11.3) (2.5) (9.6) (21.7) 1,090,187 520,051 60,131 135,429 23,275 85,853 265,448 1995 (100.0) (47.7) (5.5) (12.4) (2.1) (7.9) (24.3) 1,013,076 477,699 79,191 120,570 27,783 80,853 266,975 1996 (100.0) (47.2) (7.8) (11.9) (2.7) (8.0) (22.4) 1,097,142 558,337 92,998 107,085 28.529 80,412 229,781 1997 (100.0) (50.9) (8.5) (9.8) (2.6) (7.3) (20.9) 1,068,088 576,370 72,603 118,952 27.763 83,989 188,411 1998 (100.0) (54.0) (6.8) (11.1) (2.6) (7.9) (17.6) source : Tourism Promotion Division of Pusan City

8. Fukuoka

Fukuoka has a long history as a gateway to West Japan. It has had extensive international exchanges with China and other Asian countries. Hakata, a center of commerce, has prospered as a free trading city in the 16th century. As international trade and investment were reactivated recently by the regionalization trend (because of increasing economic interdependency among Asian countries), Fukuoka is expected to regain its reputation as a center of international exchange. Recognizing this potential, Fukuoka declared to be a dynamic key coastal city in the Asia-Pacific region in 1987. It has since then paid great efforts to focus on Asia including the Asia-Pacific City Summit first held in Fukuoka in 1994. Fukuoka, however, has some impediments to expand economic exchanges with Asian countries. One major drawback is derived from its characteristic, which is known to be the branch economy—the agglomeration of branch offices of big firms in Tokyo and Osaka. Lack of decision-making at branch offices, small number of manufacturers, inconvenience of international finance are barriers to conducting economic exchanges with Asian countries. Nonetheless, Fukuoka with its superior infrastructure such as airport, port, and international hotels plays a central role in international exchanges in Kyushu. And this role is expected to be strengthened through the localization trend continuing in Japan. Taking a brief look at the major characteristics of Fukuoka economy, we find first that Fukuoka is a branch economy composed of branch offices of big firms headquartered in Tokyo or Osaka. In result, Fukuoka has become a domestic distribution center in Kyushu with the concentration of wholesalers. The wholesale industry as a basic industry has led the growth of Fukuoka as well as banking and insurance company. Owing to the steady growth of the economy, the population of Fukuoka has grown faster than other cities in Kyushu. It reached one million marks in 1975 and now 1.33 million persons. The population of the Fukuoka metropolitan area, however, is topping two million through in-migration from other parts of Kyushu. Unlike the Japanese economy that has experienced serious recession during the 1990s, Fukuoka has maintained a steady growth due to the following

50 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR reasons. First, the steady growth of Kyushu—Fukuoka’s hinterland—was possible through a successful transition to high-tech assembly and processing industries from large, materials-producing industries. The growth of integrated circuit industry and automobile industry was remarkable in Kyushu during the 1990s. Second, urban renewal in Fukuoka was successfully carried out. Large- scale commercial complexes such as Fukuoka Dome and Canal City Hakata were completed during the 1990s. Third, branch offices of large firms in Fukuoka were given more authority by the headquarter. Fourth, expanded international exchanges helped Fukuoka’s economy. Networking between Fukuoka and Asian cities has been strengthened through increasing trade and investment. The significant increase in the number of air and sea connections is reflected in the fast growth of the Fukuoka airport and Hakata port. More European and American firms are making inroads into Fukuoka, placing the city as a base for East Asia. The enhanced position of Fukuoka in international exchanges is revealed in its foreign trade volume. In 1990, the gross trade value of Hakata port was 467 billion yen. It increased to 872 billion yen in 1998, almost two-fold increase over the eight-year period (Figure 3.3). Leading export destinations were the U.S., EU, and Asian countries. The growth of container cargo handled at the Hakata port was fast during the 1990s, reaching 279,000 TEUs in 1998, exceeding the volume at the neighboring port of Kitakyushu. Commodity shipping is also carried out at the Fukuoka airport. Reflecting the enhanced linkages of Fukuoka with Asian cities, the volume of air cargo handled reached 52,000 tons in 1997 doubling the figure of 1990. Air cargo handled generated more value than cargo handled at the port as indicated in the composition of cargoes (Figure 3.4). Considering the expansion of high-tech industries in the Kyushu region, air cargo traffic is likely to increase between Kyushu and Asian countries in the future. In particular, air cargo to Seoul, Taipei, and Hong Kong has increased substantially during the 1990s, while air cargo to Dalian is expected to increase. Fukuoka’s businesses have been actively making overseas connections during the 1990s. Asia and China, in particular, were the major destinations for Fukuoka’s overseas investment (Table 3.18). Fukuoka’s investment in Korea has tapered off in the latter half of 1990s. On the other hand, there have been

increasing inbound investment from America and Europe into Fukuoka as a stepping stone to Japanese and Asian Markets. Most of them are concentrated in service industries such as Hyatt International, AMC, Costco, and Daewoo Electronics Research Center.

(unit : billion ￥) 888 900 872 Import 786 800 Export 708 700 578 580 608 443 405 600 395 506 326 467 500 229 242 272 209 400 181 300 445 467 382 391 200 349 338 336 286 297 100

0 1990 1991 1992 1993 19941995 1996 1997 1998

Source : Moji Customs

Figure 3.3 Trends of Export Amount at Hakata Port

Export Import

Nonferrous Metal 1% Others Others Optical Instruments 17% 23% 3% Electrical General Machinery Clothes 4% Electrical 6% Equipment Equipment Fishery 5% 73% 62% General Machinery 7%

Source : Moji Customs, Foreign Trade Yearbook Figure 3.4 Industrial Composition of Export and Import at Fukuoka Airport

52 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

Table 3.18 Foreign Companies in Fukuoka

Name of Company Nationality Time Types of Business Grand Hyatt Fukuoka USA 1996 Hotel AMC USA 1996 Theater Budwiser Japan USA 1997 Brewing beer FedEx Japan USA 1997 Transporting air freight GAP USA 1997 Retail Shinhan Bank Korea 1997 Finance Merrill Lynch USA 1998 Securities Trader Vicks USA 1999 Food restaurant CitiBank USA 1999 Finance Jinro Japan Korea 1999 Brewing & distilling Note : Branches and offices of airlines are excluded. Source : Economic White Paper of Kyushu (1999)

Vital for the burgeoning international trade and exchanges in Fukuoka is the logistics industry. According to the estimation by KERC, the added value of logistics industry was 1,434 million yen, accounting for 26% of the total value- added in Fukuoka in 1992. Similarly, it generated 172,000 jobs, accounting for 24% of Fukuoka’s total employment. In Fukuoka’s logistics industry, the Hakata port and Fukuoka airport play a critical role. Since the designation of Hakata as one of Japan’s special international seaports in 1990, Hakata port has grown to have 27 services a week on 24 international liner container routes. Recognizing the need to expand port facilities, the city of Fukuoka plans to strengthen its port function. For example, the “Island City” construction project is in progress. Once the project is completed in 2003, there will be three new berths and six gantry cranes. As the fourth largest airport in Japan, Fukuoka airport will face a congestion problem in the near future. Currently, it maintains 37 flights a day with 16 international routes. The major routes from Fukuoka include Seoul, Pusan, Taipei, Hong Kong, Beijing, and Dalian, indicating a concentration in the cities of the YSSR. A newly established committee by the Fukuoka prefectural government, the Fukuoka Municipal Government and local business community is considering building a new airport to accommodate growing demands for passenger and cargo transport. Although it is not easy for the

central government to approve the plan for the new airport, Fukuoka authorities are devising various measures to meet increasing demands for air cargo including direct shipping of international cargo from Fukuoka rather than via Tokyo. Although not to the same magnitude as the logistics industry, convention and tourism are regarded as a new industry for Fukuoka by city planners. Fukuoka and its vicinity have numerous attractions such as national parks, hot springs, and volcanoes. Recently, large-scale theme parks such as Huis Ten Bosch in Nagaskai and Space World in Kitakyushu were added. The city of Fukuoka has its own attractions as well including Fukuoka Dome, Canal City Hakata, and Hakata Riverain. On the other hand, international conventions and conferences have been contributing to the growth of tourism industry in Fukuoka. In addition, Fukuoka targets Asian market by establishing unique events and measures for Asian tourists. “Asian Month” is a regular event taking place every September. Fukuoka’s “Welcome Card” with discount privilege at hotels and shops is an innovative idea to draw more foreign visitors to Fukuoka. Fukuoka’s tourism industry is making not a small contribution to the city economy. In 1998, visitors to Fukuoka numbered 15 million, and spent 212 billion yen, which amounted to about 3% of Fukuoka’s GDP. The number of foreign tourists reached 440,000 persons in 1997, which was more than double the figure in 1990. The 1997 Asian financial crisis brought a decline in the number of Asian tourists but the number has been picking up again in 1999 and 2000. The biggest groups among foreign tourists are Taiwanese, Koreans and Hong Kong people. Most of these foreign tourists use the Fukuoka airport. Within the YSSR, Beijing, Seoul, and Dalian are well established routes. Fukuoka has a special connection to Pusan. In addition to direct flights, there is a passenger liner, Beetle 2, taking only three hours from Fukuoka to Pusan. The number taking the Beetle 2 has increased rapidly over the years reaching 200,000 persons in 1998. With an additional boat, called JB, in May 1998, one- day round trip is possible during the summer. Even though Fukuoka has not developed close ties with the cities in the YSSR yet (except for Pusan),22 it is anticipated that it will become a key

22 Fukuoka has an administrative exchange relationship with Pusan.

54 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR international city in the YSSR through its gateway function. The rivalry between Fukuoka and Kitakyushu, however, poses a problem. There has been suggestion to integrate the two cities on the basis of economic complementarity (e.g., Fukuoka focusing on commerce and tourism and Kitakyushu on manufacturing and technology). With a combined population of over 4 million, the integrated Fukuoka-Kitakyushu region is expected to play a much larger role in the economic cooperation of the YSSR(KERC 2000)

9. Kitakyushu

Kitakyushu has served as a gateway for the western Japan. It has close ties with the cities in the YSSR, for example, Dalian and Inchon. Kitakyushu has recognized the importance of the YSSR long before other cities did. It proposed the idea of the East Asian City Conference in 1991. The members of this conference include all major port cities in the YSSR. Also notable is Kitakyushu’s leadership to bring environmental cooperation in the YSSR. In 1995, the municipal governments of Kitakyushu and Dalian proposed to make an environmental master plan to utilize Japan’s ODA. Despite these pioneering efforts, Kitakyushu faces challenges arising from internal industrial restructuring and external competition especially in the logistics industry. Perhaps, inter-city cooperation rather than inter-city competition would be a solution to the challenges facing Kitakyushu. Kitakyushu has historically been the location for key Japanese industries such as steel and chemical production. Yahata Steel Company was established in 1901 to exploit the presence of nearby Chikuho coal mine and the well- developed transport infrastructure in the Kitakyushu area. Various materials industries such as chemical and ceramics followed since then, making Kitakyushu one of the 4 largest industrial areas in Japan. However, structural changes that occurred in the Japanese economy since the 1980s made Kitakyushu fall behind industrial shifts from heavy and chemical industries to process assembly industries. Kitakyushu’s industries, even though they are slowly shifting to high-tech industries, are the mainstay of Kitakyushu’s economy. For instance, the shipment value of materials industry accounts for close to 60% of the Kitakyushu’s manufacturing shipments. Steel and chemical

industries still count heavy in the local economy. Owing to the recent restructuring efforts, automobile and electronics industries have been expanding. Notable in Kitakyushu is the growth of environmental industries, which may hold a key for the future of Kitakyushu. Taking advantage of industrial technology and experience gained in the process of combating serious pollution problems, Kitakyushu is moving ahead in the environmental industries such as recycling. Apart from the manufacturing industry, the logistics industry constitutes the backbone of Kitakyushu’s economy. Beginning as an industrial port in the western Japan, Kitakyushu has developed into a key trading port between Japan and China and Southeast Asian countries. Even though the volume of trade has been leveling off, Kitakyushu maintained around 1,400 billion yen during the 1990s (Figure 3.5), recording a significant share of trade between the western Japan and Asian countries. The number of containers handled, however, decreased recently. In particular, trade between Kitakyushu and Pusan weakened. This was not just because of the recession in Korea but because of competition among the ports in the Kyushu region. Differently from the past when most clients in Kyushu shipped their cargo through Kitakyushu port or utilized feeder shipping networks to Kobe, many clients ship directly from local ports to Pusan or other hub ports outside Japan.

