China has become a global economic power largely within the last two decades. This has led to many dire or exaggerated predictions regarding the competitive threat and rising dominance from China at the edge of the new millennium.
The numbers are impressive. From only 1.9% of global merchandise exports in 1990, China’s share doubled to 4% in 2000 and reached 6% (or US$428.2 billion) in 2003.
By comparison, Asean had 8% of world exports in 2000 but the proportion declined to 6.2% in 2003.
China’s share in Japan, one of the world’s three largest markets, was 18.5% in 2003, up from 5.1% in 1990. The corresponding ratios were 12.5% in the United States, up from 3.2%; and 8.9% in the European Union, up from 2%.
Clearly, Asean and other global exporters have struggled with the intensified competition from China, which is not negligible. But neither is it as threatening as China’s huge export surge may imply.
No single country on earth could have a comparative advantage and be self-sufficient in all goods and services, at all stages of their production, and for all time. In fact, China’s economic rise has opened up numerous opportunities for exploitation and complementariness by other suppliers.
China may be the supplier of choice. However, excessive dependence on one principal producer does not make practical or commercial sense.
The current scramble by global clothing buyers to secure additional and alternative supplies is a good case in point. The massive expansion in China’s garment exports in the first quarter of 2005 led to the imposition of safeguard caps in the United States and import restraints on selected items in the European Union as well.
A first step in making Asean a supplementary supply source and a more effective competitor in major markets worldwide was taken by Asean leaders at the Bali summit in October 2003. That relates to the accelerated integration of 11 strategic sectors, including textiles and clothing, and several other resource-based and low- to medium-tech industries.
Solid growth and rapid urbanisation are reflected in China’s import bill, $53 billion in 1990 and $132 billion in 1995. The bill tripled to $413 billion in 2003, making China the world’s third largest importer (behind the US and the EU) of developing countries’ goods.
The positive spillover has been substantial for Asean. From just $2.6 billion (4.9% of China’s imports) in 1990, the region’s exports to China jumped to $40.6 billion (9.8%) in 2003. The so-called Asean-5 — Indonesia, Malaysia, the Philippines, Singapore and Thailand — accounted for 95% of such exports.
Malaysia also became the largest exporter to China ($12.7 billion) within Asean in 2003, a position previously occupied by Singapore at $10.1 billion.
Also notable, exports to China from Asean expanded severalfold in the early 2000s. The previous trade deficits became surpluses in Malaysia and the Philippines, while deficits were lower in Thailand and Singapore in 2003.
Thailand’s exports to China doubled from $2.8 billion to $5.7 billion between 2000 and 2003. The bilateral trade deficits fell to 6% of exports in 2003, compared to 20% in earlier years.
Indonesia, Malaysia, the Philippines and Thailand had exported mainly primary products to China in the early 1990s. By 2003, though, information and communication technology (ICT) goods had comprised three-fifths of those products.
The mutual complementarities between China and the neighbouring economies in East and Southeast Asia are deepening. That was behind the sixfold rise in precision instruments and electrical machinery shipped to China between 1995 and 2003.
This win-win interaction will continue if China can sustain strong exports of final ICT and other goods to the developed economies, and if Asean can attract external investment and technologies to match the improved quality and productivity from rival parts and components suppliers in China and elsewhere.
Meanwhile, East and Southeast Asian exports of machinery, chemical and metal products, and transport equipment to China were up threefold from 1995 to 2003. By comparison, shipments of agricultural goods and food, textiles and apparel, leather and shoes, wood and paper products have grown more much slowly or have even fallen off.
The latter trend mirrors increased output in China, a decline in suppliers’ competitiveness vis-a-vis local production, and greater competition from non-Asian producers. All these are of much concern, especially in Asean.
Generally, all Asean economies are facing daunting challenges in structural adjustments, capacity strengthening and regional integration. This is because of the rising thresholds of performance expected from their enterprises and industries, intensified global competition, rapid technological progress, more exacting consumer demand, and the greater mobility of productive resources.
Meanwhile, industrial capabilities in China are improving at a strikingly fast pace. Sample surveys in 2004 show that manufacturers in China are as good as or even better than American companies in such operational best practices as on-time delivery, low defect ratios, worker training and the modernity of plant and machinery.
Furthermore, major firms in China are spending heavily, over the typical international norm of 5% of sales revenue, on research and development (R&D) as part of their internationalisation efforts. Indeed, Microsoft chairman Bill Gates noted in July 2004 that China had overtaken the United States as the centre for handset technology.
Technological creativity and inventions, and R&D spending have long been the Achilles heel in Asean development. That constitutes yet another important area for policy attention and another needed change in business mindset in the years ahead.
*Ms Thitapha is the head of the Studies Unit, Bureau for Economic Integration, Asean Secretariat, Jakarta. The views expressed in this article do not necessarily reflect those of the Asean Secretariat.