Is China an economic threat to Southeast Asia?

Asian Survey

Volumn 46, Issue 5, 2006, Pages 653-674

  Ravenhill, John ^a  

^a AUSTRALIAN NATIONAL UNIVERSITY   (Australia)

Author keywords

ASEAN; China; Investment; Regionalization; Trade

Indexed keywords

ASEAN; COMPETITION (ECONOMICS); ECONOMIC RELATIONS; FOREIGN DIRECT INVESTMENT; MANUFACTURED EXPORT; REGIONALIZATION; STOCK MARKET; TRADE FLOW;

ASIA; CHINA; EURASIA; FAR EAST; SOUTHEAST ASIA;

EID: 33751383631     PISSN: 00044687     EISSN: None     Source Type: Journal    
DOI: 10.1525/as.2006.46.5.653     Document Type: Article

References (49)

1. Lee succeeded Goh Chok Tong as Singapore's prime minister in August 2004. Reported in ChinaOnline, , November 14, 2002, quoted in Busakorn Chantasasawat, K. C. Fung, Hitomi Iizaka, and Alan Siu, "International Competition for Foreign Direct Investment: The Case of China," paper for the Hitotsubashi Conference on International Trade and FDI, Tokyo, December 2003, pp. 3-4.
2. The most recent calculations by bank staff are included in Elena Ianchovichina, Sethaput Suthiwart-Narueput, and Min Zhao, "Regional Impact of China's WTO Accession," in East Asia Integrates: A Trade Policy Agenda for Shared Growth, ed. Kathie L. Krumm and Homi J. Kharas (Washington, D.C.: World Bank, 2004), pp. 57-78
3. and Elena Ianchovichina and Terrie Louise Walmsley, "The Impact of China's WTO Accession on East Asia," World Bank Poverty Reduction and Economic Management Network Economic Policy Division (Washington, D.C.), Policy Research Working Paper, no. 3109 (August 2003).
4. Earlier work is reported in Will Martin and Elena Ianchovichina, "Implications of China's Accession to the World Trade Organization for China and the WTO," World Economy 24:9 (2001), pp. 1205-19
5. For similar conclusions drawn from market share analysis rather than a computable general equilibrium approach, see John Weiss and Gao Shanwen, "People's Republic of China's Export Threat to ASEAN: Competition in the U.S. and Japanese Markets," Asian Development Bank (ADB) Institute (Manila), Discussion Paper, no. 2 (January 2003)
6. and John Weiss, "People's Republic of China and Its Neighbors: Partners or Competitors for Trade and Investment?" ibid., no. 13 (August 2004).
7. Sanjaya Lall and Manuel Albaladejo, "China's Competitive Performance: A Threat to East Asian Manufactured Exports?" World Development 32:9 (September 2004), pp. 1441-66, present a less alarmist scenario but conclude nonetheless that the Southeast Asian economies are more under threat from China than its Northeast Asian neighbors.
8. Barry Eichengreen, Yeongseop Rhee, and Hui Tong, "The Impact of China on the Exports of Other Asian Countries," mimeo, Department of Economics, University of California, Berkeley, September 2004, using a gravity model, reach conclusions broadly similar to those of the World Bank, namely, that China's growth will have a negative impact on low-income countries that export consumer goods but a positive impact on higher-income (primarily Northeast) Asian exporters of capital goods.
9. John Wong and Sarah Chan, "China-ASEAN Free Trade Agreement: Shaping Future Economic Relations," Asian Survey 43:3 (May/June 2003), p. 523.
10. Data in this section are for the six largest ASEAN economies: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. Unless otherwise noted, article data are from the United Nations Conference on Trade and Development (UNCTAD), World Investment Report (Geneva: UNCTAD, 1985-2004).
11. Geng Xiao, "People's Republic of China's Round-Tripping FDI: Scale, Causes, and Implications," ADB Institute, Discussion Paper, no. 7 (July 2004).
12. For instance, see Dieter Ernst, "Global Production Networks in East Asia's Electronics Industry and Upgrading Perspectives in Malaysia," East-West Center (Honolulu), Working Papers, Economics Series 44 (May 2002).
13. See UNCTAD, annual World Investment Report.
