China's regional economies and the Asian region building interdependent linkages

Power Shift: China and Asia's New Dynamics

Volumn , Issue , 2006, Pages 96-131

  Ash, Robert F ^a  

^a UNIVERSITY OF LONDON   (United Kingdom)

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EID: 84887648880     PISSN: None     EISSN: None     Source Type: Book    
DOI: None     Document Type: Chapter

References (82)

1. Between 1990 and 2002, China's merchandise trade grew, on average, by 15 percent yearly, to reach more than $620 billion. During the same period, the cumulative value of foreign direct investment (FDI) was $431 billion.
2. National Bureau of Statistics (NBS), Zhongguo tongji nianjian [China statistical yearbook] (hereafter TJNJ), 2003, 654 and 671.
3. Data for 2002 were the most recent available at the time of writing.
4. In a chapter that is quite heavy with statistics, the absence of a separate section on data problems may seem perverse. I do not seek to be disingenuous in merely noting that problems of data reliability and interpretation are inherent in any attempt to disentangle national foreign trade and FDI flows. In China's case, the entrepôt role of Hong Kong, the widespread practice of investment "round-tripping," and the opaque nature of economic relations conducted through the British Virgin Islands and the Cayman Islands (hugely important in Taiwan's FDI in the mainland) lend substantial analytical difficulties. Where, as here, the exercise seeks to disaggregate macrotrends to provincial levels, the hazards are greatly magnified. To insist on quantitative exactitude would probably dictate abandoning the exercise. My belief is, however, that the quantitative matrix offered here is sufficiently robust to support the accompanying analysis.
5. TJNJ, 2003, 655. Imports have followed a similar but less pronounced trend (the share of manufactures was 83 percent in 2002, compared with 65 percent in 1980) (TJNJ, 2003, 656).
6. In 2002 more than $980 billion had been invested in China's 208,000 FFEs, of which 41 percent derived from foreign partners. FFEs absorbed 54 percent of Chinese imports (TJNJ, 2003, 653 and 670).
7. David Hale and Lyric Hughes Hale, "China Takes Off," Foreign Affairs 82, no. 6 (November-December 2003), note that China's electronics exports account for 30 percent of total exports of such products from Asia.
8. China's own experience since 1979-not least, the gains from increasingly close transnational economic integration between the two great Chinese river delta regions (those of the Pearl and Yangzi Rivers) and, respectively, Hong Kong and Taiwan-highlights the potential sacrifices associated with Mao Zedong's misconceived ideological preoccupations and their distorting effects on the economy.
9. For the years since 1997, I use "transnational" in a de facto sense to describe economic relations between China and Hong Kong Special Administrative Region.
10. Dali Yang: "Comparative advantage is the central concept in post-Mao regional development policy" ("Patterns of China's Regional Development Strategy," China Quarterly 122 [June 1990]: 241-42).
11. Such variants include "subregional economic zones," "extended metropolitan regions," and "natural economic territories."
12. A useful working definition of a growth triangle is given by the Asian Development Bank, as follows: "transnational economic zones spread over well-defined geographically proximate areas covering 3 or more countries where differences in factor endowments are exploited to promote external trade and development" (http://www.adb.org/Help/Index/G.asp, accessed on February 12, 2004).
13. Note that "geographically proximate" does not necessarily mean geographically contiguous: e.g., coastal central-eastern China and Taiwan, which constitute an increasingly identifiable transnational economic entity, are separated by the Taiwan Strait.
14. Compare Shaun Breslin and Glenn D. Hook's reference to "'spontaneous' microregionalism" as a phenomenon that "may develop without or beyond the formal will of institutionalised governmental arrangements . . . [and] . . . is driven by economic forces, production and finance, that do not acknowledge formal borders"
15. "Microregionalism and the World Order: Concepts, Approaches and Implications," in Microregionalism and World Order, ed. Shaun Breslin and Glenn D. Hook [New York: Palgrave Macmillan, 2003], 4).
