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CHINA AND ITS NEIGHBOURS IN 2005 '--=-.-::-.
,\
The bexgence of China was one of the most important features of the wodd economy in the
last quarter of the 20th century, and most observers believed its subsequent development .
would be'kqually important in the 21st century. China's landmark entry into the World Trade
Organisation in 2001 heralded a different relationship between China and the global economy.
While most Asian leaders had publicly welcomed China's accession, in private many voiced
concerns over the impact that China's economic emergence would have on the region.
Although China's development had been considered largely complementary to that of
neighbouring economies, by 2005, many wondered whether this would continue. Would
China's neighbours be able to continue on their pre-existing development path, or would the
rise of China force them to seek other avenues for development?

, China's Economic Development

The third-largest country in the world. in terms of size, with a total area of 9.6 million square
kilometres, China was bound to the north by the deserts of Mongolia, to the west by high
plateaus and the Himalayas, and to the east by the East and South China seas. China's 22 :
provinces, five autonomous regions and four listed cities, along with some 5,000 islands, were
governed from Beijing, the country's capital. By 2005, despite the fact that cities such as
"
Chongqing, Shanghai and Beijing had populations exceeding 10 million, and that over 130
Chinese cities had populations in excess of 1 million, the majority of China's 1.3 billion-
strong population still lived in rural settings.

China's economy had remained isolated from the founding of the People's Republic of China
(PRC) in 1949 until the late 1970s, when Deng Xiaoping initiated economic reforms.
Agriculture was de-collectivised, state-owned enterprises were given autonomy in production
and investment decisions and special economic zones were created to attract trade and
investment. According to official Chinese statistics, real GDP growth in the PRC averaged
approximately 9.5% per annum from 1978 to 2004. Growth peaked in 1992 at 14.2%, fell to
7.1% in 1999, but then continued to improve through 2004. In 1980, per capita income in
China was US$192. In 2003, per capita income was US$1,100 using market exchange rates,
but US$4,995 using purchasing power parity (PPP) rates. Since the onset of China's
economic reform programme, literally hundreds of millions of people had been lifted out of
I

P r s f i o r M c h d Enright prepored this Cbse with the asststance of A d Vagnerfor class discupsion. Ths Care is nor
intended ro show gecrrw or ineffective handling of decision or b u s i n c y p r ~ ~ c i s ~ s .
0 2005 by The Asio Case Rweardr Centre. The University of Hong Kong. No part of this publimrion may be reproduced or
-
tmnsmirted in anyfonn or by any means electronic. mechaniml,phormpying. recording, or orherwise.(indudingthe Internet) ,

- without the permission of l%eUniversityof Hong Kong.

S 051261C CMna a'nd Its Neighbowsin 2005

poverty in China, more than in any other place or time in history. In 2003, China's GDP of
USSl.4 trillion, made it the world's seventh-largest economy in conventional comparisons
using market exchange rates, but the world's second-largest economy in estimates using PPP
exchange rates. Some analysts predicted that China would be the world's second largest
economy (without using PPP exchange rates) by 2022 [see Exhibit 11.

China and InternationalTrade

China's economic growth in the =form period had been accompanied by substantial increases
in its international trade. From 1978to 2003, China's trade grew nearly five times faster than
world trade. China's exports shot up h m USS1.43 billion in 1980 to US439 billion in 2003,
while its imports grew from USS1.48 billion in 1980 to US413 billion in 2003. By 2003,
China had become the world's fourth leading exporter and third leading importer [see
Exhibit 21. In 2004, export processing (whereby inputs and capital goods were imported, and
find~<~assembled goods exported) accounted fbr 55.3% of China's total exports. ' The
~ u a n ~ d province,
on~ next to Hong Kong, accounted for 35% of China's exports, primarily
because of the prominence of export processing in total exports.

China had run a trade deficit for much of the 1980%even as imports of materials and capital
equipment for local and foreign-funded factories helped to build up its industrial base. The
deficits turned to surpluses in the 1990s, and while China's overall trade surplus was smaller
than that of Japan, China's bilateral trade surpluses had become important issues with some
trading partners, notably the United States (China had a USSl52 billion trade surplus with the
United States in 2003) and the European Union.

