Zeitschrift für Wirtschaftsgeographie Jg. 52 (2008) Heft 1, S. 50-66 John Humphrey/ Hubert Schmitz, Brighton/UK China – growth engine or obstacle for Asian developing economies? Abstract: Over the last 30 years, changes in the East and Southeast Asian region have been fast and deep. China is the growth engine of a new regional production system which in turn has pro- voked changes in many other parts of the world. For its own fast growth, China has relied heavi- ly on importing intermediate products from neighbouring countries, but this is changing with Chi- na now producing more of its own inputs and occupying also the more skill intensive parts of the value chain. Some countries in the region trade relatively little with China, but the trade itself may undermine long-term growth prospects. The paper analyses these trade impacts, distinguishing between groups of countries and products. It shows that China’s growth augments opportunities for some but pulls others into a race to the bottom. Introduction1 – Externally, the key explanatory factor lies in what one can call “China plus“. The coun- Success commands attention. China has be- try’s rapid success in global markets cannot come the centre of global attention, because of be explained merely by reference to internal its rapid growth. Thirty years of economic factors. One needs to consider China plus growth at a yearly average of 9 % has lifted key neighbours; China plus Hong Kong and many millions of people out of poverty. Full China plus multinational companies. To ex- explanations of this growth and transformation plain each in turn: First, the equipment and have yet to emerge, but the key factors seem complicated components for many products clear: “made in China” come from Japan, Korea, and Taiwan. Second, China’s strength in – Internally it was the unlikely combination of the transforming these inputs into final products ideas of Adam Smith and the Chinese Communist is formidable but not sufficient; it was Hong Party. Adam Smith’s central message was that eco- Kong that provided the trade networks and nomic development depends on the depth of the di- logistics to link Chinese factories with their vision of labour which in turn depends on the size foreign customers. Third, China is able to of the market. China’s internal market is big and it move rapidly into producing more sophisti- is growing fast with the removal of internal barriers cated products because multinational compa- and rising incomes. The depth of specialisation nies have established their factories – and in within China is little recognised but it is visible to some cases also research and development visitors of its many industrial clusters. The contri- departments – in the country. bution of the Chinese Communist Party lies in gov- erning this market and controlling the transition to This process of growth and structural transfor- a new system. The party experimented with transi- mation has been going on for three decades. tional institutions, which made it possible to move Yet it is only recently that it has taken centre in stages from a society without private means of stage in the global debate on economic devel- production to a capitalist society, and which made it opment. The reason is clear: China’s rise has possible to move gradually from a centrally major external repercussions. Other Asian planned to a market economy. economies, notably Japan and South Korea, J. Humphrey/ H. Schmitz: China – growth engine or obstacle 51 experienced periods of equally rapid growth, Differential trade impact but their impact on the global economy was It is now widely recognised that China’s econo- less dramatic because they were smaller and/or my is closely tied in with the rest of the Asian less outwardly oriented. While India is now al- economies, and particularly with Japan and East so growing rapidly, its global footprint is much and Southeast Asia. In terms of direct impacts, smaller.2 China’s effects are so significant be- China’s imports are increasingly sourced from cause three things come together: size, fast Asian economies, and Asia is also an important growth and openness. An economy that is so export market for Chinese products. However, large, so open relative to its size (much more trade relationships between China and the more than the United States or the European Union) advanced economies of the region are very dif- and that is growing at 9 % per annum for near- ferent to those of the poorer countries, above all ly three decades is historically unprecedented. those in the Greater Mekong Subregion (GMS).4 This is seen clearly in Tab.1. The resulting “China effects” are felt through- out the world. There is concern in some parts The four poorer GMS-countries