Fears about instability in East Asia are not new. In the early 1990s, as the cold war entered the history books, some international relations experts feared that East Asia was poised to become like Europe of the early 20th century – a multipolar region with a threatening rising power (in this case China, rather than Germany) and weak regional institutions.
However, by the end of that decade, hopes for regional stability and cooperation were on the rise. Much of the progress came on the financial front. After the 1997 financial crisis rocked the entire region, a consensus emerged among the big three countries and a group of 10 smaller ones in Southeast Asia that East Asia needed a financial safety net.
In 2000, a system of emergency credit lines between central banks was born and has since developed into a regional foreign exchange pool with $240 billion in resources. Trade between nations in the region increased substantially.
More recently, in the immediate aftermath of the global financial crisis in 2008, China, Japan, and South Korea increased existing central bank credit lines with each other. Just last year, China and Japan agreed to begin conducting trade in their own local currencies in order to increase commerce between their two economies.
The island disputes are threatening to undermine all this. Three recent events highlight how the territorial spats are now spilling over into the economic sphere.