(unit : billion ￥) 1800 Import 1600 Export 1400 1200 1000 800 600 400 200 0 1990 1991 1992 1993 19941995 1996 1997 1998

Source : Moji Customs Figure 3.5 The Value of International Trade at Kitakyushu Port

56 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

Despite the recession in Asian economies, container cargo from Dalian, Tianjin, Shanghai, and Qingdao to Kitakyushu has grown steadily, indicating close ties with China. But the gap in export and import volume creates a problem of transporting empty containers, raising costs of marine transport operators. For instance, import from China and export from Kyushu is by the ratio of 8 to 2. Nevertheless, Kitakyushu maintains close relations with China and Southeast Asian countries. Since 1973, the port has handled regular container services. Now, forty-two regular container services a week are available and the majority of them are between Kitakyushu and Chinese port cities such as Dalian, Xiamen, Qingdao, Shanghai, and Ningbo, Pusan, and the ports in Southeast Asia. With growing trade with Asian countries, the volume of container cargo rose to 352,000 TEUs in 1995, since then it has been tapering off somewhat (Figure 3.6). Competition from the neighboring Hakata port and the Pusan port in Korea is understood to be a principal cause for the recent decline of container cargo at the Kitakyushu port. Fully recognizing increasing inter-port competition in Asia, the Japanese central government and the local government of Kitakyushu emphasize the need to expand and upgrade transport infrastructure in Kitakyushu. The Kitakyushu Renaissance Master Plan adopted

(unit : 1000 TEUs) 400 352 350 328 307 300 284 275 247 250 217 225 197 200 150 100 50 0 1990 1991 1992 1993 19941995 1996 1997 1998 N ote : Excluding empty container cargoes Source : Port & Harbor Bureau, Kitakyushu City

Figure 3.6 Container Throughput at Kitakyushu Port

the policies to promote building a new airport, new Hibikinada port, the East Kyushu highway, and railway container terminal in Moji. The Hibikinada port is aiming to be a hub port in the YSSR, relaying container cargo from the western Japan, China, and Korea to North America and Europe. It is also targeting the lowest port charges with 24-hour service in Japan. Through deregulation, it is hoped to raise the efficiency of port operation, like Dalian did through a joint venture between the Dalian Port Authority and the PSA Co. of Singapore. The success will, however, depend on negotiations with the trade unions at the port. Despite somewhat competitive position of Kitakyushu in the logistics industry, the city maintains cooperative relations with other Asian cities and countries. The number of Kitakyushu businesses with interests abroad totaled 123 between 1986 and 1998 (Table 3.19). Among these, about 80% are concentrated in Asia, especially in China and Korea. The major sector in which Kitakyushu firms made investment is the manufacturing sector. Because of the Asian economic crisis and the recession in Japan, recent investment by Kitakyushu firms has stagnated. On the other hand, Asian businesses are increasingly interested in advancing into Kitakyushu. Posmetal, a subsidiary of Pohang Steel Company, established a plant in Kitakyushu in 1994. Hokudai Boeiki Company was established by the Dalian municipal government to promote sales of products made in Dalian. Also 27 offices representing Asian companies use temporary offices in the Business Support Center of the Asia- Pacific Import Mart for the purpose of expanding their Japanese market share. This is premised upon the advantages offered by “Foreign Access Zone” in Kitakyushu.23 The scale and the volume of tourism industry in Kitakyushu are not as large as those of Fukuoka. Kitakyushu has less tourist attractions than Fukuoka. Faced with a decline in its heavy and chemical industries since the 1980s, Kitakyushu places more emphasis on the tourism industry. The opening of the theme park, Space World, was a turning point for the tourism industry in Kitakyushu. It attracts about 2 million visitors annually.

23 Foreign Access Zones are established for the purpose of promoting imports from Asian and other developing countries.

58 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

Table 3.19 The Number of Kitakyushu’s Business Abroad

Region 1986~98 1986~90 1991~95 1996 1997 1998 Total 123 34 66 13 6 4 Asia 96 26 53 10 4 3 Korea 13 7 6 0 0 0 China 47 8 29 7 2 1 Others 36 11 18 3 2 2 America 13 5 5 1 1 1 Europe 11 27110 Others 3 1 1 1 0 0 Source : KERC

Looking at the figures of foreign tourists visiting Kitakyushu, we find a majority coming from Taiwan and Hong Kong. Tourists from Korea declined after the financial crisis in 1997 but they are increasing again very recently. The total number of foreign tourists is small compared to Fukuoka, accounting for 6% of total visitors to the Kitakyushu city. The theme park, Space World, however, draws a significant number of foreign tourists, for instance, 106,000 Taiwanese, 12,000 Hong Kong citizens, and 2,000 Koreans in 1998. In addition to Space World, Kitakyushu has several interesting tourist attractions such as Mojiko Retro Town, Kokura Castle, Mekari Park, and Hiraodai Limestone Plateau. Excellent convention facilities such as the West Japan General Exhibition Center add merits to Kitakyushu’s tourism. Furthermore, industrial tour has a great potential, given the city’s unique history of industrial growth. There are about 30 plants or offices worth visiting for special tourist groups who are interested in environmental industries. In relation to industrial tour in Kitakyushu, the city has a great potential to become a center of environmental and technological cooperation in the YSSR and Asia as a whole. Kitakyushu, as it already did with the city of Dalian, can share with other Asian cities the industrial technology and experience it gained with process of dealing with its own serious pollution problems. Utilizing the two major training organizations—the Kyushu International JICA Center in Kitakyushu and the Kitakyushu International Techno-Cooperative Association,

Kitakyushu makes a significant contribution to the developing countries in the areas of environmental conservation, pollution prevention technology, and plant maintenance through training and technological cooperation. Further exchanges and cooperation among the cities in the YSSR in the fields of environmental industries under the leadership of Kitakyushu would be extremely important for the sustainable development of all the cities in the YSSR.

10. Prospects for Inter-city Linkages and Cooperation in the YSSR

The foregoing discussion on the six port cities in the YSSR brings out three major points. 1) Despite seemingly independent development strategies of each city, these strategies reveal a strong international orientation. For Chinese cities of Dalian and Qingdao, the desire to be further integrated with the global economy and to attract more foreign investment for the urban economic development is quite clear. Pusan and Inchon, aiming at a hub position in Northeast Asia, are endeavoring to expand their international connections with the cities within and outside the YSSR. Fukuoka and Kitakyushu, which have begun their internationalization efforts earlier than Chinese and Korean cities, attempt to become anchor cities in the YSSR. In sum, there exists a sufficient level of interests among these cities in cross-border inter- city cooperation, even though their area of interest slightly diverges. 2) Over the past decade, inter-city linkages have grown rapidly. For example, there are economic and infrastructural links between the cities in China’s Bohai region and the cities in Korea. Also observed is a substantial growth in inter-city cooperation and linkages between the cities in the Bohai region of China and the Kyushu region of Japan. For example, Dalian and Kitakyushu established not only economic linkages through trade and investment but also technological linkages in several industries. As seen in the operation of the Beetle Boat between Pusan and Fukuoka, Korean cities and the cities in Kyushu have closer linkages than ever before through economic, infrastructural and tourism connections. These increased economic, infrastructural, and technological links (although they are largely

60 Status of and Prospects for Inter-city Linkages between Major Port Cities in the YSSR

bilateral at the moment) suggest that the YSSR has a foundation for inter- city cooperation and eventually forming a network. 3) Rigorous infrastructure build-up in the cities, in progress and in plan, indicates that the weak point of the YSSR—underdeveloped infrastructure— will be overcome in the near future and will thereby provide a physical foundation for the cities in the YSSR to carry out inter-city exchanges and cooperation.

In addition to these factors applying to the cities in the YSSR, macro factors governing economic cooperation in Northeast Asia are likely to provide favorable environment for inter-city cooperation in the YSSR. Korea’s abolition of the import origin diversification policy in 1999 and the soon expected entry of China into the World Trade Organization are likely to promote trade expansion among China, Japan, and Korea. Another macro trend noticeable is the new international division of labor—the rising level of intra-industry trade. As China catches up Korea and Japan gradually, there will be more horizontal cooperation in terms of industrial production, which will inevitably lead to enlarged production networks crossing national boundaries. Electronics, automobile, recycling industries are strong candidates for the new international division of labor within the YSSR. Undoubtedly, the six major port cities will play a central role in the horizontal cooperation in those industries.

CHAPTER 4

Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

As set out in the research scope and purposes (Chapter I), trade and investment, industry, and technology are the three major areas for inter-local cooperation in the YSSR. Both for trade and investment promotion, infrastructural links such as transport and telecommunication are essential. Also for the region-wide promotion of industrial and tourism development, infrastructural links are necessary together with technological linkages. Therefore, transportation and communication linkages within the YSSR provide a foundation for inter-local cooperation and regional economic integration. With lowered transaction costs (the major component of which is transport costs), the YSSR will reap the benefits of cooperation and integration. Logistics industry plays an important role in lowering transport costs and hence facilitates trade, investment, and other types of economic and noneconomic transactions. On the other hand, tourism industry partially sharing transport and institutional infrastructures with the logistics industry not only provides an opportunity for inter-local cooperation and exchange but also facilitates business and investment activities indirectly through enhanced quality of urban environment. As such, logistics and tourism are two important areas to vitalize inter-city cooperation. This chapter will investigate the current conditions and issues in both logistics and tourism industry in the YSSR. Since both industries are not spatially limited to the YSSR, we need to understand the major trends and key issue of these industries in a wider geographical area—East and Northeast Asia.

The chapter will first take a look at the logistics industry and second the tourism industry.

1. Transportation and Logistics Development in East and Northeast Asia

The rapid economic growth of East Asian countries in the past decades has greatly increased inter- and intra-regional trade. East Asia is now a center of container traffic in the world as seen in the Table 4.1. In 1975, only 4 ports in East Asia were included in the world top 20 ports but the number increased to 10 in 1998. Surprisingly, four East Asian ports occupied top 5 in 1998. With respect to the volume of container cargo flows, the position of Singapore and Hong Kong is overwhelming, followed by Kaohsiung and Pusan. The decline of Japanese ports is another notable feature during the last two decades.

Table 4.1 Changing Places of the World Top 20 Ports unit : TEU 1975 1985 1998 Port Volume Port Volume Port Volume 1 New York 1,621,800 1 Rotterdam 2,654,906 1 Singapore 15,100,000 2 Rotterdam 1,078,661 2 New York 2,404,872 2 Hong Kong 14,650,000 3 Kobe 904,549 3 Hong Kong 2,288,953 3 Kaoshiung 6,271,053 4 Hong Kong 802,283 4 Kaoshiung 1,900,853 4 Rotterdam 6,032,000 5 Oakland 522,355 5 Kobe 1,852,397 5 Pusan 5,752,955 6 Seattle 481,094 6 Singapore 1,698,803 6 Long Beach 4,097,689 7 Saint John 452,375 7 Long Beach 1,444,294 7 Hamburg 3,550,000 8 Baltimore 419,829 8 Antwerp 1,350,000 8 Los Angeles 3,378,218 9 Bremen 409,791 9 Yokohama 1,327,352 9 Antwerp 3,265,750 10 Long Beach 390,689 10 Hamburg 1,158,776 10 Shanghai 3,066,000 11 Jacksonville 377,323 11 Keelung 1,157,840 11 Dubai 2,800,000 12 Melbourne 364,752 12 Pusan 1,148,000 12 Felixstowe 2,500,000 13 Tokyo 358,744 13 Los Angeles 1,103,722 13 New York 2,450,000 14 Hamburg 322,328 14 Tokyo 1,004,390 14 Tokyo 2,450,000 15 Yokohama 328,592 15 Bremen 986,265 15 Yokohama 2,200,000 16 Los Angeles 327,177 16 Saint John 881,629 16 Gioia Tauro 2,125,640 17 Antwerp 297,268 17 Oakland 855,642 17 Kobe 2,087,000 18 Hanptonrone 292,051 18 Felixstowe 850,000 18 Saint John 1,992,000 19 Sydney 262,166 19 Seattle 845,207 19 Tanjung Priok 1,898,069 20 London 260,040 20 Baltimore 706,479 20 Algeciras 1,825,614 Source : Containerization International Yearbook, 1976,1986,1998

64 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

The emergence of East Asian ports is a direct result of increasing trade within East Asia as well as between East Asia and other continents. Interestingly, intra-Asian trade has been growing much faster than interregional trade (Table 4.2). Within Northeast Asia, China has contributed greatly to the surge of container cargo flows, reflecting its growing position in the world trade. For example, the annual growth rate of cargo volume between 1986 and 1996 in China was 27%, while Korea and Japan recorded slower rates of growth during the same period (13% and 7% respectively) (Table 4.3). It should be noted, however, that the rapid growth of China’s container transport was accompanied by transshipment via Korea or other countries.

Table 4.2 Change of Trade Volume between NEA and Other Regions unit : billion $ Intra-Region Inter-Region Nation ASEAN EU NAFTA ANZ China Japan Korea Volume % Volume % Volume % Volume % 1990 21.6 0 11.1 24.3 33.8 61.7 8.8 Japan 35.8 -21.3 -8.8 -21.6 1997 33.6 0 10.8 33.0 26.6 56.3 6.9 1990 11.5 45.4 0 15.0 25.3 59.5 6.0 Korea 64.7 -12.3 -32.4 1.7 1997 29.1 30.2 0 24.7 22.2 40.2 6.1 1990 0 27.2 1.1 11.1 23.5 22.9 3.3 China -2.7 -10.6 45.4 9.1 1997 0 28.9 10.7 10.8 21.0 30.3 3.6 1990 33.1 72.6 12.2 50.4 82.6 82.6 18.0 NEA 35.9 -15.5 -9.9 -8.3 1997 62.7 59.1 21.5 68.5 69.8 129.8 17.0 Note : ANZ (Australia and New Zealand), rate (increase rate) Source : Peter J. Rimmer, "A Regional System for Northeast Asia : Corridors or City-Regions ?", EWC-Conference Hawaii, 1999

Table 4.3 Container Cargo Volume1) of Three Nations in NEA unit : 1000 TEU Average Annual 1986 1990 1992 1994 1995 1996 Increase(%) China2) 237 577 862 1,451 2,283 2,576 26.95 Japan 5,649 8,094 8,965 9,914 10,835 10,983 6.87 S. Korea 1,533 2,669 3,178 4,130 5,005 5,300 13.21 Far-East Russia 145 307 248 60 109 111 -2.64 Total 7,564 11,646 13,253 15,555 18,232 18,970 9.63 Note : 1) the full container for export and import 2) Northeast China Source : Japan Maritime Press & Tsumori, “Inter-port Competition and Linkage in East Asia”, 2000

Despite the rapid growth of trade and marine traffic, logistics development was slow in Northeast Asia, especially in China. Lack of transport infrastructure linking port cities to major inland cities is one reason but there are a few more. Unlike the European Union, inter-modal integration of logistics has been weak. Furthermore, logistics systems have developed to meet mainly domestic needs in the three Northeast Asian countries and international linkages were poor. The underdevelopment of the logistics industry is additional factor common to the three Northeast Asian countries. For example, there are only a few branches of world-class shipper and forwarder companies in major ports in Northeast Asia (Tsumori 2000). All these factors incur high logistics costs in the three countries. In fact, the high logistics cost in Korea is known to be a factor responsible for its low economic efficiency. They are disadvantageous to Northeast Asia as well as to the YSSR as a whole, given the worldwide trend of integrated logistics system.