all had substan- of the world that China’s expansion squeezes tial balance of trade deficits with China in 2005 them out. In other parts of the world there is (and deficits in earlier years as well), whereas hope that China’s rise will pull them up. Both six of the seven more advanced countries (in the the threats and opportunities are increasingly bottom part of the table) had substantial trade visible. Both competition and complementarity surpluses. For the GMS countries, China was with China have significant effects on earning not a significant export market, accounting for opportunities throughout the world. between 1.9 % and 7.5 % of exports. It was, however, an important source of imported prod- In the following we concentrate on the implica- ucts, particularly for Myanmar and Vietnam. tions of China’s growth for other Asian coun- For the more developed economies, in contrast, tries, in particular the developing economies of China was an important export destination, ac- Southeast and East Asia.3 The paper draws to- counting for between 8.2 % and 28.8 % of ex- gether and digests the available evidence. On ports from these countries.5 many issues, however, good information and insights are lacking. We make these knowledge In addition to differences in the levels of trade gaps explicit and set out the questions which fu- with China between the GMS region and the ture research needs to address. higher-income economies of developing Asia, Tab. 1: China’s balance of trade with regional economies (US$ mio.) 2005 Country Exports Total % China Imports Total % China Balance to China exports from China imports of trade Cambodia 25 2,857 0.9 590 4,095 14.4 -565 Laos* 23 693 3.4 124 1,283 9.7 -101 Myanmar* 250 3,648 6.8 1,068 3,616 29.5 -819 Vietnam 2,318 30,801 7.5 7,618 30,076 25.3 -5,300 Indonesia 7,664 92,909 8.2 9,207 64,377 14.3 -1,543 Malaysia* 24,964 161,484 15.5 14,309 126,796 11.3 10,655 Philippines* 14,502 52,441 27.7 7,243 51,839 14.0 7,259 South Korea* 81,951 284,077 28.8 38,629 269,145 14.4 43,322 Singapore* 41,322 207,338 19.9 24,735 189,745 13.0 16,587 Taiwan** 34,036 198,435 17.2 20,094 182,616 11.0 13,942 Thailand* 15,241 110,107 8.3 11,155 118,191 9.4 4,086 Notes: * Includes trade with Hong Kong where Hong Kong is in top ten partners; ** data only refers to trade with Hong Kong. Source: Asian Development Bank, key indicators 2006, Internet: http://www.adb.org/Documents/Books/Key_Indi- cators/2006/default.asp. 52 Zeitschrift für Wirtschaftsgeographie Heft 1 / 2008 there are also clear differences in the types of have been rising rapidly and have been shown products traded by these two groups of coun- to have major implications for Africa and Latin tries. For the seven more developed economies, America (KAPLINSKY et al. 2007; JENKINS/ manufactured goods (electrical and mechanical DUSSEL PETERS 2007). products, in particular) figure prominently. The exception is Indonesia, whose principal exports Energy in 2005 were petroleum, plywood, rubber, China’s growth affects Asia (and the rest of the shrimp and coffee (see Tab. 1). In the case of the world) through its increasing demand for ener- GMS countries, the principal exports are natur- gy (see Tab. 2). China’s energy consumption al resource-based, such as wood, rubber, timber, more than doubled between 1980 and 2000. soya, pulses, rice and coffee. Taking the four Energy consumption is being driven by rapid principal exports from these four countries, a to- industrialisation, urbanisation and motorisa- tal of 16 items, the only manufacturing products tion, and data for 2004 shows a further sub- that figure are textiles and garments, each cited stantial rise (Internetsource: http://www. eia. once. Even Vietnam, which is rapidly increasing doe.gov/oiaf/ieo/ieosector.html). China is not its exports of manufactures to the rest of the the only source of increasing energy consump- world, still exports raw materials to China and tion as Tab. 2 shows. The economies of India, imports manufactured products, as highlighted Japan and South Korea, taken together, con- by CHAPONNIÈRE et al. (2007,12): “Vietnam ex- sumed roughly equivalent amounts of energy ports mainly raw products to China: oil, miner- in 2000, and they have also shown substantial als; agricultural products, rubber, etc. In return, increases in energy consumption. Projections it imports mainly processed and manufactured to 2030 show similar rates of expansion (Inter- products from China: refined oil, yarn and fab- netsource: http://www.eia.doe.gov/oiaf/ ieo/ ric used as input for its clothing industry, other ieosector.html). intermediate products, machinery.“ China is, and will be, increasingly reliant on These figures certainly do not fully capture imports of energy.