Replacing US in Asian export
By Macabe Keliher
Part 1: The dragon seizes market share
BEIJING - Sitting on one
of the world's fastest growing economies, the Chinese
these days have no hesitations about crediting
themselves for regional economic growth. China's economy
officially grew over 9 percent last year, and ran trade
deficits with everyone except the Americans and
Europeans. In fact, China consumed as much as half of
the region's exports in 2003.
Wen Jiabao views China's prosperity as not only
beneficial to his country, but to the entire Asian
region as well. "A developed and stronger China will
bring about development opportunities and tangible
benefits to every Asian country. It is a great
contribution to the peace and development of Asia,"
Jiabao told leaders at the Association of South East
Nations (ASEAN) summit last October in Bali, Indonesia.
While the back patting may be a bit self
indulgent, the extent of China's new economic influence
and its contribution in Asia is astonishing. China has
become the largest export market for much of East and
Southeast Asia, and it is in the process of replacing
Japan as the region's economic engine.
now the single largest contributor of export recovery in
the Asian region," said Jonathan Anderson, China
economist at UBS. Where Japan 10 years ago consumed 20
percent of the region's exports (down to 10 percent
today), and provided a third of the region's bank loans,
China now assumes that economic role, buying 31 percent
of the region's exports and currently preparing to
become a source of regional funding.
In the past
year China has taken in 40-50 percent of Asia's exports,
accounting for all of Taiwan's and the Philippine's
export growth last year and over 50 percent of each of
Japan's, Malaysia's, South Korea's and Australia's. Such
intake has driven more than 7 percent of the GDP (gross
domestic product) growth in Taiwan, Malaysia and
Singapore, 5.8 percent in South Korea and 4 percent in
Thailand, according to UBS figures.
Ministry of Commerce said that in the first 11 months of
last year China clocked up US$69.78 billion in two-way
trade with ASEAN countries, an increase of 42.6 percent
over 2002. Of this, China bought $42.44 billion worth of
exports from ASEAN countries, an increase of 52.1
percent over 2002, and which resulted in a trade deficit
of $15.11 billion. In fact, almost all of China's
regional trade in the past year has financially
benefited the region. China's trade deficit with Taiwan,
South Korea and Japan, for example, grew by 58 percent
to US$70.78 billion in the first 11 months of last year.
China's economic fuel in Asia is a recent
phenomena, to be sure. In 1990, for instance, China only
imported 6.8 percent of the region's exports. In 1999,
China accounted for only 11 percent of total Asian trade
(it is about 50 percent today), and consumed only 11
percent of Singapore's exports (17 percent today), 10.8
percent of Japan's (18.4 percent today), and 15.8
percent of South Korea's (26 percent today). "In 2001,
China's trade deficit with Asia amounted to a monthly
average of $10 billion, a dramatic reversal from the
huge monthly average surplus of $21 billion in 1998,"
said Chi Lo, a Hong Kong-based economist and author of
When Asia Meets China in the New Millennium.
China gobbles up regional resources to fuel
China's domestic economy is driving
the buying spree. The Chinese economy officially grew
9.1 percent last year, but many of the international
investment banks say it was actually 2-3 percent higher
than that. Such growth needs resources to fuel it, and
China does not have the resources domestically. "China
is buying so much from the region because it needs to,"
said Anderson at UBS. "It has run out of things it can
pull out of the ground." Anderson estimates that 38
percent of China's imports are resource goods, which
include agricultural products, chemicals, minerals,
metals and textiles.
The other 62 percent of
China's imports are manufacturing-intensive products,
such as electronics, machinery, equipment and
instruments. Mainland customs data shows that nearly 50
percent of goods imported into China are used for
labor-intensive packaging or reprocessing and then
re-exporting. Although there is no breakdown of
processing trade by individual sectors, Anderson said
that regression analysis suggests that foodstuffs,
fuels, minerals and non-electronic machinery are
purchased for domestic use, and chemicals and plastics,
electronic equipment and light manufacturers are
reprocessed and exported. Metals and instruments are
split evenly between domestic and export use.
Such economic growth and buying power is natural
given China's size and relatively recent entrance into
the international economic community. Furthermore, if it
continues at this pace, China "will likely replace the
US as the major market for Asian exports and will
eventually become a significant investor in the region,"
said Lo. In fact, China is already a significant
investor in Asia; the Ministry of Commerce approved 510
outbound foreign direct investment (FDI) projects in
2003 for a total of $2.087 billion, an increase of 112.3
percent over 2002.
The problem, economists warn,
is that China's economy cannot continue growing at this
rate. Overheating remains a big concern and everyone
expects a slowdown, by as much as 4 percent off the GDP
"The current cyclical upturn has been
driven by investment, which has now reached an
unprecedented high share of GDP, similar to those in the
pre-Asian crisis countries. Moreover, aggregate supply
appears to be outstripping demand," said Anderson. Even
the Chinese government predicts that the economy will
slow to around 7 percent this year. What this means for
the region is concurrent loss, especially for those
economies highly exposed by China's investments.
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