2. Inter-Port Competition and Linkages in the YSSR and Northeast Asia

In order to meet an increasing demand for goods and passenger transportation, each country in Northeast Asia has been investing a large sum of money in transport infrastructure such as port, airport, rail and highway. But the intention of infrastructure development often extends beyond simply meeting domestic or international demand. Especially in the expansion and construction of seaports and airports, competition inevitably arises between port cities domestically and internationally to take an advantageous position in the port or airport hierarchy, whether they are national, regional, or global. Tsumori (2000) identifies two types of competition: one is a struggle for the position of hub port in a region and the other is accelerating inter-port competition by the entry of new ports. In East Asia, inter-city competition for the hub position is indeed severe. For example, China’s major ports have been expanding and are planned to expand their cargo handling capacity. Shanghai aims at an international hub port by developing a network of ports combining Shanghai, Ningbo, and Zhoushan (Yang 1999). Korea has been building up a new port at Kwangyang and expanding the Pusan port. The combined cargo handling capacity will

66 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR reach almost 10 million TEU by 2011. Taiwan also intends to make Kaohsiung as a regional hub port in Asia. Even though not aspiring to a regional hub position, many ports in the YSSR are expanding port capacity to become a sub-regional hub port. Fukuoka, Kitakyushu, Qingdao, and Dalian all have plans to become a hub port in the YSSR. Kitakyushu is more ambitious than others in its plan : new harbors will be developed along with a new airport. It intends to become a logistics hub for the YSSR and a gateway to the southwestern Japan. Inter-port competition is indeed fierce in East Asia and in the YSSR. It is interesting to note that inter- port competition has been taking place at three geographical scales at the same time; first at the regional scale, second at the sub-regional scale, and third at national or local scale. Table 4.4 indicates that the gravity has shifted toward Middle and South China and Southeast Asia away from Northeast Asia. The core of container cargo flows is now formed around the three ports—Singapore, Hong Kong, and Kaohsiung. Given the trend of reduction in the number of port calls by the world major transport liners (a hub and spoke system in other words) and geographical ranges of container routes (two main routes of Asia- Europe and Asia-North America), Singapore and Kaohsiung become hub ports. Inter-port competition at the sub-regional level, for example in Northeast Asia, is taking place between Pusan, Shanghai, and Kobe. Within the YSSR, Dalian, Tianjin, Qingdao, Inchon, Fukuoka, and Kitakyushu are all contenders for a sub-regional hub. Inter-port competition in East Asia does not mean that there is no inter- port or inter-state cooperation in marine transport. Reflecting the growing trade within the YSSR and broadly in East Asia, inter-port linkages are developing and they are becoming regionalized (Table 4.5). In the YSSR, inter-port linkages are developing around Pusan, Kobe, and Shanghai. Local ports such as Dalian, Tianjin, Qingdao, Inchon, Kitakyushu, and Fukuoka are linked with Pusan, Kobe, and Shanghai. A few more linkages are newly formed between smaller ports in the YSSR. For example, Pusan, Masan, Inchon, and Kunsan ports in Korea have regular shipping lines with Dalian, Tianjin, Qingdao, Weihai, Lianyungang, Yantai, Shanghai, and Nantong. Between Korea and Japan, there are 12 shippers serving the area. Since inter-port transport data is not available in China and Japan, we can only document incomplete

information on transport volume between Korean ports, on the one hand, and Chinese and Japanese ports, on the other hand.

Table 4.4 Growth Trend of Container Cargo Flows in Asia unit: 1000 TEU 1980 1990 1996 Northeast Asia 4,134 11,646 18,970 Japan 3,322 8,094 10,983 Korea 668 2,669 5,300 Northeast China 30 577 2,576 Far East Russia 114 307 111 Middle & South China 3,143 11,285 29,132 Hong Kong 1,465 5,101 14,497 Taiwan 1,644 5,451 8,263 East & Southeast China 34 734 6,373 Southeast Asia 1,807 9,593 26,930 Singapore 917 5,134 14,120 Indonesia 104 924 3,246 Malaysia 172 901 3,033 Philippines 432 1,498 3,020 Thailand 181 1,078 2,422 Vietnam - 58 930 Myanmar - - 160 Total 9,084 32,524 75,032 Source: Adapted from (Tsumori 2000)

Table 4.5 Transport volume between port cities of China and Korea (1998)

China Cargo Volume (ton) Container (TEU) Korea Tianjin Qingdao Dalian Tianjin Qingdao Dalian Export 236,910 710,907 451,156 16,143 51,025 30,782 Pusan Import 198,780 808,210 757,688 194,887 786,166 636,526 Total 435,690 1,519,117 1,208,844 211,030 837,191 667,308 Export 1,767 111,920 105,475 N.A 10,810 5,593 Inchon Import 28,138 239,581 1,814,498 N.A 52,551 26,565 Total 29,905 351,501 1,919,973 N.A 63,361 32,158 Note : Figures in the table indicate the cargo that went through customs office. Source : Korea Customs Service

68 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

One notable feature in the YSSR is the regionalization of marine transport. For instance, local ports in the southwestern Japan and northern China have developed closer connections with the major ports of Pusan, Shanghai, and Kaohsiung since the mid 1990s (Tsumori 1997). Japan’s maritime network centered on major domestic ports such as Kobe, Osaka, Nagoya, and Yokohama have been gradually transformed into an enlarged transport and logistics system including nearby ports of neighboring countries. Such cross-border marine transport network formation is likely to be accelerated as transport markets become more liberalized in Northeast Asia. The reason behind regionalization is simple. Shippers and firms can save time and transport costs by directly linking with hub ports, whether they are within or outside the national territory. Since the major ports in the northeastern China such as Dalian, Tianjin, and Qingdao are off from the trunk lines of intercontinental shipping, they have to depend on hub ports for intercontinental shipping. Relatively closed transport markets and insufficient cooperation among the central governments in Northeast Asia hinder the regionalization of marine transport and inter-port networking (Tsumori 2000, Kim 1999). Although China, Japan, and Korea all joined the GATS (the General Agreement on Trade Services governed by the WTO), these countries are in actuality cooperating on the bilateral basis. For example, the Korea-Japan Maritime Committee makes decisions on new sea routes and their maintenance, participation of shippers, safety of passengers and other important concerns. Also, the Korea-China Maritime Committee makes decisions on the number of vessels and the addition of new routes between China and Korea. As such, maritime transport market is not completely liberalized in Northeast Asia. A range of restrictions such as limits on new entry and pricing still impairs competition at Japanese ports. China also has barriers limiting foreign carriers’ port access, branch office openings, and inland transport operations within its territory (Park and Choi 1999). In sum, excessive competition and market restrictions in the YSSR as well as in East Asia tend to make the regional transport market fragmented and inefficient. This might impair the competitive power of Asian carriers in the global transport market. Both inter-local and inter-national cooperation will help resolve those problems arising from narrow national and local interests

and lack of institutions. Obviously, market liberalization can be done unilaterally, bilaterally, or multilaterally. Whichever method is taken, a gradual approach holding to the principle of “balance of outcomes” rather than the principle of “balance of market access opportunities” is necessary, considering the interests of the country (or countries) with weak or costly transport sector in Northeast Asia. This essentially means sharing benefits of liberalization more or less equally among the parties involved. Regarding excessive competition between the ports in the YSSR, especially for a hub port position, inter-local cooperation is desired to have better inter-port relations. A consensus on the order or hierarchy of ports may be necessary to establish cooperative inter-port relations in East Asia and the YSSR. We propose here a tentative hierarchy of ports in Northeast Asia for further discussion (based on Tsumori 2000 and Robinson 1998).

1) Regional hub on the Asian scale 2) Sub-regional hub for Northeast Asia, Middle and South China, or Southeast Asia 3) Imperfect national ports 4) Local ports

There are two regional hubs in East Asia. One is Singapore and the other Kaohsiung. Singapore functions as a hub port on the trunk line between Asia and Europe, while Kaohsiung as a hub port on the trunk line between Asia and North America. Pusan may be a sub-regional hub port for Northeast Asia. If the Korean peninsula is geographically integrated, then the hub port position of Pusan will be strengthened. Hong Kong is a sub-regional hub port for Middle and South China. Even though it is currently ranked as number 2, Hong Kong does not enjoy much of locational advantage as Kaohsiung 24 . Imperfect national ports include Kobe and Shanghai. While the former has recently been declining, the latter is rising. There are numerous local ports in Northeast Asia. These ports can be further classified into those on trunk lines, those on only feeder lines, and those on coastal lines. Most ports in the YSSR belong to this

24 Robinson (1998) classified Singapore & Hong Kong as the first order ports and Kaoshiung & Pusan as the second order ports. But he anticipated the rise of Kaoshiung in the near future.

70 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR local port category. Figure 4.1 illustrates a tentative inter-port hierarchy of ports in Northeast Asia. Table 4.6 summarizes the characteristics and functions of the port system in the YSSR.

International hub

Sub-regional hub Imperfect national hub

Local port

Figure 4.1 Hierarchy of the Port System in NEA

Table 4.6 Characteristics, Functions and Hierarchy of the Port System in East Asia

International Hub Ports Imperfect National Hierarchy Local Ports Hub Ports in Sub-region Ports

Port of call on the Large ports in sub- Industrial complex Location National large ports trunk line region Middle & small

Connecting between Collecting and Collecting and Collecting and Function NEA and distribution of cargoes distribution of intra- distribution of other regions of world in sub-region regional cargoes domestic cargoes Tax Free Zone, VAL, Tax Free Zone, VAL, Tax Free Zone, VAL, Charac- Multi-modal transport Hinterland logistics Hinterland logistics Distribution centers teristics on-dock logistics center & transport center & transport center network network Qingdao, Dalian, Pusan (Kwangyang), Inchon, Tianjin, Cities Kaoshiung, Singapore Kobe, Shanghai Hong Kong Kitakyushu, Fukuoka, etc.

3. Tourism Development in Northeast Asia

Owing to the rapid economic growth of the countries in Northeast Asia and increased interests of non-Asians in East Asia in general contributed to the fast growth of tourism industry in Northeast Asian countries. Northeast Asia only accounted for less than 4% in world tourist arrivals in 1980 but more than 8% in 1996 (Table 4.7).

Table 4.7 Arrivals of Tourists from Abroad by Regions

Arrivals (thousand) Average Annual Share of World Total (%) Regions Growth Rate (%) 1980 1993 1996 ’80-’96 1980 1996 World 285,328 518,074 594,827 4.70 100.00 100.00 Africa 7,329 18,605 21,553 6.97 2.57 3.62 Americas 61,368 103,758 116,673 4.10 21.51 19.61 East Asia/Pacific 21,480 71,094 89,186 9.31 7.53 14.99 Northeast Asia 10,785 40,677 49,435 9.98 3.78 8.31 Europe 185,442 309,758 348,999 4.03 64.99 58.67 Middle East 7,467 11,348 14,084 4.05 2.62 2.37 South Asia 2,242 3,511 4,332 4.20 0.79 0.73 Source: World Tourism Organization, http://www.world-tourism.org According to the World Tourism Organization, Northeast Asia is known to

72 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR have the greatest potential for travel abroad. Among the countries in Northeast Asia, China is the largest tourist attraction, ranking sixth in terms of the number of arrivals and seventh in terms of the receipts in the world in 1998. Japan and Korea, however, do not register as major tourist attractions in the world in spite of their economic power. This may be partly due to somewhat negative perceptions in the past about the tourism industry in Japan and Korea. Since both countries now take positive policy measures in the tourism industry, they can perhaps attract more international tourists in the future. All these three countries, however, have a large room to improve. For example, the share of tourism receipts in the country’s GDP was 1.1% in both Korea and China, and only 0.1% in Japan. The ratio of tourism receipts to export values was 3.8%, 6.6%, and 1.0% respectively (Table 4.8). All these figures are much lower than such European countries as France, Italy, and the United Kingdom.25 Given the long history, cultural assets, and rising interests of Westerners in the Asian culture, Northeast Asia has a great potential to become major worldwide attractions.

Table 4.8 The Status of Economy and Tourism in Korea, China and Japan (1997)

Population GNP per Export Import Arrivals Receipts

(million) capita ($) (billion $) (billion $) (thousands) (million $) Korea 46 10,550 136.2 144.2 3,908 5,116 57,588 China 1,237 860 182.7 142.4 12,100 7,727* Japan 126 37,850 421.0 338.8 4,220 4,326 Expenditure Average Overseas Receipts Receipts Expenditure per person Length of Travelers / Export / GNP (million $) ($) Stay (thousands) (%) (%) Korea 1,312 5.5 4,542 6,262 3.8 1.1

China - - 5,320 4,500 6.6 1.1

Japan 1,026 8.6 16,800 33,000 1.0 0.1 Note : * does not include overseas Chinese. Source : World Bank (1998), Japan National Tourist Organization (1998), Tourism in Japan: 1998- 1999.

25 For instance, the ratio of tourism receipts to export values was 10.5%, 12.8%, and 7.6% in France, Italy, and the United Kingdom respectively.

The rapid growth of tourism industry in Northeast Asia partly reflects the rapid economic growth of the countries in Northeast Asia. In particular, the opening and integration of the Chinese economy with the world economy has contributed greatly to the rapid tourism growth. This aggregate growth has been partly captured within the region. For example, the two-way flows between China and Korea and between China and Japan have been increased substantially. This has something to do with China’s increased economic linkages with Japan and Korea. By international comparison, intra-regional tourism is not large. As shown in Figure 4.2 and Table 4.9, the share of intra- regional travel accounts for only 19.2%. This is much lower compared with the intra-regional share of 70% in Europe. Except for Korea, intra-regional (three countries only here) share accounted for about one-third in China and one- fourth in Japan. If we assume that this low share is due to lack of information and infrastructure (both soft and hard) and that these obstacles will be removed in the future, we then may expect a significant growth of intra-regional tourism in the future. It should be emphasized here that the increase in the number of travelers between China, Japan, and Korea is closely associated with increased economic interactions—trade and investment. The results of survey on the purpose of travel reveal such a pattern. For instance, less than 40% of foreign travelers came to Korea for tourism only for the years from 1992 to 1997. For Japan, the ratio of Chinese and Korean travelers for tourism purpose was only 15% and

Korea Korea 2,959 3,908

55 1,460 780 1,680 43 1990 740 210 1997 1,010 463 China Japan China 1,580 Japan 1,747 106 3,236 7,727 260 4,220

(unit : thousands) Note : China: foreigners only.