16. The essay by Breslin and Hook offers many valuable insights into microregionalism, its economic and political implications, and its relationship to higher regional and global levels of interactions.
17. Françoise Mengin also observes that the establishment of transnational groupings tends to reflect "the primacy of economic interests over national identification" ("Taiwanese Politics and the Chinese Market: Business's Part in the Formation of a State, or the Border as a Stake of Negotiations," in Politics in China: Moving Frontiers, ed. Françoise Mengin and Jean- Louis Rocca [New York: Palgrave Macmillan, 2002], 234-35).
18. That is, "economic entities that cross political boundaries, taking advantage of the complementarity of neighbouring regions, combining resources, manpower, capital, technology and managerial skills"
19. Robert A. Scalapino, "The Changing Order in Northeast Asia and the Prospects for US-Japan-China-Korea Relations," Institute on Global Conflict and Cooperation [IGCC] Policy Papers, 1998, p. 47, available at http://repositories.cdlib.org/igcc/PP/pp47, accessed on February 12, 2003).
20. GMS embraces Yunnan province, Cambodia, Lao People's Democratic Republic, Myanmar, Thailand, and Vietnam, and has for some years been proposed as a growth hub for Southwest China and its Southeast Asian neighbors. TRADP comprises Yanbian Korean Autonomous Prefecture (Jilin province, China), the Rajin- Sonbong Economic and Trade Zones (Democratic Republic of North Korea), Hentii, Dornod, and Sukhbaatar provinces (Eastern Mongolia), and Primorsky Krai (Russia).
21. In 2002, with little more than a quarter of China's population, a mere six provinces-Shandong, Shanghai, Jiangsu, Zhejiang, Fujian, and Guangdong- generated 43 percent of its GDP and almost 80 percent (86 percent, if Beijing and Tianjin are included) of the value of its merchandise trade. By contrast, the provinces of the northwest and southwest, with almost 30 percent of total population, accounted for only 17 percent of national GDP and a minuscule 3.7 percent of trade.
22. A path-breaking investigation into provincial trading patterns at a much earlier stage in China's economic reforms from which I have benefited in writing this chapter is given
23. Brantly Womack and Guangzhi Zhao, "The Many Worlds of China's Provinces," in China Deconstructs: Politics, Trade and Regionalism, ed. David Goodman and Gerald Segal (London: Routledge, 1994).
24. Ministry of Trade of the PRC, Zhongguo duiwai jingji maoyi nianjian [Yearbook of China's foreign economic relations and trade] 2003 (Beijing: Foreign Economic Relations and Trade Publishing House, September 2003).
25. For example, note that the total value of China's exports, revealed by summing the provincial figures, is only about 2 percent below that of the aggregate fig-ure available in official NBS sources, whereas the corresponding gap for imports is some 11 percent.
26. The internationalization, even globalization, of coastal China's economy is suggested by the finding that, by 1997, Guangdong exported to more than 160 countries and regions.
27. Those regions are North, Central-Interior, Central-East, and Southwest China.
28. Much the same can be said of FDI inflows (see below).
29. This will no doubt change under the impact of dual WTO accession by China and Taiwan.
30. TJNJ, 2003, 659.
31. Taiwan was the chief source of imports to Guangdong and Fujian, and the second most important source for Jiangsu.
32. Data published by Taiwan's Mainland Affairs Council suggest that by the end of 2002, the share of Taiwan's exports to China in its global exports had reached 22.6 percent, 15.4 percent for all merchandise trade (http://www.chinabiz.org.tw/maz/EcoMonth/133-2003-09/133-08/xls, accessed on February 13, 2004).
33. R. F. Ash and Y. Y. Kueh, "Economic Integration within Greater China: Trade and Investment Flows between China, Hong Kong and Taiwan," in Greater China: The Next Superpower? ed. David Shambaugh (Oxford: Oxford University Press, 1995), 59-93. In the same volume, the chapter by Qi Luo and Christopher Howe is also relevant.