14. The International Monetary Fund (IMF) provides guidelines to member governments for the compilation of balance of payments and international investment position statistics. FDI, according to the IMF, consists of three components: Equity capital, borrowings from the parent company, and reinvested earnings. These data therefore exclude investment funds that a subsidiary raises from sources other than the parent company, e.g., borrowings from minority investors in the subsidiary or loans from local or international banks. Moreover, while reinvested earnings are part of the IMF's definition of FDI flows, a number of countries, including Thailand, do not include them as part of their reporting of investment data to the IMF. According to the ASEAN Secretariat, reinvested earnings constituted 37% of FDI flows to the ASEAN region between 1995 and 2002. See "Seventh ASEAN Investment Area (AIA) Council Meeting, Joint Media Statement," Jakarta, September 2, 2004, .
15. Edward M. Graham cites U.S. government data that suggest FDI each year financed between one-half and two-thirds of the capital expenditures by foreign subsidiaries of American companies in the period 1973-92. See "Foreign Direct Investment in the World Economy," IMF (Washington, D.C.), Working Paper, WP/95/59 (June 1995), Chart 1.
16. Xiao, "People's Republic of China's Round-Tripping FDI," p. 17.
17. Ibid. p. 9.
18. Of course, some of this money may have originated in the "Triad" and reflect investments by Hong Kong-based subsidiaries of Triad multinational companies (MNCs).
19. Data from Zhongguo Duiwai Jingji Tongji Nianjian 2003 [China foreign economic statistical yearbook 2003] (Beijing: Zhongguo tongji chubanshe, 2004).
20. Peter Harrold and Rajiv Lall, "China: Reform and Development in 1992-93," World Bank, Discussion Paper, no. 215 (August 1993), p. 24,
21. cited in Nicholas R. Lardy, "The Role of Foreign Trade and Investment in China's Economic Transformation," China Quarterly, no. 144 (December 1995), p. 1067.
22. World Bank, Global Development Finance, 2002 (Washington, D.C.: World Bank, 2002).
23. Xiao, "People's Republic of China's Round-Tripping FDI," pp. 15-23.
24. Frank R. Gunter, "Capital Flight from China: 1984-2001," China Economic Review 15:1 (2004), pp. 63-85.
25. In the decade from 1996 to 2005, flows of U.S. FDI into China exceeded $2 billion in only one year: 2004. Data from U.S. Bureau of Economic Analysis: International Economic Accounts, .
26. Data from Eurostat, .
27. Busakorn Chantasasawat, K. C. Fung, Hitomi Iizaka, and Alan Siu, "Foreign Direct Investment in China and East Asia," paper for the Third Annual Conference on China Economic Policy Reform, Stanford Center for International Development, November 12, 2004
28. idem., "Foreign Direct Investment in East Asia and Latin America: Is There a People's Republic of China Effect?" ADB Institute, Discussion Paper, no. 17 (November 2004)
29. idem., "International Competition for Foreign Direct Investment."
30. They find no significant association before 1992 between FDI into China and that into Southeast Asia. These authors use a most unorthodox definition of "Southeast Asia," however, including both the Republic of Korea and Taiwan in their definition of this region. Yuping Zhou and Sanjaya Lall, "The Impact of China's FDI Surge on FDI in South-East Asia: Panel Data Analysis for 1986-2001," Transnational Corporations 14:1 (April 2005), pp. 41-65.
31. Barry Eichengreen and Hui Tong, "Is China's FDI Coming at the Expense of Other Countries?" National Bureau of Economic Research (Cambridge, Mass.), Working Paper, no. 11335 (May 2005).
32. Chantasasawat et al., "Foreign Direct Investment in East Asia and Latin America."
33. All data are derived from the U.N.'s COMTRADE database, at . To save space, only summary results are presented here. A complete set of data is available from the author.