Figure 4. 2 Intra-Regional Tourism Flow in Korea, China and Japan (1990-1997)

74 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

Table 4.9 The Tourist Share of Korea, China and Japan (1995~1998) unit: 1000 persons 1995 % 1996 % 1997 % 1998 % to China 5,980 100 6,740 100 7,430 100 7,100 100 from Japan 1,300 22 1,010 23 1,550 23 1,570 22 from Korea 520 8 530 7 690 10 630 9 to Japan 3,350 100 3,840 100 4,220 100 4,110 100 from China 220 5 240 6 260 6 270 7 from Korea 870 26 1,010 24 990 24 720 18 to Korea 3,750 100 3,680 100 3,900 100 4,250 100 from China 190 5 200 5 210 6 210 6 from Japan 1,670 47 1,530 42 1,670 43 1,950 46 Note : This table is quoted from Liang (1999). Source : WTO (1998), KNTO(Korea National Tourism Organization) (1998), JNTO (1998), China Tourism Yearbook

Table 4.10 Purpose of Travel within the YSSR

to Japan 1992 1993 1994 1995 1996

Visitors Share(%) Visitors Share(%) Visitors Share(%) Visitors Share(%) Visitors Share(%) from (persons) Δ(%) (persons) Δ(%) (persons) Δ(%) (persons) Δ(%) (persons) Δ(%) 100 100 100 100 100 China 183,220 206,743 193,486 220,715 241,525 40.4 12.8 -6.4 14.1 9.4 15.9 12.8 12.7 11.5 12.1 Tourism 29,147 26,454 24,550 25,489 29,291 17.2 -9.2 -7.2 3.8 14.9 26.5 28.2 29.2 27.1 26.2 Business 48,563 58,232 56,485 59,859 63,351 46.6 19.9 -3 6 5.8 13 17.3 10.7 16.1 15.1 Passing 23,835 35,681 20,624 35,457 36,507 104.5 49.7 -42.2 71.9 3 44.6 41.8 47.5 45.3 46.5 Others 81,675 86,376 91,827 99,910 112,376 34.3 5.8 6.3 8.8 12.5 100 100 100 100 100 Korea 864,052 845,423 918,459 873,635 994,362 0.3 -2.2 8.6 -4.9 13.8 58.2 56 55.7 52.6 56.8 Tourism 502,871 473,318 511,753 459,166 565,034 -0.2 -5.9 8.1 -10.3 23.1 30.8 32.5 33.6 35.9 32.5 Business 266,323 274,755 308,504 314,039 323,334 -1.2 3.2 12.3 1.8 3 1.6 1.7 1.7 1.8 2.3 Passing 13,529 14,486 15,827 16,073 22,753 -2.5 7.1 9.3 1.6 41.6 9.4 9.8 9 9.7 8.4 Others 81,329 82,864 82,375 84,357 83,241 9.4 1.9 -0.6 2.4 -1.3 Note : This table is quoted from Liang (1999). Source : Japan National Tourist Organization (1998)

23% respectively in 1996. 26 At any rate, the close relationship between economic linkages and travel suggests that the intra-region tourism will grow as economic interdependency increases among the three countries. Within the YSSR, tourism activities are mostly carried out in capital cities. For example, Beijing, Seoul, and Tokyo capture the majority of foreign tourists. This is partly because tourism infrastructures and international connections are concentrated in those capital cities. Local cities, even though they may have interesting tourism resources, are not easily accessible. Most times, travelers who want visit these local cities have to go through the capital city. Recently, however, there has been an increase of transport connections between local cities in the YSSR due to rising inter-local economic interactions. For example, there are now 11 air routes available together with 9 sea connections between major cities of the YSSR (Figure 4.3, Table 4.11).

Table 4.11 Air Routes in the YSSR (Flight Time & Frequency per Week)

Fukuoka Seoul Pusan Cheju Kwangju Beijing Shenyang Dalian Jinan Qingdao Tianjin 1:15 0:55 1:00 4:10 2:00 2:00 Fukuoka 28times 11times 4times 10times 5times 4times 1:10 1:00 1:05 0:55 1:50 1:25 1:05 1:20 Seoul 28times 372times 181times 80times 21times 10times 7times 14times 0:40 1:00 0:55 0:45 2:20 Pusan 11times 364times 97times 7times 1time 0:50 1:05 0:55 0:45 Cheju 4times 151times 98times 35times 0:55 0:40 0:45 Kwangju 36times 7times 35times 2:15 1:40 2:20 1:00 0:50 0:50 0:55 Beijing 9times 21times 1time 47times 72times 17times 23times 1:45 1:05 0:40 1:25 1:00 2:20 Shenyang 5times 37times 21times 11times 12times 2times 1:40 1:10 1:00 0:40 1:35 0:40 0:50 Dalian 5times 7times 15times 21times 7times 12times 9times 0:50 1:20 1:40 Jinan 17times 11times 7times 1:50 1:20 1:00 1:00 0:40 1:15 Qingdao 4times 7times 34times 12times 25times 9times 2:20 0:45 1:20 Tianjin 2times 9times 9times Source : Time Table of JTB (February, 2000), Time Table of Chinese Airline (’99.10.31~’00.3.25)

26 If we take into account of the fact that tourist visa is easier to obtain than business visa, the actual number of tourists would be smaller than the above figures.

76 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

CHINA Domestic route Foreign route Sea route Beijing (unit : a week) 90times(1H5M) Dalian KOREA 21times(2H) 2times(15H) 7times(1H) 6times Seoul (1H55M) 35times(1H) (Inchon) 14times(1H40M)

Qingdao 2times(18H) 7times(2H40M) JAPAN 1time(2H20M) Pusan 3times(2H) 21times 4times (1H10M) 21times (55M) (3H or 14H)

11times(4H20M) Fukuoka

Note : The thickness of line indicates frequency.

Figure 4.3 Air and Sea Connections between Major Port Cities in the YSSR

Inter-city connections by sea have been growing fast between China and Korea across the Yellow Sea. Inter-city transport linkages between Korea and Kyushu have been qualitatively changed with the introduction of fast-speed boat. It takes only three hours between Pusan and Fukuoka. One-day round trip is possible in a calm day. The increased number of connections and frequency of operation are obviously a positive factor contributing to the growth of tourism within the YSSR. As a matter of fact, tourism in the port cities under investigation depends greatly on visitors from neighboring countries. For example, Japanese accounts for the majority of foreign visitors to Pusan (54%) (Table 4.13). Although figures are not available, the majority of visitors to Inchon are Japanese and Chinese. For Dalian, Japanese and Koreans occupy the majority (63%). Korean and Japanese visitors account for more than 40% in Qingdao. Korean visitors

are an important segment for Fukuoka’s tourism industry, while Taiwan and Hong Kong are important source countries for Kitakyushu (KERC 2000). Except for Kitakyushu, all the major port cities in the YSSR depend on each other for their tourism development. Increased direct flights between them and less cumbersome entry procedures would lead to the growth of tourism industry within those port cities.

Table 4.12 Regular Passengers Routes by Sea between Korea, China and Japan unit: thousands 1992 1993 1994 1995 1996 1997 1998 Launch Date

Inchon – Weihai 65 64 80 112 117 107 112 1990.9

Inchon – Tianjin 35 39 61 33 32 36 29 1991.12

Inchon – Qingdao - 10 31 20 22 28 31 1993.5

Inchon – Dalian - - - 10 63 63 42 1995.10

Inchon – Dandong ------17 1998.7

Kunsan – Yantai - - - - 9 13 8 1996.6

Pusan – Yantai - - 4 - 8 11 9 1994.5

Pusan – Shimonoseki - - - - 99 99 90 1973.9, 1998.4 1990.12, 1990.11, Pusan – Fukuoka 74 97 130 150 186 186 198 1990.2 Source : Pusan Regional Maritime Affairs & Fisheries Office.

Table 4.13 Foreign Visitors to Major Port Cities in the Yellow Sea Sub- Region

Foreign Tourism Visitors Ranking Composition of Visitors Visitors Receipts in Each Countries Pusan Japanese : 576,370 (54.0%) 1,068,088 - 3 (’98) Russian : 118,952 (11.0%) Inchon 195,000 $16.5million Mainly Japanese and Chinese 11 (’97) Dalian Japanese : 72,000 (35.1%) 205,000 $200.0million 7 (’97) Korean : 57,400 (28.0%) Qingdao Korean : 46,000 (23.1%) 199,500 $102.3million 8 (’98) Japanese : 40,000 (20.1%) Fukuoka Taiwanese : 33.2%, Korean: 26.3% 440,000 - 6 (’98) Chinese 6.4% Kitakyushu 120,000 - Taiwanese, Hong Kong, and Korean - (’98) Source : Data provided by participating cities.

78 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

4. Opportunities for and Obstacles against Inter-Local Cooperation in Tourism Industry in the YSSR

Belatedly, countries and cities in Northeast Asia recognize the importance of tourism industry for their local and national economies. As a matter of fact, tourism is one of the world’s largest industries and generators of jobs. An additional merit of the tourism industry lies in its minimal effects on the environment. The World Tourism Organization (1998) estimated that the tourism industry generated $ 4.4 trillion and 231 million jobs worldwide in 1998. It is forecasted to grow to $ 10 trillion industry with 328 million jobs in 2010. For Northeast Asia, it is estimated that the tourism industry will generate $ 1,953 billion and 98.5 million jobs by 2010. A broadly defined tourism economy is estimated to contribute 12.5% to the world GDP and 10.9% to the world employment by 2010. Similar contributions are estimated for Northeast Asia (10.9% to the GDP and 10.8% to the employment of Northeast Asia by 2010) (Table 4.14). Although no accurate measures are available to analyze the direct and indirect effects of the tourism industry, tourism is known to have quite significant inter-industry linkage effects.

Table 4.14 Prospects for Tourism Economy of the World and Northeast Asia

Capital Government Total Employment GDP Demand Investment Expenditure Year Regions Million million % of billion % of billion % of % (billion $) Jobs $ Total $ Total $ Total 4,373 231 3,564 779 253 World 9.4 11.6 11.8 6.8 (100.0) (100.0) (100.0) (100.0) (100.0) 1998 Northeast 723 78 608 175 33.4 9.7 10.3 10.2 7.3 Asia (16.5) (33.8) (17.1) (22.5) (13.2) 9,963 328 8,008 1,769 542 World 10.9 12.5 12.0 7.4 (100.0) (100.0) (100.0) (100.0) (100.0) 2010 Northeast 1,953 99 1,589 436 85.9 10.8 10.9 10.2 7.6 Asia (19.6) (30.2) (19.8) (24.6) (15.8) Source : WTO (2000), http://www.world-tourism.org & WTTC (2000), http://wttc.org.

The growth of tourism industry in Northeast Asia, however, depends on a series of factors such as economic growth of Northeast Asia and the world, travelers’ preference over destinations inside and outside the region, and government policy concerning overseas travel. According to the estimation of WEFA and Nomura Research Institute, intra-regional travel within Northeast Asia will grow from 14 million arrivals in 1997 to 42 million in 2020 (Korea National Tourism Organization 1999). Among the 5 Northeast Asian economies, China and Japan will be the two major source countries of intra-regional travel and tourism by 2020 (each will contribute to the intra-regional total by 35% and 28% respectively). In 1997, Japan was the single largest source country in 1997 (39% of intra-regional total). Although Japan at the moment is the largest economy in Northeast Asia, the Chinese economy is rapidly growing and it is likely to replace Japan in 20 years. Therefore, China’s policy on overseas travel and foreign currency will have a significant impact on the intra-regional travel and tourism market.

Table 4.15 Northeast Asia Tourism Arrivals Matrix (1997~2020) unit: 1000 persons Des. Northeast Hong China Taiwan S. Korea Japan Org. Asia Kong 1997 13,890 2,360 5,810 1,180 2,090 2,450 Northeast Asia 2020 42,190 9,420 18,030 3,380 4,640 6,720

1997 2,770 - 2,300 - 210 260 China 2020 14,580 - 12,050 - 1,270 1,260

1997 630 - - 260 100 270 Hong Kong 2020 4,320 - - 1,960 370 1,990

1997 5,450 1,580 1,370 820 1,680 - Japan 2020 12,020 6,170 1,850 1,100 2,900 -

1997 2,250 780 360 100 - 1,010 Korea 2020 6,510 3,250 960 320 - 1,980

1997 2,790 - 1,780 - 100 910 Taiwan 2020 4,760 - 3,170 - 100 1,490 Source : WTO (2000) & KTPA (2000)

80 Current Conditions and Issues in Logistics and Tourism Industry in the YSSR

Apart from the above macro-scale analysis of the tourism industry in Northeast Asia, we can bring out several important factors that are more pertinent to the YSSR. Some are positive and others are negative factors. First, we will look at the positive side. First of all, there is a great potential demand for tourism. For example, outbound tourists from the three countries—China, Japan, and South Korea—are low in comparison with the world average. In fact, China’s outbound tourists constituted only meager 0.4% of the population in 1998. When the world average rate is applied, the total number of outbound tourists from the three countries should reach 140 million.27 This is clearly a promising sign for the tourism industry worldwide. Recent policy changes in China, which made overseas travel easier and to more places, are another positive factor for the growth of the travel and tourism economy. Currently, Hong Kong, Macao, Korea, and Japan are listed as official tourism destinations. Corresponding to this liberalization policy of China, the government of South Korea exempted visa requirement for Chinese group tour to Cheju Island. The rising level of income and increasing propensity to take leisure and travel among the citizens of Northeast Asia promise the steady growth of the tourism industry in Northeast Asia. The issue for the cities and provinces in YSSR is how to capture the growing demand for travel and tourism within the region. If the local authorities take advantage of geographical proximity and cultural similarity, cities and provinces within the YSSR will profit from the growing travel and tourism market in Northeast Asia. There exist, however, many obstacles hindering the growth of the tourism industry in the YSSR. Major ones are: lack of institutions for inter-local cooperation, inadequate infrastructural links and tourism facilities, language problems and insufficient information about each other, inconvenient entry procedures, and the underdeveloped tourism industry. Despite the recent establishment of East Asian City Conference (including mostly YSSR cities), inter-local cooperation remains to be further strengthened and concrete efforts to promote tourism jointly are insufficient as well. In Europe, Americas, and Southeast Asia, multi-country tour programs are well developed but they are absent in Northeast Asia. As discussed earlier, infrastructural links—air, sea,