34. In southwest China, Guangxi, Yunnan, and Tibet have a land border that runs for 8,600 kilometers. The length of Xinjiang and Inner Mongolia's combined land border with the Mongolian Republic, Russia, and various countries of Central Asia is even longer.
35. China's border regions embrace Liaoning, Jilin, Heilongjiang, Inner Mongolia, Gansu, Xinjiang, Tibet, Yunnan, and Guangxi. Their cross-border trading counterparts include North Korea, Russia, the Mongolian Republic, Kazakhstan, Kyrgyzstan, Tajikistan, Afghanistan, Pakistan, India, Nepal, Sikkim, Bhutan, Myanmar, Thailand, and Vietnam.
36. Such trade involved Yunnan, Guangxi, India, Myanmar, and Vietnam in the south, and Jilin, Heilongjiang, and North Korea in the north.
37. Su-cheng Chao, Zhongguo dalu xinan shengqu duiwai maoyi fazhan moshi (The pattern of foreign trade in Southwest China) (hereafter Xinan shengqu) (Taipei: Yinke Publishing Company, 2002), 174 and 176.
38. The immediate origins of the rapid growth of such trade implied in these figures lie in policies adopted by the Chinese government in 1992, which designated a number of border cities, such as Pingyang and Dongxing (on Guangxi's border with Vietnam) and Wanding and Ruili (on Yunnan's border with Myanmar), to facilitate the extension of border trade and simultaneously established economic cooperation zones and trading ports in border regions.
39. These initiatives had a swift impact: in Xinjiang, for example, the number of border trading companies rose from 5 (1991) to 346 (1996);
40. meanwhile, from Inner Mongolia, trade and technical cooperation with Russia, the Mongolian Republic, and other Asian countries rapidly expanded. Nineteen ninety-two was also the year in which Cambodia, the Lao People's Democratic Republic, Myanmar, Thailand, Vietnam, and Yunnan province formed the Greater Mekong Subregion (GMS) as a new growth area, based on enhanced regional economic integration.
41. Xinan shengqu, 180.
42. Detailed annual estimates of border trade in China's Southwest reveal an average growth of -43% percent in 1996 and 1997;
43. during the next two years, however, the corresponding figure was +97 percent (Xinan shengqu, 197, table 5.1). This recovery was largely carried by an expansion in imports of 135 percent per year in 1998-99.
44. The growing importance of cross-border linkages is also apparent from other indicators. For example, by 1999 border trade in the Northeast had come to account for 35.2 percent of Heilongjiang's total foreign trade; in the Northwest, the corresponding figure for Xinjiang was a remarkable 55.8 percent (although this figure was below the 63.3 percent attained in 1993) (Xinan shengqu, 139-40).
45. That is, the remaining share of regional exports/imports to/from the rest of the world, after deducting those to/from the United States, EU, Hong Kong, Japan, South Korea, Taiwan, and ASEAN.
46. 2002 over 63 percent of exports from the Northwest-Inner Mongolia, Shaanxi, Gansu, Qinghai, Ningxia, and Xinjiang-were destined for countries and regions other than China's main trading partners.
47. Reference to Appendix I reveals that Kazakhstan was the second most important export destination for the Northwest. In Xinjiang, which accounted for almost 30 percent of all northwestern exports in 2002, one-third of its exports went to Kazakhstan, other important destinations being Kyrgyzstan (7.6 percent), Azerbaijan (6.6 percent), Pakistan (5.1 percent), and the Russian Federation (3.6 percent). Australia has also been a trading partner of some importance with provinces in the Northwest. On Xinjiang's trade and investment relations with Russia and its Central Asian neighbors in the 1980s and early 1990s,
48. Peter Ferdinand, "Xinjiang: Relations with China and Abroad," in China Deconstructs, esp. 279-84.
49. I deliberately exclude ASEAN member states because of the expected close trade relationship between the Southwest and ASEAN. In terms of individual provinces, the importance of Southeast and South Asian countries as export destinations is striking. For example, in 2002 21 percent of Yunnan's exports were shipped to Myanmar and a further 17 percent to ASEAN countries; 22.5 percent of Guangxi's exports were destined for Vietnam (which also took 13 percent of Chongqing's exports); and 21 percent of Guizhou's exports were purchased by ASEAN members. As for Tibet, some 70 percent of its exports were destined for Nepal (Ministry of Trade of the PRC, Zhongguo duiwai jingji maoyi nianjian, 2003).
