Chinas Relations with Developing Asia: Integration through Trade

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Chinas Relations with Developing Asia
Integration through Trade

• Deepanwita Dutta
• Presentation for IDEAs-RIS Workshop
• on
• Nature and Implications of
• Expanding Presence of India and China for Asia,
• 5-6 November 2009, New Delhi, India

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Impact of Chinas High Sustained Growth

• Substantial increase in Chinas share in world
  exports and imports
• Increase of export share from 3.4 in 1998 to
  8.1 in 2006
• Increase of import share from 2.5 in 1998 to
  6.4 in 2006
• Change in the geographical composition of Chinas
  export and import partners
• Though developed country markets remain Chinas
  export destinations, its imports increasingly
  sourced from developing Asian countries

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Direction of Chinas Exports
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Sources of Chinas Imports
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Findings of the study

• China has played a dynamic role in the rapid
  expansion of regional trade by becoming the
  regional hub of the global production network
• Chinas integration into the regional production
  network has, instead of crowding out export
  opportunities for poor developing countries,
  actually created more opportunities for these
  countries.
• Southeast Asian countries increased
  participation in the China-centered global
  production sharing has made the region
  increasingly dependent on Chinas extra-regional
  trade.

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Findings of the study (continued)

• Chinas nature of integration with South Asian
  countries is different from that with Southeast
  Asia.
• Southeast Asia has much deeper integration with
  China through intra-industry trade and production
  sharing.
• Chinas growth of exports has not come mainly
  from primary commodities but from machinery, and
  electrical electronic equipments, which have
  been its highest export categories during 2002-07
  (42).

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South Asia accounts for a very small share of
Chinas trade
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South Asias Trade with China

• Trade data shows that China was more important as
  a supplier to South Asia.
• South Asia mostly imported machinery (HS 84) and
  electrical electronic equipments (HS 85).
• Other import sectors that had come up recently
  were iron steel articles of iron steel
  fertilizers manmade filaments and manmade staple
  fibres.
• South Asias prime exports to China were primary
  commodities--cotton and ores, slag ash.
  However, the growing shares of electrical
  electronic equipments pharmaceutical products
  and plastics articles suggest considerable
  diversification of export sectors happening
  within the manufacturing sector.
• Though Chinas share in South Asias exports was
  in the range of 2-3 during 1998-2007, the
  growing exports from these countries suggest that
  Chinas growth has offered a bigger market for
  these South Asian countries.

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Southeast Asian countries trade with China

• Trade volumes have increased significantly since
  1998. According to ASEAN Statistics, total trade
  between ASEAN and China reached about US 193 bn
  in 2008, which accounts for 11.3 of ASEANs
  total trade.

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Shares of Southeast Asian Countries in Chinas
Total Trade
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Chinas Share in Export of Southeast Asian
Countries

• Chinas share has been increasing steadily in
  Thailands, the Philippines and Indonesias
  exports it has recorded the highest share in the
  Philippines exports.
• Chinas share recorded the highest growth in
  Vietnams export (10.9) up to 2004 after that
  it fell, recording the lowest among the four
  countries in 2007.

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Chinas Share in Import of Southeast Asian
Countries

• There has been a steady increase of Chinas share
  in Southeast Asian countries imports in the
  years since 1998.
• Chinas share in all these countries imports
  were much higher than its share in their exports
  except in the case of the Philippines. Chinas
  share in the Philippines export was much higher
  than in its import.

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Composition of Southeast Asias Trade with
ChinaManufactured intermediate goods dominated
Thailands the Philippines exports to China

• Machinery (HS 84) and electrical electronic
  equipments (HS 85) dominated both the countries
  exports. Together the two commodity groups
  constituted 82 of the Philippines export and
  38.3 of Thailands export during 2002-07.
• This concentration has consistently increased
  post-2002.
• There has also been noticeable increases in the
  shares of certain primary commodities like edible
  vegetables and certain roots tubers edible
  fruit, nuts, peel of citrus fruit, melons and
  cereals in case of Thailand, while in case of the
  Philippines it is ores, slag ash and mineral
  fuels, oils distillation products.