27 The world average rate of outbound tourist was 10.4% of the world population in 1998. (WTO 1998)

and land connections are weak. Air linkages are mainly through capital cities. Although there are air flights between local cities in the YSSR, air-fares are expensive and thus most travelers go through capital cities (Yang 1999). The closed door policy of North Korea does not allow less expensive land connections between cities in the YSSR, which take away potentially wider choices of tourism from travelers. Tourist facilities such as reasonably-priced hotels and restaurants serving home country food are often not available (Korea National Tourism Organization 1999). Language gap is a problem between the cities in the YSSR. In addition, information about destinations in other countries is insufficient and is inaccessible to foreign visitors even if available in home country languages. Even though there has been some improvements in entry procedures, there are many areas for improvement. Visa requirement and associated costs—monetary and psychological—are still high. Immigration office is still a big psychological barrier for both entry and exit. Some of these procedures are necessary for security reasons but more convenient and pleasant ways of passing the border can be found through conscious efforts by respective governments. The non-availability of exchanging currencies in visiting cities seems a trivial thing but tend to discourage travel to those cities. Although it is not often discussed in the literature, the underdeveloped tourism industry in Northeast Asia, especially in Korea and China is itself an obstacle. The reason for this underdevelopment may be associated with the negative perceptions that were prevalent in these countries in the past. On the whole, the tourism industry in Northeast Asia is often operated by incompetent managers and employees who do not have expertise. The labor-intensive nature of the industry does not mean that knowledge component is unimportant. Rather, in combination with modern telecommunication, the tourism industry can significantly increase the knowledge component and thereby create substantial value added.

CHAPTER 5

Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

1. Rationale for Cooperation in the logistics and tourism industry

The main rationale for cross-border inter-local cooperation can be represented by four key words; resource pooling, economies of scope and scale, low transaction costs, and increased cooperation. The role of the logistics is vital for achieving these four dimensions of cross-border cooperation. In particular, logistics has a direct bearing on transaction costs, which constitutes an obstacle to economic relations between the firms and local authorities of various cities. To promote greater integration among various cities and provinces, it is essential to have a functionally networked logistics system. In short, logistics provides a foundation for all types of economic and non-economic transactions enabling sub-regional integration to proceed smoothly. Inter-local cooperation in the tourism industry has more to do with the first dimension, i.e., resource pooling and thereby achieving synergy effects. Currently, the three constituent parts of the YSSR are independently developed to attract tourists from within and outside the sub-region. Although industrial and other regional development efforts reveal the same tendency, tourism is easier to cooperate across the border. The place-bounded nature of tourism provides an additional merit for inter-local cooperation. Through cooperation, participating cities can develop multi-country tourist programs, which offer variety and new themes. This will enable cities and provinces in the YSSR to overcome specific size thresholds (e.g., to have a cruise tour) or to exploit

economies of scale. Another advantage lies in the possibility of joint ventures in the development of common brand and quality services (e.g., hotel chains with standard services). Furthermore, the rationale for cross-border inter-city cooperation in the specific industries of logistics and tourism stems from the fact that both industries play a facilitating role in other areas of cooperation such as trade and investment, cultural, and technological exchanges. The facilitative role of the logistics industry is obvious and does not need much explanation. The linkage effect of the tourism industry to other areas is more subtle and indirect. Through travel and tourism, one often develops perceptions about other peoples, cultures, and places. This soft aspect of person-to-person contact could, however, have a long-lasting impression and thereby produce decisive impacts on inter-local relations. To repeat the arguments made in Chapter I, another rationale for focusing on inter-city cooperation in the logistics and tourism industry first lies in practical reasons. Cross-border cooperation should begin from the least- resistant areas, perhaps, in the order of trade, investment, to more complicated areas. In the past decade, we have seen a significant progress in the areas of trade and investment but cross-border cooperation is stalling because of institutional and non-institutional barriers. In other words, the YSSR has been undergoing the first stage of simple exchanges and is now entering into the second stage, where further cooperation and integration can begin. Inter-state and inter-local cooperation in the logistics and tourism industry will cement existing ties and deepen cooperative relations with the formation of networks in the YSSR.

2. Measures to Promote Cooperation in the Logistics Industry

Inefficient and high cost logistics, low degree of cross-country integration due to relatively closed markets, and excessive competition for a hub port position were pointed out as major problems in the YSSR. The key issue is how to lower transaction costs, whether material or non-material based. Therefore, the main objective of the logistics industry in the YSSR is to achieve an efficient and

84 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR integrated logistics network so as to bring benefits to all participating members. Although bilateral cooperation mechanisms exist, national interests dictate the actual operation of them. Furthermore, the integrity of the YSSR is not a concern for these bilateral committees. The basic approach taken here is to transform the current bilateral cooperation to trilateral cooperation including both national and local governments of China, Korea, and Japan. It is therefore necessary to institutionalize inter-local cooperation in the logistics industry. Setting up a committee under an umbrella organization (which will be discussed later) to specifically deal with the issues and problems of logistics would be one way to begin trilateral cooperation. Strategies to deal with the major problems are as follows:

1) market liberalization Although we cannot expect a complete liberalization of transport markets in a short period of time, we consider that it is possible to open up the transportation and logistics markets in the YSSR through negotiation among the relevant authorities at both local and central levels and the users. In the beginning, we may select a few areas in limited areas. This measure will help accelerate the current trend of regionalization of logistics. Logistics cooperation by the users across the national boundary, for example, the local ports in the southwestern Japan using Korean shippers to send cargo to North America via Pusan port, can be further strengthened.

2) harmonious inter-port relations The six ports under study in this research cannot become hub ports of the same rank. Through market liberalization and inter-local cooperation, we may find a mixed solution—market and plan—to satisfy parties involved. For instance, Dalian, Qingdao, Inchon, Fukuoka, and Kitakyushu can be linked with Shanghai, Pusan, and Kobe with feeder lines and they can be further connected to Asia’s main hub ports such as Singapore and Kaohsiung. It would be much desired to develop an efficient network among them and port-to-hinterland

connections to satisfy growing intra-regional demand because these six ports are already serving a rapidly growing huge hinterland respectively. Perhaps after satisfying this, they can consider feeder systems linking with upper-level hub ports rather than wasting resources to become an international hub port. In passing, we can mention that a similar arrangement is possible for airports as well. To facilitate the movement of cargo and passengers, an integrated logistics system can be developed for the YSSR. For the moment, we can think of an integrated logistics zone for the YSSR, through which international air passengers and cargo originating from the cities in the YSSR can be collected at hub airports such as Tokyo, Osaka, and Inchon. Airports in Fukuoka, Pusan, Qingdao, and Dalian should focus on intra-regional travel. More direct flights possibly with one-day round trip schedule between the port cities will assist not only business travel but also tourists travel within the YSSR.

3) joint development and financing of logistics infrastructures We have discussed about a deficit in port capacities and related logistics facilities in the YSSR. Given limited capital resources, investment funds should be carefully used in a concentrated fashion instead of the current pattern of dispersed investment. In China, port expansion has been occurring virtually in all the ports. South Korea has been making investment in a scattered fashion. Local ports in Japan are aggressively pursuing expansion and new construction. The result of such locally- based approach would dry up precious investment funds quickly. Instead, we may consider a joint development and financing of transport and logistics infrastructures. As done in one port area of Dalian, foreign private companies can build and operate port facilities jointly with local authorities. Many forms of joint development are possible including private-public, public-public, or private-private. This will not only help reduce the current deficit in infrastructure but also promote standardization and integration of the logistics industry in the YSSR. High-speed boat connecting the six ports in the YSSR deserves attention of local authorities. The demand for small volume, high value-added

86 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

goods such as electronic parts and components and perishable goods such as fish and vegetables are likely to increase in the future. Also expected is a faster and convenient transportation of passengers and general cargo. High-speed boats with 40-50 knots and more cargo capacity would be desired for inter-port transportation within the YSSR.

In addition to the above strategies, we need to address more immediate problems to lower transaction costs and to promote integration of logistics system within the YSSR. They are largely related to information sharing, standardization of customs procedures, technical specifications of equipment and container pool system. Information sharing among ports can decrease the vacant movements of vessels and containers. Waiting time at the port can be substantially reduced by information sharing. In order to have smooth exchange of information, information processing systems should be compatible between ports. For example, the use of the electronic data interchange (EDI) should be expanded and integrated between ports. Eventually standardized data sets as well as the compatibility of EDI systems between the intermodal players and the government will bring the benefits of advanced information and communication technologies (OECD 2000). Standardization of logistics related machinery and equipment is urgent. By simply doing this, we can save costs for the port logistics. For example, the use of standardized pallets and containers would save time for the movement and inter-modal transfer and reduce costs of storage and transportation significantly. Current customs procedures at different ports vary. These procedures need to be firstly streamlined and secondly standardized to reduce logistics costs. Customs procedures at the YSSR ports still create a lot of paperwork. In order to streamline these procedures, a single standard form may be necessary. Introduction of modern customs procedures and techniques such as pre-arrival processing of data and documentation is a must. Empty container is an issue in the YSSR, especially between China and Japan. This issue is a result of trade imbalance between them. China exports to Japan more than it imports, especially with the Kyushu region. We suggest that three countries or at least the six major port cities set up a container pool

system so as not to carry empty container around these ports. Following the pallet pool system already in use, those ports can use containers in a three-way fashion linking China and Japan with Korea. For example, Japanese shippers export to Korea using containers used for importing from China, and then Korean shippers export to China using containers used for importing from Japan (KERC 2000). It will not take lots of efforts to do this. But the prerequisite for such a pooling system is the standardization of containers.

2-Way System

3-Way System

Figure 5.1 Movements of Containers in the Container Pool System

88 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

Inter-local and inter-state cooperation in the logistics industry within the YSSR will bring benefits to all participating cities and countries. Some obvious benefits to each country are as follows:

1) China can use other cities’ ports and logistics facilities to supplement its deficit of cargo handling capacity. Using Korean or Japanese ports for China’s shipping to the North American route would save shipping costs. Joint financing for China’s port expansion and construction will not only help China modernize its port facilities in the Bohai Sea rim but also learn advanced logistics management and technology. 2) Local ports in the southwestern Japan can benefit by using the sub- regional hub port such as Pusan for its cargo bound for Europe and North America. This is partly happening now and should be further encouraged. 3) Korean ports will benefit as transshipment cargo from China and Japan increases. Joint development of the third or fourth-generation port is possible with Japanese or other advanced logistics providers.

In sum, cooperation in the logistics industry, although it may produce loss to some national shippers (e.g., large Japanese shippers who used to collect cargo from local ports in the southwestern Japan), will benefit member cities and firms. Enlarged and integrated logistics markets will stimulate trade and investment within the YSSR and bring benefits to the consumers in the sub- region. To achieve this, we obviously need a more detailed study on the logistics industry in the YSSR. There should be an institutional forum to discuss and negotiate about the details among concerned authorities and users.

3. Measures to Promote Cooperation in the Tourism Industry

In the previous chapter, we have discussed the seven major problems of the tourism industry in the YSSR. To repeat, they are; poor access to local tourist attractions other than capital cities and the resultant low rate of intra-regional tourism; lack of multi-country tour programs; lack of information about

potential tourist destinations; language problem; inconvenient and costly entry procedures; government restrictions on outbound tourists (particularly for China); and underdeveloped tourism industry. Although we cannot resolve all these problems at once, we can take necessary steps gradually. Among these, the public sector can improve in the following areas immediately. First, inconvenient and cumbersome entry procedures can be drastically streamlined unilaterally or trilaterally. As the government of Korea has done, visa requirement can be exempted for all group tours within the YSSR.28 Given the insignificant effect of no visa for a limited area (e.g., Cheju Island), the no-visa privilege should be extended to the whole country.29 If this is not possible within a short period of time, no visa for group tours during the World Cup in 2002 can be experimented. The government of China should issue multiple-visit visa of 3-5 years to Japanese and Korean tourists and business travelers. China’s policy regarding the operation of outbound tourists should be further liberalized so that local cities such as Dalian and Qingdao can become an international departure point for travelers abroad. Eventually, the citizens of China, Japan, and Korea should be free to visit and travel among the three countries. Services at the immigration and customs office have been improved compared with the past but still need improvements to make visitors feel to have return travel. Second, the public sector of port cities can do posting street signage in multiple languages. If using Chinese, Japanese, Korean, and English in the signage at the same time poses a difficulty, three languages will be sufficient. For example, street signage in Korean cities can use Korean, English and Chinese (most Japanese can read Chinese character). Multilingual tourist police is another idea that can be implemented without high costs (Friedmann 2000). Although some cities have already done like Fukuoka, city maps and tourist information should be available in multiple languages. In addition to those more immediately doable measures, we need to adopt the following measures to improve the tourism industry in the YSSR.

28 Tourism agencies in Kyushu are active in promoting no visa for Chinese group tours to Japan, which is under negotiation between the governments of China and Japan (KERC 2000). 29 This is because of the characteristics of group tour, which often visits multiple-points (e.g., Seoul and Cheju Island) for multiple purposes (sightseeing and shopping).