50. For time series data on the ranking of the export partners of southwestern Chinese provinces, Xinan shengqu, 294-316.
51. Xinan shengqu, 271, table 7.2.
52. Between 1991 and 1999, the share of border trade in Guangxi's total foreign trade fell from 40 percent to 24 percent. In 1999, the corresponding figures for Yunnan and Tibet were 20 percent and 8.4 percent (Xinan shengqu, 211).
53. Measuring flows of foreign capital into China is extremely hazardous, and the estimates shown here should be regarded as approximations. The difficulty of determining FDI originating in the British Virgin Islands and the Cayman Islands without distortion is one challenge. Another is addressing FDI flows whose immediate, but not necessarily true, origin is Hong Kong.
54. Such hidden data are a salutary reminder of the likely extent of any assumed margin of error for provincial FDI ($98.6 billion) shown here is some 19 percent higher than the national figure recorded by NBS (TJNJ, 2003, 653). To what extent this discrepancy reflects double counting or some other source of exaggeration by provincial sources, or underestimation by NBS sources, it is impossible to know.
55. Japan's overseas development assistance (ODA) has also been an important source of capital funding to China, although to what extent this will continue is sometimes questioned.
56. Recent years have seen an increasingly important role played by European and, especially, American multinational corporations (MNCs) as sources of FDI.
57. China itself is one of the most important sources of FDI in the world, although the extent of such involvement is extremely difficult to measure.
58. C. S. Tseng, "The Internationalisation of Enterprises from Guangdong," in Guangdong: Preparing for the WTO Challenge, ed. Joseph Y. S. Cheng [Hong Kong: Chinese University Press, 2003], 146,
59. which cites an authoritative Chinese source to the effect that as of the end of 2002, the cumulative value of China's contractual investment was $9.34 billion.) A recent source also notes that in the last several years, Chinese transnational corporations (TNCs) have invested abroad in an attempt to "explore and open up new markets." For the purposes of the analysis here, it is noteworthy that in terms of project numbers (1979-2001), the second and third most favored destinations for Chinese outward investment are Hong Kong-Macau and Russia; the level of cumulative investment in cross-border countries is as follows: Hong Kong and Macau, $534 million; Thailand, $194 million; Russia, $130 million; Cambodia, $120 million; Vietnam, $56 million; Myanmar, $47 million; Laos, $30 million; and India, $18 million.
60. John Wong and Sarah Chan, "China's Outward Investment: Expanding Worldwide," East Asian Institute, National University of Singapore, China: An International Journal 1, no. 2 (September 2003): 273-201.
61. For example, Guangdong, Shanghai, Jiangsu, Fujian, Zhejiang, Shandong, and Tianjin.
62. David Zweig, Internationalizing China: Domestic Interests and Global Linkages (Ithaca: Cornell University Press, 2002), 58.
63. In talks with President Roh Moo-hyun during his visit to China in July 2003, Premier Wen Jiabao urged Korean businessmen to undertake investment in support of the development of Western China (Xinhua News Agency, July 8, 2003).
64. Most FDI from these British territories was disguised investment undertaken by Taiwanese entrepreneurs in an effort to circumvent discriminatory regulations against China by the government in Taipei. The Virgin and Cayman Islands have been used as tax havens and "risk buffers" for Taiwanese enterprises. By registering in the Caribbean, Taiwanese companies have been able to transfer and subsequently reinvest capital in mainland China at little cost, while also securing the safety net of mutual protection agreements that normally apply to FDI transactions-and also, incidentally, distancing themselves from political arguments about sovereignty and associated risks. It is suggested that around 90 percent of FDI to China from the British Virgin Islands is Taiwanese investment in disguise.
