Okinawa and Taiwan in the Asia Economy

Hirofumi Ushikoshi

Summary

Assuming the return of U.S. military bases and implementation of present economic development policies， Okinawa's economy could average 4-5% growth annually over the next 20 years. But public works spending will need to be kept above the national average; as reducing or eliminating it would spell slower or even negative growth. For self-sustained growth， the economic structure must eventually discard its heavy dependence on public works spending. But in the near term， while the economy continues its dependence on public works spending， progress will be necessary in the phased return of U.S. military bases and establishment of linkages with the Asia economy.

The Okinawa economy has been dependent on U.S. military bases in the postwar period， and after reversion to Japan in 1972， also came to rely heavily on public works spending (especially of the central government). The economy thus has a small manufacturing sector and excessively large tourism industry， giving Okinawa the nation's lowest per capita income and very high unemployment.
In light of recent developments such as the consolidation and realignment of U.S. bases， more forceful demands on the central government (to enhance the free trade zone， abolish visa requirements， etc.)， and development policies of the central government， there is growing interest in whether Okinawa can become self-sustaining within the Asia economy. By shifting from a structural dependence on U.S. bases， public spending， and tourism to an economy based on information related industries， Okinawa hopes to harness the dynamism of the Asian economy.
The key to success lies in private investment， the most important and promising source being Taiwan. With the reversion of Hong Kong to China in 1997， Taiwan has been pursuing an "Asia Pacific Operation Center Plan" to become the next Hong Kong. But with the difficulty in direct travel between China and Taiwan， Taiwan has been considering giving this role to Okinawa. Due to political tensions with China， there is also interest in policies to divert investment from China to Okinawa. Another important factor is that Taiwan has played the leading role in redeveloping Subic Bay in the Philippines.
By 2015 (when Okinawa aims to complete its "Cosmopolitan City Formation Concept")， Okinawa's economy could grow at a 4-5% average annual rate if Okinawa's demands including base reversion are realized， the central government's development policies are implemented， and investment from Taiwan and elsewhere is equivalent to the Subic Bay redevelopment project. However， the growth rate could be limited to 2-3% if public spending is phased down to the national average， or the economy could even contract if public spending is eliminated. Our prediction assumes a growth rate excluding policy factors of 2%.