90 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

1) More direct flights, possibly a round-trip, between the six port cities should be negotiated with the major airliners in the YSSR. Negotiations should include currently too high airfares between local cities as well. This is a critical dimension of inter-city cooperation and networking. 2) A joint website, “YSSR Tournet,” can be created by the concerted efforts of the six port cities initially and joined by other cities later. This will fill the information gap in the YSSR cities. This tournet will contain all the necessary information about tourist attractions, events, accommodation facilities, restaurants, transportation, etc. in the YSSR. The tournet should be accessible by multiple languages, i.e., Chinese, Japanese, Korean, and English. 3) Multi-country tour programs can be developed to attract tourists within and outside the YSSR. For example, the YSSR with its rich cultural heritage can offer two prominent tour routes. One is to learn and discover the history of inter-city relations in the past. China’s Tang Period, the Shilla Period in Korea, and Japan’s Yamato-Nara-Heian Period, when coastal trading among the three countries was active (Figure 5.2). Another history tour would be to explore the remains of modern war and sites in the early 20th century. Dalian, Qingdao, Inchon, Pusan, Kitakyushu and Fukuoka can serve as focal points for these history and culture tours. If Beijing, Seoul, Tokyo are added to these multi-city history tour, these programs can offer opportunities for entertainment and shopping. Some tour programs developed by JR Kyushu linking Kyushu and Korea contain some elements of such multi-country tour routes. 4) Organizing events tour is another way uniting the six cities in the YSSR (KERC 2000). For example, the Asia Month in Fukuoka, the International Film Festival in Pusan, Dalian’s Fashion Show, Qingdao Beer Festival, and others can be designed in such a way to promote multi-city tour packages (Table 5.1). The 2002 World Cup, which will be held in more than dozens of Korean and Japanese cities, and the Asian Games in 2002 in Pusan offer another opportunity to exploit inter-city cooperation in the tourism industry.

Current Future

CHINA CHINA

Dalian KOREA Dalian KOREA

Seoul Seoul Inchon Inchon JAPAN JAPAN Qingdao Kyongju Qingdao Kyongju Pusan Pusan

Fukuoka Fukuoka

Figure 5.2 Culture and History Tours

5) In addition to direct and round-trip flights, local authorities can encourage the adoption of high-speed boat between port cities in the YSSR like the one in operation now between Fukuoka and Pusan. In the longer run, cruise ship can be deployed to entice tourists inside and outside the YSSR. A loop course starting at Fukuoka, visiting Pusan, Inchon, Qingdao, Dalian and ending at Kitakyushu can be considered for the YSSR cruise. Joint ventures by the three countries can build necessary infrastructures such as passenger terminals to operate the cruise liner. 6) Given the lack of tourist facilities and personnel, the private sector in the six cities should be encouraged to participate in joint ventures such as reasonably priced regional hotel chain and training schools. Such training should include short courses on languages and tourist management. Training manpower with language skill is essential to upgrade the underdeveloped tourism industry in the YSSR. Local authorities can certainly help the private sector establish hotel chain and training schools by offering a variety of incentives.

92 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

Table 5.1 International Festival in the Main Cities of the Yellow Sea Sub- Region

City Event Contents Term Scale 900 thousand Asian Month More than 50 events about Asia are held. Every September persons (’99) Asian Focus·Fukuoka (same as the 16 thousand To introduce excellent Asian films Cinema Festival above) persons (’99) Public performance on Asian folk-art and (same as the 560 thousand Asia Pacific Festival special products exhibition where above) persons (’99) exhibits are displayed and sold. Fukuoka Awards for people who contribute to Fukuoka Asian Cultural (same as the academic researches and cultural art in Award above) Asia region The Conference of Children To invite Asian children for home-stays 400 persons in 40 Every summer in Asia Pacific and interchange camps countries 8000 persons Asia Junior Art Exhibition To exhibit art works by Asian children Every August (’99) Themes of this exposition are “Industry, Technology, Environment, Asia, and 2 million persons North Kyushu Exposition July ~ November Kyushu Welfare”. (expectation 2001 in 2001 This exposition also holds convention value) and festival programs. Dalian International Fashion To hold international fashion exhibition Every September 5000 persons Festival Dalian Ice Festival Large scale exhibition of ice sculptures Every January

Acacia Festival Event for mainly Japanese tourists Every May Dalian Dalian Summer Shopping Shopping event for tourists Every June~July Festival Dalian Pagoda Trees Appreciation for Pagoda trees Every May Appreciation Event Dalian Winter Shopping Shopping event for tourists Every December Festival Every August ~ Qingdao Qingdao Beer Festival Events whose theme is beer. September Pusan International Film Every September Pusan Film festival focusing on Asian countries Festival ~ October Source : Adapted from KERC 2000.

In sum, the measures discussed above aim at removing barriers between countries and facilitating the convenient and inexpensive movement of people around the cities in the YSSR. Tourism and travel markets in the YSSR and Northeast Asia have been rapidly growing and are expected to continue to grow in the future. The key issue is how to exploit this opportunity by just-in-time preparations. Inter-local cooperation offers a great promise in the exploitation of the opportunity.

4. Inter-city Networking Strategies

Inter-city cooperation for logistics and tourism can be more effectively carried out if cities in the YSSR form some kind of association or network. The existing associations or forums such as East Asian City Conference formed in 1991, the Governor’s Meeting for the Korea-Japan Strait Zone formed in 1992, and the Asia-Pacific City Summit formed in 1994 set examples. They also provide a few clues for desirable structure and operation of the network to bring practical results (Table 5.2). On the whole, these existing associations lack qualities that are required to produce concrete results because they are loose in organization, their agenda is too broad, and the depth of cooperation is not deep at the moment. For example, East Asian City Conference had four mayor’s meetings including the meeting held in Shimonoseki in 2000. Despite the agenda of these meetings (Table 5.2), the association did not produce any significant results for the YSSR. The main drawback is the absence of a permanent secretariat, which develops and coordinates meeting agenda and follows through resolutions made at the meeting. Although mayors can play an important role in leading inter-city cooperation, they are nonetheless bounded by the terms of office and subject to local politics. The Asia-Pacific City Summit, which has a much larger membership, has a loose organization and its agenda covers a variety of general issues facing those member cities. Because of the diversity and wide geographical boundary of the organization, it seems difficult to develop coherent policy agenda satisfying all the member cities. Efforts to make the Asia-Pacific Summit a more practical network are being made but the result remains to be seen.30 In contrast, the Governors’ Conference in the Korea-Japan Strait Zone has produced more tangible results. The involvement of local research institutions (began in 1994) in the Governors’ meeting has enabled the follow-up activities on the decisions or agreements reached at the meeting. Differently from East Asian City Conference and the Asia-Pacific City Summit, the Governors’ Conference is more coherent in terms of organization and its agenda is more

30 The Asia-Pacific City Summit is going to be held in Pusan in 2000. In this meeting, the city of Pusan with the assistance of the Pusan Development Institute intends to establish the “Asia- Pacific Port Cities Network.”

94 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR practical. The involvement of local organization such as research institutes is one reason but the more focused geographical area (only two countries involved) is another reason. Although the rotation of secretariat function by every two years may be for the reason of equal participation, it poses the danger of losing the continuity and momentum. Based on the above examination of the existing associations and forums, we propose an Inter-City Council in the YSSR.31 This idea is based on the preliminary suggestions made by researchers from the three countries participated in the study. Partially representing the interests of individual cities, initial suggestions on inter-local cooperation by participating research institutes contain slightly different emphases and viewpoints as illustrated in Table 5.3. While agreeing to the need to establish some kind of inter-local cooperation mechanism, Dalian and Qingdao emphasize more informal, open-style cooperation organizations, while Fukuoka proposes a more tightly organized inter-local cooperation institution resembling the Union of Baltic Sea. Pusan and Kitakyushu seem to emphasize a more business-centered association among the cities in the YSSR. In the specific areas of cooperation such as logistics and tourism, proposed ideas vary by city in terms of focus and depth. For example, Pusan and Inchon are more keen about instituting some formal agreements on logistics operation and services, while Dalian and Qingdao are simply suggesting an integration of logistics system in the YSSR. More willingness and enthusiasm are found in all the city’s position regarding inter- city cooperation in the tourism industry.

31 Similar ideas have been proposed during the research process. ISPRE suggested a coordinating agency plus a standing research organization. KERC suggested a Union of Cities in the YSSR following after the Union of Baltic Cities.

Table 5.2 Conferences and Forums of Cities & Provinces in East Asia

Year Locale Conference Theme Participant Conference of East Asia & the Yellow Sea Sub-Region Possibility of cooperation in the Yellow Sea Sub-Region and its Kitakyushu, 1991 Kitakyushu progress in East Asia (Intellectual conference) Shimonoseki, Dalian, Prospects of development in East Asia and cooperation among cities Qingdao, Pusan, Inchon The role of private and administrative sector in urban development and Kitakyushu, the mutual cooperation (Professional conference) 1992 (same as the above) Shimonoseki Problems in economic interchange among six cities and strategies for these problems (Business Representative conference) Searching for possibility of exchange among cities in the Yellow Sea 1993 Kitakyushu (same as the above) Sub-Region (The 1st mayor conference) 1995 Dalian The 1st seminar for the conservation of urban environment in East Asia The assignment of role in each city and mutual cooperation for co- Pusan Tianjin and Yantai joined 1996 prosperity in Yellow Sea Sub-Region (The 2nd mayor conference) Inchon The 2nd Seminar for the conservation of urban environment in East Asia The 1st urban conference for the exchange of information on the harbor 1997 Kitakyushu development in East Asia The direction toward promoting practical interchange of economic Ulsan joined besides the 1998 Dalian trade among cities in the Yellow Sea Sub-Region (The 3rd mayor above conference) The Asia Pacific City Summit Research for urban development and human habitat environment in the 21 cities and regions in 1994 Fukuoka Asia Pacific era 11 countries Transportation management in the cities of the Asia Pacific region 20 cities and regions in 1995 Fukuoka (Expert conference) 10 countries 20 cities and regions in 1996 Guangzhou Urban development in the 21st century 11 countries 18 cities and regions in 9 1997 Guangzhou Garbage disposal management (Expert conference) countries 23 cities and regions in 1998 Fukuoka Provision of urban mutual cooperation 12 countries 18 cities and regions in 1999 Fukuoka Safety water supply (Expert Conference) 10 countries 25 cities and regions in 2000 Pusan Economic development in Pacific Asian cities in a new millennium 13 countries The Governors’ Summit of Korea-Japan Strait Zone Regular meeting for governors’ in the Zone, cultural, sports, and youth Fukuoka, Saga, Nagasaki, 1992 Cheju exchange, economic and technology exchange, joint study on Pusan, Jeonnam, regional development Kyungnam, Cheju Information exchange between local authorities, joint study between Korean and Japanese research institutes, region-wide tour routes 1993 Ureshino (same as the above) development, economic exchange, preparation for manpower development, women training, and agricultural technology exchange Establishment of operational rules of the governors’ meeting, joint 1994 Pusan (same as the above) holding of sports and cultural events Projects to support exchanges between regional development 1995 Nagasaki (same as the above) organizations 1996 Changwon Project for the promotion of local traditional craft industry (same as the above) 1997 Kitakyushu Promotion of information exchange through internet (same as the above) 1998 Kwangju (same as the above) 1999 Karatsu Yamaguchi joined Source: Adapted from KERC 2000.

96 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

Table 5.3 Summary of Policy Recommendations by City

Qingdao Dalian ˙To promote industrial cooperation between cities ˙To place more importance to inter-city cooperation in the Yellow Sea Sub-Region in the Yellow Sea Sub-Region and grasp this ˙To set up an open coordination organization opportunity to form growth triangle region with Inter-city Japanese and Korean relevant cities Network ˙To promote the cities in the Yellow Sea Sub- & ˙To unite Japanese and Korean relevant cities and Region into sister-city, and undertake all kinds of Free Zone construct some backbone projects friendly exchange ˙To establish a standing business organization ˙To establish a standing research organization including businessman and entrepreneurs from including experts and scholars from China, Japan China, Japan and Korea & Korea Logistics ˙To establish an efficient & integrated system of ˙To realign the management system of airline and & regional ports in the YSSR sea line transportation in China Infra- ˙To construct a high-speed transport system in the structure Yellow Sea ˙Creating the scale economy effect of tourist ˙To strengthen the talent training for tourism industry through the inter-city cooperation in the ˙To formulate the corresponding policies and Yellow Sea Sub-Region measures to encourage the development of Tourism ˙To plan and establish the tourist network among tourism industry the major port cities in the Yellow Sea Sub-Region and develop the tourist economy with the feature of Sub-Region ˙To create and further improve basic conditions of ˙To further open up to outside and further expand tourist industry at home and abroad international exchange ˙To utilize the best experience of international ˙The significance of inter-city cooperation should tourist sale promotion, to establish efficient, be emphasized through all kinds of public highly trained and coordinated tourism medium, and the study of inter-city cooperation Others development should be enforced, too. ˙To attract domestic tourists to participate in the ˙To make preferential policies encouraging study outbound tourist activities focusing on the major other 2 country's languages cities in Korea and Japan ˙To introduce international management system to ˙To further improve the transportation facilities administrate Dalian Port and separate the port from Dalian to Korea and Japan affairs from administrative affairs

Fukuoka Kitakyushu ˙To advance cooperation aimed at the solution of ˙To support the business tie-ups through database Inter-city urban problems in the Yellow Sea Sub-Region for firms, conventions & economic missions to Network promote business collaboration & ˙ Free Zone To promote mutual investment in Specific Zones between cities in the Yellow Sea Sub-Region ˙To expand sea-route networks between Hakata ˙To construct high-speed transportation network Logistics Port and coastal cities in the Yellow Sea Sub- ˙To develop the transportation system for medium & Region and small shippers, and enlarge the transportation Infra- ˙To enlarge Yellow Sea Sub-Region One-day Zone networks to Asia structure to encourage the movement of people ˙To cooperate to utilize empty containers efficiently ˙To develop sightseeing resources for theme tourist ˙To promote tourism via cooperation with other packages cities in Kyushu ˙To promote ocean-going passenger transport for ˙To link conventions and conferences with tourism Tourism tourism activities ˙To improve the system to receive Chinese group tours