34. Care must be exercised in drawing any inferences from the descriptive data presented above. They are highly aggregated (at the SITC two-digit level) and across all the major ASEAN economies, obscuring variance in performance across individual products and across countries. And, at best, they present a correlation between ASEAN loss of market share and simultaneous gains in that of China. The underlying factors behind such a correlation might not necessarily be the competitiveness of Chinese exports, however: Supply-side disruptions in the crisis-hit ASEAN economies in the period from 1997 onward, for instance, may have contributed to ASEAN economies' loss of market share. The data, however, do support the conclusions of econometric work that has analyzed changing market shares in earlier periods, e.g., David Roland Holst and John Weiss, "ASEAN and China: Export Rivals or Partners in Regional Growth?" World Economy 27:8 (August 2004), pp. 1255-74.
35. More sophisticated methods used to examine the impact of China's WTO accession on its neighbors have their own problems. Computable general equilibrium models make a variety of assumptions regarding elasticities of supply and demand, technological shifts, factor movements, etc. that may have little foundation in the real world. For discussion of some of the weaknesses of these models, see, for instance, Lall and Albaladejo, "China's Competitive Performance."
36. Edward J. Lincoln, East Asian Economic Regionalism (New York and Washington, D.C.: Council on Foreign Relations and Brookings Institution Press, 2004), p. 45.
37. Guillaume Gaulier, Francoise Lemoine, and Deniz Unal-Kesenci, "China's Integration in Asian Production Networks and Its Implications," paper given at a conference on Resolving New Global and Regional Imbalances in an Era of Asian Integration (Tokyo: Research Institute of Economy, Trade, and Industry [RIETI], Discussion Paper, Series 04-E-033, 2004), p. 13.
38. Peter Drysdale, International Economic Pluralism: Economic Policy in East Asia and the Pacific (Sydney: Allen and Unwin, 1988).
39. Wong and Chan, "China-ASEAN Free Trade Agreement," pp. 508, fn. 4; 517; 519; 525.
40. Mitchell Bernard and John Ravenhill, "Beyond Product Cycles and Flying Geese: Regionalization, Hierarchy, and the Industrialization of East Asia," World Politics 45:2 (January 1995), pp. 179-210
41. see also Michael Borrus, Dieter Ernst, and Stephan Haggard, eds., International Production Networks in Asia: Rivalry or Riches? (London: Routledge, 2000)
42. and David McKendrick, Richard F. Doner, and Stephan Haggard, From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry (Stanford, Calif.: Stanford University Press, 2000).
43. Recognition of the significance of such networks in the study of economics has come somewhat late. See, for instance, Sven W. Arndt and Henryk Kierzkowski, eds., Fragmentation: New Production Patterns in the World Economy (Oxford: Oxford University Press, 2001)
44. and Francis Ng and Alexander J. Yeats, "Production Sharing in East Asia: Who Does What for Whom and Why," World Bank Development Research Group Trade (Washington, D.C.), Policy Research Working Paper, no. 2197 (October 1, 1999).
45. Ianchovichina, Suthiwart-Narueput, and Zhao, "Regional Impact of China's WTO Accession," p. 58.
46. Data from IMF, Direction of Trade database.
47. Premachandra Athukorala, "Product Fragmentation and Trade Patterns in East Asia," Australian National University (Canberra), Division of Economics, Research School of Pacific and Asian Studies, Working Papers in Trade and Development 2003/21 (2003), Table A2, p. 48.
48. Premachandra Athukorala, "Multinational Production Networks and the New Geo-Economic Division of Labor in the Pacific Rim," p. 10. Paper presented to the 31st Pacific Trade and Development Conference, Guadalajara, Mexico, June 2006.
49. And trade data in themselves tell us nothing about the value added in the production chain by manufacturing facilities in any individual country. For instance, integrated circuits account for close to one-third of the total value of Philippine imports, and one-half of these are sourced from the United States. These imports presumably contribute a significant portion of the overall value of Philippine exports of electrical components. But that is a different issue to the question addressed in this article, the impact of China on ASEAN trade patterns.