Textiles, clothing and footwear had been mainstays of China's exports since the mid-1980s.
, In 2003, these categories accounted for over 20% of China's exports. However, these
traditional industries had been overtaken by machinery, electrical and electronic products,
which accounted for 39% of total exports. China's imports were dominated by machinery,
electrical and electronic products (including intermediates imported for assembly), which
accounted for 42% of imports, and mine&, metals and chemicals, which accounted for 26%
of imports.'
*
The rise in China's trade had been Iinlced to the substantial cuts in Chinese import barriers.
China's average tariffs fell from over 50% in the early 1980s to 17% in 1998, roughly half
that in India, and comparable to Brazil and Mexico. In addition, China exempted many goods
.(mainly capital goods and inputs for export processing) from tariffs. This, combined with the
illegal importation of goods with high tariffs, meant that tariff collections, which peaked at
16% of import value in the mid-1980s, had averaged at around 3% of import values from
1995 to 2000. China's average import tarifi on industrial products were reduced from 14.7%
to 11.3% in 2002, and fiuther revised downwards to 8.9% in 2005. Tariffs on electronic
products were lowered from 16.2% to 10.7% in 2002. In 2005, total tariff exemptions were
effected on the 251 IT product items under the electronic products category, which was
reduced from 12.47% in 2002 to zero in 2005. There also had been an impressive reduction
in the use of non-tariff barriers to restrict imports. By 2000, only 4% of China's tariff items
were subject to licenses and quotas, a dramatic drop of 80% since 1992. The number of
commodity categories subject to import licensing was further reduced from 26 in 2001 to a
mere 12 in 2002, and was scheduled for further reduction by the end 092005.'

- -
-

' Hwg Kong Trade Development Council. Market Profile on C h i n Mainland,

~ ~ March 2005.
China Statistical Yeorbook 2004.
' China State Statistical Bureau, MOFTEC, and Lardy. N.R. "Is China a ' C l o d Economy?", Prepared Statement for a Public
Hearing of the United States Trade Deficit Review Commission, Febnrary 24h 2000
 05t261C China at3 Its Neighboursin 2005

In 2004, China's top tradiig partners were the US, Japan, Hong Kong, South Korea, Taiwan,
Germany, Singapore, Malaysia, the Netherlands and Russia [see Exhibit 31. China's trade
with these economies together amounted to 66% of its total external trade. Asia accounted
for 58% of China's total trade in 2003.

China and International Investment

China also experienced tremendous growth in foreign direct investment (FDI). Annual
utilised FDI flows grew from under USSl billion in 1985 to over USS53 billion in 2003.
China had been the second-largest recipient of FDI worldwide, and by far the leader among
developing economies [see Exhibit 41. Foreign invested enterprises (FIEs) had been a major
driving force behind China's trade growth. In 2003, FIEs accounted for 57.0% of China's
total exports and 57.8% of China's total import^.^
\
By thk end of 2004, China had approved a cumulative of 508,941 foreign investment projects,
with hntracted and actual utilised overseas FDI amounting to US$1,096.6 billion and
USS562.l~billion,respectively. In fact, China's actual utilised overseas FDI represented more
than one-thhd of all FDI stock in all developing economies combined. The leading sources of
investment included Hong Kong, Japan, the United States, Taiwan, Singapore and South
Korea [see Exhibit 51. According to Chinese statistics, the vast majority (around 75%) of
cumulative FDI into China came h m other economies in the region. China had been the
largest single destination for FDI from Hong Kong, Taiwan, Singapore and South Korea, and
the leading Asian destination for Japan.

According to China experts, the surging FDI had brought in the much needed capital,
technology, expertise, services capabilities and access to world markets. It was expected that
China would continue to need these inputs for a significant period of time.

