China’s Relations with Developing Asia: Integration through Trade

Deepanwita Dutta

Presentation for IDEAs-RIS Workshop on‘Nature and Implications ofExpanding Presence of India and China for Asia’, 5-6 November 2009, New Delhi, India

Impact of China’s High & Sustained Growth Substantial increase in China’s 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 China’s export and import partners Though developed country markets

remain China’s export destinations, its imports increasingly sourced from developing Asian countries

Direction of China’s Exports

Sources of China’s Imports

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

China’s 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 China’s extra-regional trade.

Findings of the study (continued)

China’s 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.

China’s 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%).

South Asia accounts for a very small share of China’s trade

0.00004

0.2 0.2

0.6

0.8

1.8

0.3 0.3

0.1 0.10.02 0.02

0.30.1

0.020.0002

0.00120.00050.000000.200000.400000.600000.800001.000001.200001.400001.600001.800002.00000

1998 2002 2007

Year

Sh

are

(%)

Bangladesh India Pakistan Sri Lanka Nepal Maldives

South Asia’s 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 Asia’s 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 China’s share in South Asia’s exports was in the range of 2-3% during 1998-2007, the growing exports from these countries suggest that China’s growth has offered a bigger market for these South Asian countries.

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 ASEAN’s total trade.

EXPORTS

 199

8 2002 2007 2008

ASEAN’s exports

to China (US$ million)

9,203

19,548

77,945

85,557

% of Total 2.9 5.1 9.1 9.7

IMPORTS

ASEAN’s imports

from China (US$

million)11,2

1223,21

2

93,173

106,977

% of Total 4.3 7.1 12.4 12.9

Shares of Southeast Asian Countries in China’s Total Trade

1.11.3

1.1

0.60.8

1.4

1.1

1.6

0.4 0.50.7

1.4

0

0.5

1

1.5

2

1998 2002 2007

Sh

are

(%)

Indonesia Philippines Thailand Vietnam

China’s Share in Export of Southeast Asian Countries

China’s share has been increasing steadily in Thailand’s, the Philippines’ and Indonesia’s exports; it has recorded the highest share in the Philippines’ exports.

China’s share recorded the highest growth in Vietnam’s export (10.9%) up to 2004; after that it fell, recording the lowest among the four countries in 2007.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

1998 1999 2000 2001 2002 2003 2004 2005 2006

Sh

are

(%)

Indonesia Philippines Thailand Vietnam

China’s Share in Import of Southeast Asian Countries

There has been a steady increase of China’s share in Southeast Asian countries’ imports in the years since 1998.

China’s share in all these countries’ imports were much higher than its share in their exports except in the case of the Philippines. China’s share in the Philippines’ export was much higher than in its import.

0.0

5.0

10.0

15.0

20.0

1998 1999 2000 2001 2002 2003 2004 2005 2006

Indonesia Philippines Thailand Vietnam

Composition of Southeast Asia’s Trade with ChinaManufactured intermediate goods dominated Thailand’s & 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 Thailand’s 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.

Composition of Southeast Asia’s Trade with China (Continued) Manufactured intermediate and final goods dominated Thailand’s & 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 Thailand’s 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.

Composition of Southeast Asia’s Trade with China (Continued)Primary goods dominated Indonesia’s & Vietnam’s exports to China The major chunk (34.3%) of Indonesia’s 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 Indonesia’s export were ores, slag & ash; and copper & articles thereof.

Other important items in Vietnam’s 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.

Composition of Southeast Asia’s Trade with China (Continued)

Indonesia’s 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 Indonesia’s 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, Indonesia’s import of these commodity groups from China constituted 26% of its total imports, the second largest after mineral fuels.

Composition of Southeast Asia’s 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.

Commodity Composition of Southeast Asia’s 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.

China’s Exports were destined predominantly towards developed markets.

China’s Commodity Composition of Trade, 2002-07

Export Import22.6

19.24.7

4.6

3.0

2.9

2.6

2.5

2.4

2.32.3

2.2

2.1 1.6 1.5 1.3

Electrical, electronic equipment

Nuclear reactors, boilers, machinery, etc

Articles of apparel, accessories, not knit or crochet

Articles of apparel, accessories, knit or crochet

Optical, photo, technical, medical, etc apparatus

Furniture, lighting, signs, prefabricated buildings

Articles of iron or steel

Toys, games, sports requisites

Footw ear, gaiters and the like, parts thereof

Plastics and articles thereof

Iron and steel

Vehicles other than railw ay, tramw ay

Mineral fuels, oils, distillation products, etc

Organic chemicals

Articles of leather, animal gut, harness, travel good

Other made textile articles, sets, w orn clothing etc

26.4

14.89.6

7.0

5.0

4.0

3.8

1.11.2

2.2

3.5

2.3

Electrical, electronic equipmentNuclear reactors, boilers, machinery, etcMineral fuels, oils, distillation products, etcOptical, photo, technical, medical, etc apparatusPlastics and articles thereofOrganic chemicalsOres, slag and ashIron and steelVehicles other than railw ay, tramw ayCopper and articles thereofOil seed, oleagic fruits, grain, seed, fruit, etc, neAircraft, spacecraft, and parts thereof

China’s trade in Machinery and Electrical Equipments (US$ bn)

0

100

200

300

400

500

600

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Export Import

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

Major Observations of the Study China’s export growth has led to increase in

its imports from developing Southeast Asian countries. Therefore, China’s 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).

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.

Thank You!!!