(Table 5.3 continued) Inchon Pusan Inter-city ˙To establish a Free Trade Zone nearby Inchon ˙To establish Businessman Association of the Network international airport with the following measures Yellow Sea Sub-Region and Exchange Center for & - Abolition of trade tariffs, exclusion of import Yellow Sea Sub-Region Free Zone quotas, tax free shops ˙To develop inter-modal transport in joint ˙To establish Port Logistics System for the Yellow cooperation Sea Sub-Region Logistics ˙To construct an integrated logistics system an ˙To amend legal system to reduce logistics cost and & efficient distribution network, especially a investment circumstance Infra- logistics center with multi-transport terminals and structure container open storage ˙To make the formal agreement governing ˙To establish a logistics information-network and provisions of logistics support, supplies, and management for the logistics cooperation services ˙To construct and improve an international airport ˙Development of cultural tourism resources and and additional ports continuously wide combination ˙To build various programs to develop cultural ˙To develop marine tourism resources tourism, especially combined with sightseeing and ˙To develop tourism resources related to Japan holiday resort tourism ˙To make Pusan the shopping and entertainment ˙To establish tourism cooperation board and center of Northeast Asia information centers ˙To develop tourism cooperation program of Yellow ˙To implement co-marketing strategies Sea Sub-Region and produce synergy effect Tourism ˙To develop cooperation programs and joint-tour ˙To establish the internet homepage of Yellow Sea package Sub-Region ˙To identify tourism resources and joint tourism ˙To establish tourism system that enables tourists to development planning enjoy sightseeing comfortably and peacefully ˙To promote international investment in tourism and joint tourism marketing ˙To facilitate the development of tourism products, convenience of travel, and joint training and technical exchanges

Yellow Sea Sub-Region Inter-city ˙To build the inter-city network for the municipal cooperation and for the common profit Network & ˙To establish free port network Free Zone ˙The introduction of speed ferry ˙Information networking & standardization of ports, equipment & systems Logistics & ˙Collaborative services for the cargoes from the outside of NEA Infrastructure ˙Container pool system ˙Transport market liberalization ˙To build exchanging places such as Korea Town, China Town, Japan Town and make these special tourist regions ˙To develop joint package tour and souvenirs symbolizing the cities ˙To develop the Northeast Asian cruise tour goods and a land route for tourists ˙Joint advertisement in market abroad ˙To make a tourist map of the Yellow Sea Sub-Region in Korean, Chinese and Japanese Tourism ˙To use 3 languages together in the port cities ˙To try for inter-governmental tourism agreement, mutual visits, regular meetings in particular case ˙To establish Inter-city Tourism Cooperation Council ˙To simplify entry and departure procedure ˙To promote free air transportation and relax air traffic restrictions ˙To develop facilities for cruise tour course : chain hotel etc.

98 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

At any rate, all the cities represented and the research institutes involved in the study felt the need to build an institutional infrastructure and unanimously supported the idea of establishing an Inter-City Council for the future of the YSSR. Such a council will provide an institutional platform, upon which inter- city cooperation in various areas including logistics and tourism can be pursued. By this platform, inter-city cooperation can proceed beyond simply promoting economic growth of individual cities to enhancing the sustainable and harmonious development of member cities. Through inter-city networking between local authorities, business organizations, and citizens in different cities of the YSSR, we ultimately expect to build a shared identity and vision of the YSSR. The economic focus of the council is inevitable, reflecting upon the currently prevailing concerns of port cities in the YSSR. All the six cities are concerned with economic growth. Another common interest they have is to expand their gateway function beyond their immediate hinterland. For practical reasons, it seems sufficient for the Council to focus on three areas—logistics, tourism, and trade and investment in the initial stage. Trade and investment are important in the economic growth of cities but they require more time to reach an agreement. Furthermore, national and supra-level decisions often have an overriding importance on trade and investment rather than decisions at the city level. But we recognize that inter-local cooperation in trade and investment can make some contribution to freer trade and investment within the YSSR. Since logistics and tourism share more or less the same physical infrastructure and institutional infrastructure, they can be promoted at the same time. We also note that inter-city cooperation in logistics can play a facilitating role in expanding trade and investment by lowered transaction costs. In the long run, the council can expand its agenda into other strategic purposes: sharing information and working together on common problems facing the member cities, influencing the national and international agenda of Northeast Asian countries for the benefit of member cities, and increasing the transfer of know-how, good practice and experience as in EUROCITIES. The membership of this Council should be open to any cities within the YSSR. Initially the six port cities included in this study can form the Council. In this regard, the existing East Asian City Conference (currently composed of

9 cities of Kitakyushu, Shimonoseki, Dalian, Qingdao, Pusan, Inchon, Tianjin, Yantai, and Ulsan) can be utilized as a forum to discuss the idea of the YSSR Inter-City Council. Although the local authorities of member cities will play a leading role in the council, associate membership must include business organizations, universities and research institutions, and organized civil society. The Council can be operated on the basis of membership fees and funds contributed by participating local authorities and business organizations. The Council should have a small but technically competent secretariat to do the following things: to coordinate the activities of the council, to serve as technical staff for special purpose committees, to prepare background research papers, to coordinate meeting agendas, and to serve as a focal point for information. With an agreement of member cities, the secretariat function should be placed in one member city. This will reduce the danger of losing continuity and momentum. Of course, the city, which will house the secretariat function, should play a facilitator’s role for the Council. It should avoid exercising power over setting the agenda of the meeting and developing projects for its own benefit. Three special purpose committees corresponding to the three major areas of cooperation can be established once the council is formed. They are the committee on trade and investment, logistics, and tourism. In these committees, specialists, relevant business representatives, and NGOs should be included to represent the interests of users and consumers. The committee on trade and investment should focus on strategies and measures to promote mutually beneficial economic cooperation, which can reduce outstanding imbalances in trade and expand the opportunities for cross investment among cities and provinces in the YSSR. As a longer-term objective, the committee should consider the strategies to create joint competitive advantage of the YSSR as a whole. For example, the idea suggested by the Kyushu Economic Research Center (2000) and the Kyushu Bureau of MITI (2000)—to make the YSSR as the world’s leading manufacturing zone—can be further examined. The prospect for the more horizontal cooperation and international division of labor in the electronics, automobile parts and components, and environmental recycling industries appears bright. The other two committees on logistics and tourism can follow up the strategies and specific issues spelled out in the sections 2 and 3.

100 Inter-City Cooperation Strategies in the Logistics and Tourism Industry in the YSSR

The Inter-City Council discussed thus far can become an important institutional platform for building an integrated economic zone for the YSSR, which will become a model zone for a larger economic entity covering the whole Northeast Asia. This inter-local approach appears more practical than the state-led approach. For the latter approach is constrained by differences in political system and in the level of economic development. In other words, inter-city cooperation can lead a region-wide economic cooperation in the YSSR. The six port cities, which will initiate the establishment of the Council, will become anchor points for economic, technological, and cultural interactions within the YSSR. Based on inter-port cooperation, inter-city networking can extend to inland cities including Shenyang and Jinan.

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CHAPTER 6

Conclusions and Policy Recommendations

1. General Conclusions

Despite nationalism and strong centralist tradition in Northeast Asia, cities and provinces are gradually emerging as an additional actor in the internationalization of the countries. Even though a radical prediction such as the disappearance of the nation state may not come true in the near future (Ohmae 1995, Kamo 1999), it is certain that private and local initiatives will play an increasingly important role in inter-country cultural, technological, and economic exchanges. In view of the worldwide trends of marketization and open trade, national markets cannot but be liberalized. The trends of democratization and decentralization in East Asia are certain to contribute to the revitalization of local autonomy. Although meager at the moment, there is growing recognition among people about the shared future, especially in the environmental front, of Northeast Asia broadly and the YSSR narrowly. Admitting that national governments are important players in bringing a more cooperative community in Northeast Asia and the YSSR, we nonetheless believe that local authorities, business organizations, and citizens can contribute to making a cooperative economic zone in the YSSR. Through inter-local cooperation, we can reduce currently high transaction costs in the YSSR. Furthermore, we can build an integrated economic zone through establishing various linkages including economic, technological, financial, and infrastructural. The advancement of technology and the rise of electronic

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business seem to provide an additional vehicle to the formation of such linkages among cities and provinces. In fact, the growth of trade and investment, cultural exchanges, and infrastructural links between cities and provinces in the YSSR over the past decade substantiates the claim of sub-region formation and moreover renders a rationale for explicit policy efforts at both local and central level. The process leading to the sub-region formation was fundamentally market-driven. It was private firms who sought to exploit natural economic complementarities. This is consistent with the processes leading to the formation of cross-border regional cooperation in the Southern China and the growth triangle of Singapore-Johor-Riau. Necessary conditions of economic complementarity, geographical proximity, and cultural affinity were there to help form an economic zone in the YSSR. The YSSR has a much greater potential to form an integrated economic zone compared with the East Sea Sub-Region (or Japan Sea Sub-Region). In contrast with the absence of large core cities in the ESSR, the YSSR has numerous large urban agglomerations with strong industrial production capacity. Indeed, the YSSR has a strong potential to become the world’s core manufacturing zone in the industries of electronics, car, and machinery. If supported by efficient technological, production, and logistics networks, the vision can be materialized. The three constituent parts of the YSSR reveal complementary relations, i.e., the Kyushu region with high income and technology, Korea with modest capital and medium technology, the Bohai region with inexpensive labor but a strong industrial base. Furthermore, the population of approximately 300 million in the YSSR itself provides a large enough market for small and medium-size enterprises within the region. In terms of trade volume, investment flows, commodity flows, and the number of visitors, there has been rapid growth in the YSSR. Trade has been growing not just between industries but between the same industry, indicating more horizontal structure of economic interactions. Although investment remains largely one-way from Japan and Korea to China, cross-investment is anticipated as China’s economy continues to grow in the next decades. At any rate, firms’ production space has enlarged over the YSSR or even beyond and people’s travel zone has expanded over many cities across the national border.

104 Conclusions and Policy Recommendations

With sufficient direct transport linkages among major cities, the YSSR can become a one-day travel zone. In spite of the progress achieved thus far, there are a few obstacles to overcome. They are weak institutional infrastructure, underdeveloped and less- integrated physical infrastructure, and language and psychological barriers. In addition, excessive competition for industrial build-up and infrastructure expansion hinders a harmonious development of cities and provinces within the YSSR. Although inter-city competition is necessary and inevitable, competition strategy generating excess capacity, for example, in the same industry, would not be helpful to those cities involved and the whole sub-region. Even though not all cities and provinces recognize this potentiality yet, they agree with the principle of competition with cooperation. Thus, the perceived task ahead is to promote dialogue and discussion among cities and provinces in the YSSR. Fortunately, there has recently been significant growth of cross-border inter-city and inter-provincial sisterhood relations and multilateral associations of cities and provinces in and around the YSSR. Also observed was a fast growth of transportation links between cities in the YSSR. Although it is ideal to form an economic zone including all the cities and provinces within the YSSR, we consider it impractical at the moment. Too many participants at different administrative levels appear not so conducive to reaching a consensus. Moreover, we strongly believe that cities or more precisely city-regions are the growth engines of the new global economic order (Scott 1997). Forming inter- city networks among the six port cities—Dalian, Qingdao, Inchon, Pusan, Fukuoka, and Kitakyushu—would provide a foundation to build a full-blown model of cross-border inter-local cooperation. These six port cities play an important role of gateway to their respective hinterland and moreover share more or less the same characteristics arising from port cities. The examination of inter-city linkages among those six cities reveals that inter-city networks are in formation. In the past decade, there has been a substantial growth of transport linkages between the cities in the Bohai region of China, the cities of Korea, and the cities in the Kyushu region of Japan. For example, there are close economic linkages between coastal cities of Dalian, Tianjin, Qingdao, Weihai, and Yantai and Seoul and other cities in Korea’s capital region. Inchon port has five regular passenger lines with the

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coastal cities of the Bohai region. Between Pusan and Fukuoka, there is now Beetle Boat only taking three hours. Kitakyushu has close technological and economic linkages with Dalian. Given a strong international orientation of coastal cities in the YSSR and their enthusiasm with cross-border cooperation, inter-city networks will become strengthened if the involved parties find ways to cement the existing ties and to elevate the level of cooperation through institutional channels.

2. Policy Recommendations

Recognizing the importance of regional institution building and the need to bring inter-city cooperation into concrete actions, we, the three institutions— Institute of Spatial Planning and Regional Economy, Kyushu Economic Research Center, and Korea Research Institute for Human Settlements— adopted joint policy recommendations (See the box below). The major points of the joint policy recommendations are as follows:

1) The establishment of “Inter-City Cooperation Council for the Yellow Sea Sub-Region. In the Council, we recommend to establish a permanent secretariat supported by a small but technically competent staff. 2) Under the Council, it is recommended to form three special committees on trade and investment, logistics, and tourism. These special committees will examine ways and means to promote cooperation between port cities in the YSSR in the respective substantive areas. 3) Local authorities in the six port cities within their purview will take necessary steps to facilitate free trade and investment, efficient flows of people, goods, and information among the port cities. 4) In relation to the above point (3), local authorities are encouraged to consider the idea of a Network of Free Port Districts, where foreign direct investment is privileged with the exemption or substantial reduction of tax and customs duty, in consultation with their respective national agencies.

106 Conclusions and Policy Recommendations

5) Recognizing the importance of integrated transport and logistics systems in facilitating trade and investment, it is recommended to address the following problems immediately; standardization of logistics facilities (e.g., pallet, container size, etc.), streamlining and standardization of customs procedure, and container pooling. 6) Local authorities together with the tourism business should consider the idea of jointly developing and marketing tourist resources within the YSSR. Specifically, it is recommended to create a website, the “YSSR TOURNET,” to develop multi-country (city) theme tours,32 and to simplify entry and exit procedures for travelers within the YSSR. 7) To carry out the idea of the YSSR TOURNET, it is recommended to set up a YSSR Inter-City Tourism Promotion Center in the city of Inchon. 8) In order to carefully examine the idea of a Network of Free Port Districts, the three research institutes will further collaborate and jointly conduct a study in the immediate future.