65. Zhen-yuan Tong, "Global Division of Labor and Interdependence in Cross-Strait Economic Relations," Quarterly Journal and Review of Economic Conditions 7, no. 3 (December 2001).
66. I am indebted to C. J. Wu for bringing this source to my attention, as well as for his insights into Taiwan's FDI behavior in China.
67. This figure is almost 17 percent higher than the cumulative figure shown in Appendix III. To what extent this difference is attributable to unrecorded FDI, and to what extent to small-scale FDI to individual provinces that does not appear in Zhongguo duiwai jingji maoyi nianjian, it is impossible to say.
68. Legislative Yuan, Zhonghua minguo tongji nianjian, 2003 [Statistical yearbook of the Republic of China, 2003] (Taipei: Sanmin Publishing House, October 2003), 242.
69. Estimates for Shanghai are not given separately in this source and are no doubt included in the figures for Jiangsu (before 1958, Shanghai was part of Jiangsu province).
70. The crude average rate of growth of inflows of FDI to Jiangsu was 73.5 percent yearly; for Guangdong, it was 54 percent yearly. But such figures take no account of the considerable annual fluctuations revealed in the table. Note that except for 1997-99, Jiangsu has consistently outstripped Guangdong as a recipient of Taiwanese FDI since 1994.
71. What table 18 does not show is the level of FDI flows to China that were not "approved" by Taipei. Estimating the scale of such flows is of course ultimately impossible, although an authoritative source cites sources in China to the effect that "at least US$10 bn. in unapproved investment flowed from Taiwan to China between 1991 and 2001" (Economic Intelligence Unit [EIU], Country Forecast: Taiwan [London: EIU, March 2003], 28).
72. To what extent this has generated an "irrationally" skewed structural distribution of Taiwanese FDI in China is beyond the confines of this chapter.
73. At the time of writing (February 2004), recent estimates indicate that as of third quarter 2003, year-on-year GDP growth was 8.4 percent (India), 6.5 percent (Thailand), 5.7 percent (Russia), and 5.1 percent (Pakistan) (The Economist, February 14-20, 2004, 114, available at http://www.economist.com/printedition, accessed on February 16, 2004).
74. Jiang Xiaojuan, "The New Regional Patterns of FDI Inflow in China: Policy Orientation and Expected Performance," in Organization for Economic Cooperation and Development (OECD), Foreign Direct Investment in China: Challenges and Prospects for Regional Development (Paris: OECD, 2002), 68.
75. Inner Mongolia now has almost twenty "port" cities linking it with Russia (Xinhua News Agency, hereafter XHNA, July 17, 2001).
76. XHNA, July 29, 2001, urged Xinjiang to "adjust its export structure, improving competitiveness of exported commodities so as to turn geographic advantages into economic edges" vis-à-vis members, other than China, of the SCO (Russia, Kazkhstan, Kyrgyzstan, Tajikistan, and Uzbekistan), with which it has a 3,700-kilometer-long border. Elsewhere, the same source noted that China's border trade with these countries was shifting from simple everyday manufactured goods toward machinery, electronics, and high-tech products;
77. cooperation and investment projects in Russia and Central Asia had also been implemented in farm technology and the development of oil and gas resources (XHNA, October 14, 2001).
78. XHNA, September 19, 2003.
79. "They are . . . burdened with the remnants of a faltering state-owned industry, handicapped by a reform and open door policy that has discriminated against them for at least 15 years"
80. Markus Taube and Mehmet Ögütçü, "Main Issues on Foreign Investment in China's Regional Development: Prospects and Policy Challenges," in OECD, Foreign Direct Investment in China, 35.
81. OECD Investment Policy Review, China: Progress and Reform Challenges (Paris: OECD, 2003), especially chapter 2.
82. Harry Harding, "The Concept of 'Greater China': Themes, Variations and Reservations," China Quarterly 136 (December 1993), especially 664-72.