Economic Development in China and Its Implications for East Asia by Chung H. Lee, University of Hawaii-Manoa and Michael G. Plummer, Johns Hopkins University SAIS-Bologna Working Paper No. 04-11 JEL Classification: F1, F2 Keywords: Economic development in China, East Asia, trade adjustment Note: An earlier version of the paper was presented at the Conference in Honor of Professor Seiji F. Naya, “Miracle and Mirages in East-Asian Economic Development,” East-West Center and University of Hawaii, May 21-22, 2004. The authors wish to thank comments and suggestions made by various participants at the conference. Corresponding Author: Chung H. Lee, Department of Economics, University of Hawaii-Manoa, 2424 Maile Way, Saunders Hall Room 542, Honolulu, Hawaii, U.S.A. 96822 [phone] (808) 956 8427 <
[email protected]> I. Introduction Rapid economic development in China and its emergence as a major exporter of manufactured products since the late 1970s has had two major effects on its neighboring Asian economies. First it is now a major importer of goods from those economies. Second it has become a serious competitor for market share in their major trading partners such as the United States, the European Union, and Japan (e.g., Song 2000). South Korea (henceforth Korea) is a case in point that demonstrates clearly this dual effect of China’s rapid economic development on its neighboring economies. Bilateral trade between the two countries has grown steadily in both volume and variety of goods traded. Between 1989 and 2001, for instance, Korea’s merchandise exports to China grew from $1.3 to $18.2 billion while China’s merchandise exports to Korea increased from $472 million to $12.5 billion (UNCOMTRADE).