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Composition of Southeast Asias Trade with China
(Continued) Manufactured intermediate and final
goods dominated Thailands the Philippines
imports from China

• Electrical electronic equipments and machinery
  emerged as the most important commodity groups of
  import for Thailand the Philippines.
• Together these two sectors constituted 54 of
  Thailands and 46 of the Philippines total
  imports from China during 2002-07.
• Other sectors that registered huge increases in
  imports since 2001 were iron steel articles of
  iron steel plastics articles thereof.
• Sharp decline of agriculture-based cereals and
  resource-based rubber in the Philippines import
  suggests diversion from primary agriculture-based
  commodities towards manufacturing intermediate
  goods.

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Composition of Southeast Asias Trade with China
(Continued)Primary goods dominated Indonesias
Vietnams exports to China

• The major chunk (34.3) of Indonesias export to
  China was mineral fuels, oils distillation
  product (HS 27) during 2002-07 for Vietnam too
  this formed the major export item (47) during
  the same period.
• Other commodities which increased their shares in
  the 2002-07 period in Indonesias export were
  ores, slag ash and copper articles thereof.
• Other important items in Vietnams export to
  China were agriculture-based products like cuttle
  fish, squid, frozen, dried, salted or in brine
  coconuts, fresh or dried, cashew nuts, fresh or
  dried and natural rubbers in other forms.

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Composition of Southeast Asias Trade with China
(Continued)

• Indonesias export basket to China and to the
  world are more or less similar for the obvious
  reason that it is a resource rich country.
• Despite being predominantly a primary commodity
  supplier, there is some diversification observed
  within the manufacturing sector in Indonesias
  export to the world.
• During 2002-07, Indonesia exported significant
  shares of machinery (4.7) electrical and
  electronic equipments (8.4) to the world. During
  the same period, Indonesias import of these
  commodity groups from China constituted 26 of
  its total imports, the second largest after
  mineral fuels.

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Composition of Southeast Asias Trade with China
(Continued)Capital or intermediate goods and
high level technical items were the dominant
imports of Indonesia Vietnam

• The important imports of Indonesia were mineral
  fuel (16) and machinery and electrical
  electronic equipments.
• Iron steel emerged as the most important
  imported commodity group of Vietnam, followed by
  machinery and mineral fuels, oils distillation
  products during 2002-07.

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Commodity Composition of Southeast Asias Trade
with China reveals that

• Thailand and the Philippines had strong
  intra-industry trade with China especially in
  machinery and electrical electronic equipments.
  
• Other sectors that exhibited intra-industry trade
  were iron steel rubber articles thereof and
  organic chemicals.
• China mostly imported primary and intermediate
  products from these countries in order to process
  them and produce final goods for exports.
• Chinas Exports were destined predominantly
  towards developed markets.

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Chinas Commodity Composition of Trade,
2002-07Export Import
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Chinas trade in Machinery and Electrical
Equipments (US bn)

• China has emerged as a net exporter in these two
  categories since 2003.

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Major Observations of the Study

• Chinas export growth has led to increase in its
  imports from developing Southeast Asian
  countries. Therefore, Chinas emergence has
  indeed boosted intra-regional trade by offering a
  bigger market for these developing Asian
  countries.
• FDI has played an extremely important role in
  this process as multinationals from developed
  East Asian countries have relocated parts of
  their production processes to China (even as they
  continue to source inputs from home countries and
  other parts of Asia).

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• The rapid expansion of intra-industry trade and
  production sharing, which is concentrated among
  the first-tier Asian NIEs and subsequently the
  second-tier Asian NIEs, is also heavily
  concentrated in the two sectors, the machinery
  and electrical and electronic equipments. This
  entails certain risks.
• Any fall in demand for Chinese exports of
  machinery and electronic equipments from the
  developed countries would lead to fall in the
  trade, adversely affecting the developing
  countries of Asia.
• In fact, the dependence of other countries on
  China increases their vulnerability to external
  shocks and business cycles.
• Therefore, this dimension has to be taken into
  account while adopting policy initiatives in the
  domain of regional economic integration.

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• Thank You!!!