The idea of a Network of Free Port Districts was proposed by KRIHS and it deserves further attention.33 The six port cities that are included in the study have some sort of “free” status either established or entertained. For instance, Kitakyushu has a Foreign Access Zone, which promotes imports from other countries and investment from other areas of Japan. Dalian and Qingdao have Economic and Technology Development Zone providing tax and other incentive measures for foreign investors. These two cities also have bonded area, where taxes are exempted for processing and re-exporting activities. Korea has Free Export Zones and now plans to establish Customs Free Zone in Inchon, Pusan, and Kwangyang. Enterprises in this zone are exempted from taxes and customs duty. Target activities not only include manufacturing industries but also logistics-related industries. By linking these free areas with more or less the same set of policy incentives, we can create a network of free port district, in which free or much less constrained movements of capital,

32 As of May 2000, Inchon Development Institute has begun an initial work to design the website. 33 Kyushu Bureau of MITI (2000) proposed a similar idea of Free Trade Zone linking open economic areas and economic and technology development zones in China, Free Export Zones in Korea, and Foreign Access Zones in Kyushu.

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commodities, and information are possible. With the support of the central government in each country, these six port cities can materialize the concept of the network, which will offer many opportunities of investment, trade, and industrial cooperation. What distinguishes this network from the existing special zones is their synergy effects and thereby increased potential to generate trade and to attract investment from the world. The network of free port districts is different from the existing special zones by offering combined advantages of bonded area, manufacturing zone, and efficient and low-cost logistics. This network concept, if proved to be successful, would offer a model for much bigger ideas of Free Trade Area in the YSSR or Northeast Asia.

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Joint Policy Recommendations

The final meeting of the collaborative research, entitled as Inter-City Networking Strategy for the Major Port Cities in the Yellow Sea Sub-Region, recognizes the need to establish closer cooperative relationships among the cities along the Yellow Sea Rim.

Recognizing the importance of regional institution building, the Meeting strongly recommends the establishment of “Inter-City Cooperation Council for the Yellow Sea Region” with a permanent secretariat supported by a small but competent staff. Each participating member institutions of the Meeting are encouraged to report these policy recommendations to the mayors of the 6 cities included in the collaborative research.

Recognizing that inter-city cooperation in trade and investment, logistics, and tourism is essential to promote the common interests of port cities in the Yellow Sea Sub-Region, the Meeting recommends the formation of three special committees on trade and investment, logistics, and tourism under the Council, to examine ways and means to promote cooperation between port cities in the YSSR.

Considering the limited freedom of local governments in policies regarding tariffs, import quota, taxes, etc., the Meeting recommends that local authorities within their purview take necessary steps to facilitate free trade and investment, and efficient flows of people, goods, and information among the port cities in the Yellow Sea Region. In the process, local authorities are encouraged to consider the idea of a Free Port District in consultation with their respective national government.

The Meeting also recognizes the critical importance of an integrated transport

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and logistics system in facilitating trade and investment among port cities in the Yellow Sea Sub-Region. The Meeting recognizes that three problems of non- standardization, complicated customs procedures, and empty container, in particular, need an immediate attention of relevant authorities in the local and central government as well as logistics industries.

Recognizing the mutual benefits of inter-city cooperation in the tourism industry, the Meeting strongly recommends that the cities in the Yellow Sea Sub-Region should consider the idea of jointly developing and marketing tourist resources. The Meeting considers the following ideas worthwhile pursuing : creating a website, the “YSSR Tournet”, and developing theme tours linking the cities across the Yellow Sea in cooperation with relevant tourism organizations in China, Japan, and Korea. The Meeting also recommends that local authorities should take necessary steps to make travel easier between cities within the Yellow Sea Region. In the process, there should be wide consultation with the tourism community and relevant policymakers.

Recognizing the need to bring inter-city cooperation into concrete actions, the Meeting unanimously endorses the idea of setting up a “YSSR Inter-city Tourism Promotion Center” in the city of Inchon to create and manage the “YSSR Tournet.” The six cities represented in this Meeting will closely cooperate with each other and assist the operation of this Center, while the City of Inchon will play a secretariat role for the Center.

The Meeting also agrees to carry out a joint research in the area of trade and investment, in particular, on the possibility of establishing a network of Free Port Districts in the major port cities of the Yellow Sea Sub-Region. The details of this joint research will be further developed by KRIHS in consultation with ISPRE and KERC.

April 8, 2000

Institute for Spatial Planning and Regional Economy Kyushu Economic Research Center Korea Research Institute for Human Settlements

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Appendix : Workshops and Conferences

1. Planning Meeting for Inter-City Networking Strategy in the Yellow Sea Sub-Region

May 12-13, 1999 Beijing, China

- Agenda -

May 12 (Wednesday) Morning 10:00-10:20 Welcoming Remarks China Mr. Du Ping, Director, ISPRE Korea Dr. Hong Chul, President, KRIHS Japan Mr. Imamura Akio, President, KERC 10:20-10:45 Outline of the Collaborative Research Dr. Kim Won Bae, KRIHS

10:45-11:00 Coffee Break

11:00-12:00 The Present and Future of Logistics and Tourism Industry in Northeast Asia Drs. Kim Gyeong Seok and Kwon Young Sub

Afternoon 2:00-5:00 Presentations and Discussion Moderator: Mr. Du Ping

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Status and Prospects for Logistics and Tourism Industry of Major Port Cities in the Yellow Sea Sub-Region

Dalian Wang Qingyun Qingdao Yang Jie Inchon Kim Bun Uk Pusan Hwang Yong Woo Fukuoka Takagi Naoto Kitakyushu Chen Shuang

May 13 (Thursday) Morning 9:00-10:30 Discussion All participants

Future Activities and Research Planning Research Activities Interim Meeting: November 1999, Pusan, Korea Final Meeting: April 2000, Fukuoka, Japan Publication

10:30-10:50 Coffee Break

10:50-11:10 Closing Remarks

2. Second Workshop for Inter-City Cooperation in Logistics and Tourism Industry in the Yellow Sea Sub-Region

Sangnam International House, Pusan, Korea

116 Appendix : Workshops and Conferences

November 3-4, 1999 Co-hosted by KRIHS and PDI

- Agenda -

November 2 (Tuesday) 19:00-21:00 Dinner and Reception Hosted by Dr. Lim, Jung Duk (President, PDI)

November 3 (Wednesday) 10:00-10:30 Opening Welcoming Remarks Prof. Park Jae Yoon (President, Pusan National University) Dr. Lim Jung Duk (President, Pusan Development Institute) Dr. Hong Chul (President, Korea Research Institute for Human Settlements) Mr. Imamura Akio (President, Kyushu Economic Research Center) Dr. Xiao Jin Cheng (Assistant Director, Institute for Spatial Planning and Regional Economy)

Coffee Break 10:30-10:45

Session I Overview 10:45-12:00 Chair: Ha Woong Soo (Pusan National University) Presentation Inter-City Networking Strategy in the Yellow Sea Sub-Region by Dr. Kim Won Bae (KRIHS)

Inter-City Networking Strategy for the Major Port Cities in the Yellow Sea Sub-Region by Dr. Wang Qingyun (ISPRE)

Discussion Prof. Kim Chang Soo (Pusan National University)

12:00-13:30 Luncheon Speech: Pusan Container Terminal Authority

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Session II Current Conditions and Future Prospects for Logistics Industry in the Yellow Sea Sub-Region 13:30-17:00 Chair: Lee Cheol Yeong (Korea Maritime University) Presentation Strategies for Cooperation in the Logistics & Transportation Industry in the sub-region by Dr. Kim Gyeong Seok (KRIHS)

Local Strategies for the Development of Logistics and Transportation Industry and Inter-City Cooperation 1. Exchange and Cooperation in Qingdao Logistics Industry with Japan and Korea by Ms. Shen Bing (ISPRE) 2. Fukuoka and Kitakyushu by Mr. Takaki Naoto and Mr. Chen Shuang (KERC) 3. Pusan by Dr. Park Chang Ho (PDI) 4. Inchon by Dr. Kim Beon Uk (IDI)

Discussion Prof. Moon Seong Hyeok (Korea Maritime University) Prof. Park Myeong Sub (Pukyoung National University) Prof. Song Gye Eui (Dongseo University)

18:30-21:00 Dinner Hosted by Dr. Hong Chul (President, KRIHS)

November 4 (Thursday) 07:30-08:30 Breakfast Meeting for Coordinators

Session III Current Conditions and Future Prospects for the Tourism Industry in the Yellow Sea Sub-Region 08:30-12:00 Chair: Kim Chang Nam (Dong-A University) Presentation Strategies for Cooperation in the Tourism Industry in the Sub- Region by Dr. Kwon Young Sub (KRIHS) The Suggestions and Policies on Tourism Industry Cooperation for the Major Port Cities in the Yellow Sea Sub-Region by Ms. Wang Yang Hong (ISPRE)

118 Appendix : Workshops and Conferences

Local Strategies for the Development of Tourism Industry and Inter-City Cooperation l. The Tourism Industry corporation Strategy in Qingdao by Ms. Yang Jie (ISPRE) 2. Fukuoka and Kitakyushu by Mr. Takaki Naoto and Mr. Chen Shuang (KERC) 3. Pusan by Mr. Keum Sung Keun (PDI) 4. Inchon by Dr. Kim Beon Uk (IDI)

Discussion Prof. Yhang Wii Joo (Silla University) Prof. Choi Yeol (Pusan National University) Prof. An Young Myeon (Dong-A University)

Session IV Future Activities 12:00-12:30 Chair: Kim Won Bae (KRISH) All participants

12:30-13:30 Lunch

14:00-17:30 Special Activity: Tour in the Pusan Port Area

3. Inter-City Cooperation in Logistics and Tourism Industry in the Yellow Sea Sub-Region

Fukuoka, Japan April 5-8, 2000 The 3rd Meeting of a Collaborative Research by KRIHS, ISPRE, KERC Hosted by KERC

- Agenda -

April 5 (Wednesday) Afternoon 4:30-5:30 Visit the Asia-Pacific Center and the Momochi Area

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6:00-8:00 Dinner

April 6 (Thursday) Morning 8:00-9:30 From Fukuoka to Kitakyushu

9:30- 12:00 Tour in the Kitakyushu Port

Afternoon 12:00-13:00 Lunch

1:00-1:20 Welcoming Remarks Mr. Imamura Akio, President, KERC Mr. Du Ping, Director, ISPRE Dr. Lee Jeong Sik, President, KRIHS

Session I Overview and Proposal 1:20-1:50 Chair: Mr. Imamura Akio, KERC Presentation Inter-City Cooperation in the YSSR: Some Practical Proposals, Dr. Kim Won Bae, KRIHS

1:50-2:35 Presentation Inter-Port Competition and Linkages in East Asia, Professor Tsumori Takayuki, Okayama University

2:35-2:50 Coffee Break

2:50-3:50 Inter-City Cooperation in Logistics and Tourism and Policy Considerations Presentation Inter-City Cooperation in the Logistics Industry, Dr. Kim

120 Appendix : Workshops and Conferences

Gyeong Seok, KRIHS Inter-City Cooperation in the Tourism Industry, Dr. Kwon Young Sub, KRIHS

3:50-4:30 Discussion Dr. Wang Qingyun, ISPRE Dr. Dai, Erbiao, ICSEAD Professor Tsumori Takayuki, Okayama University Mr. Takaki Naoto, KERC

4:30-6:30 From Kitakyushu to Fukuoka

6:30-8:00 Dinner

April 7 (Thursday) Session II Local Perspectives on Inter-City Cooperation in Logistics and Tourism in the Yellow Sea Sub-Region Morning 9:00-10:00 Chair: Dr. Hong Chul Presentation Overview on the Logistics and Tourism Industry: Local Perspectives and External Cooperation Strategy of Qingdao, Dr. Yang Jie and Dr. Gao Guoli, ISPRE The Characteristics of Dalian’s Economy and Its Cooperation with Cities in the Yellow Sea Sub-Region, Dr. Wang Qingyun and Dr. Shi Yulong, ISPRE

10:00-10:15 Coffee Break

10:15-10:45 Discussion Mr. Chen Shuang, KERC Mr. Keum Sung Keun, PDI Dr. Kim Beon Uk, IDI

10:45-11:45

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Session II continued Chair: Mr. Du Ping Presentation Inter-City Cooperation Strategies in Logistics and Tourism Industry in Inchon, Dr. Kim Beon Uk, IDI Development of Port Logistics and Tourism Industry in Pusan and Inter-City Cooperation in the YSSR, Dr. Park Chang Ho and Mr. Keum Sung Keun, PDI

11:45-1:15 Lunch

Afternoon 1:15-2:00 Discussion Mr. Kabu Takayoshi, KERC Dr. Kwon Young Sub, KRIHS Dr. Yang Jie, ISPRE

2:00-3:00 Session II continued Chair: Dr. Lim Jung Duk Presentation Inter-City Networking Strategy of Fukuoka City in the Yellow Sea Sub-Region, Mr. Takaki Naoto, KERC Inter-City Networking Strategy of Kitakyushu City in the Yellow Sea Sub-Region, Mr. Takaki Naoto, KERC

3:00-3:15 Coffee Break

3:15-4:00 Discussion Dr. Shi Yulong, ISPRE Dr. Park Chang Ho, PDI Dr. Kim Gyeong Seok, KRIHS Dr. Wang Qingyun, ISPRE

4:00-4:30 Overall Discussion Dr. Ogawa, Yuhei, Professor Department of Commerce, Seinan Gakuin University

122 Appendix : Workshops and Conferences

Dr. Kim Won Bae, KRIHS Mr. Du Ping, ISPRE

6:00-8:00 Dinner

April 8 (Friday) Session III Policy Recommendations and Future Activities Morning 9:00-11:00 Chair: Dr. Lee Jeong Sik Presentation Draft Joint Policy Recommendations, Dr. Kim Won Bae, KRIHS Future Activities, Mr. Imamura Akio, KERC Discussion China, Japan, and Korea Representatives

11:30-12:30 Lunch

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