China had also emerged as a significant foreign investor in its own right. By the end of 2003,
3,439 non-financial Chinese enterprises had invested USS33.4 billion abroad [see Exhibit q.
Hong Kong was the largest recipient of capital h m Chinese enterprises, accointing for 74%
of total outward FDI up to 2003.' However, by 2005, Chinese companies were increasingly
looking to invest abroad. TCL and Lenovo had made high profile deals with Thomson and
" IBM, respectively, while China's oil and raw niaterials companies continued to seek
investment opportunities.

China and the Asian Crisis

The Asian economic crisis of 1997-1999 showed the interdependence between the economies
of China and its neighbours. China avoided the worst of the.crisis due to its closed capital
account, large foreign reserve position, the austerity programme introduced in 1993 and
massive public expenditu~es.~ However, China did not emerge totally unscathed. GDP and
export growth slowed down, and foreign investment into China from other Asian economies
fell dramatically. Collapses in currencies, stock markets and asset markets in Asia led to a
decrease in export prices, and to higher risk premiums for all economies in the region,
including that of China.

Despite the significant devaluations in the region, China remained competitive in labour- #
intensive light manufacturing industries. Before the baht depreciation, Zhai wages averaged I
USS217 per month. By October 1998, they had fallen to US$130 per month, still more than

'Hong Kong Trade Development Council. Market P"fi1e on C h i m e Mainland, March 2005.
'Hong Kong Trade Development Council. M r k e ~P"fiIe on Chinese Maintad, March 2005.
SCC for example, Saymll, T.. "Steady as She Goes," Far Eastern Economtc Review, October l* 1998, pp. 70-72and Gang, F.,
"Southeast Asian Financial Tunnoil: Impads on and Lessons for China", Forum 50 paper (1999).
 05/28lC China a h Its Neighboursin 2005

twice the average Chinese production worker's wages of USS56 a month. Average wages in
Indonesia, which were roughly twice as high as those in China before the crisis, were
substantially lower by October 1998. Manufacturers, however, said that productivity
advantages in China more than o a e t any disadvantage in wage rates? However, the heavy
manufacturing industries of Northern China did not fare as well. Sharp depreciations of the
Japanese yen and South Korea's won (the won depreciated by 32%) against the US dollar,
and by extension, the renminbi, allowed Japanese and Korean shipyards to cut prices by 20%
or more. In August 1998, shipbuilding orders at Korean shipyards surged by a whopping
186.8%. Even Chinese customers placed orders with Japanese or Korean shipyards. The fall
in orders for new ships would leave China's shipyards idle for 18 months. Meanwhile. South
Korea's shipbuilding industry continued to boom in first quarter of 2000, with orders four
times those of the same period in 1999.'

By 2000, the prevailing view was that China acted as a stabilising influence in the Asian crisis.
Tluohgh much of 1998 and the early part of 1999, it was feared that China would devalue to
offset the depreciations of other Asian currencies, triggering off another round of devaluations
in the r e b n , worsening the crisis and scaring off investors. Given the fact that the renminbi
was not convertible on the capital account, the choice of whether or not to devalue rested with
Chinese authorities, which chose not to devalue. ASEAN officials stressed the importance of
China keeping its exchange rate steady at the 1999 ASEAN-China Senior Officials Political
Consultations in Kunming. Later in the year, the official press release of ASEAN Heads of
State1 Government noted with appreciation China's decision not to devalue the renminbi "as
an important gesture in support of hastened regional recovery"?

China's International Competitiveness

By 2005, China had become an extremely important production base for a wide range of
goods. It was the world's leading exporter of garments, footwear, consumer electronics
products, several home appliances, travel goods, toys, cutlery, bicycles, motorcycles and
many other products. In fact, China had come to occupy a very specific position in the Asian
production system. For'a vast range of light manufactured goods, China became the location
of choice for assembly and final production, involving capital and knowledge-intensive
components, inputs and capital goods imported fiom elsewhere in the region.
t

Fuelled by low labour costs, flexible labour practices and FDI,China had become the world's
largest producer and exporter of apparel and textile products. In the 1990s, Chinese
production had m i t i o n e d fiom relatively low-priced, lowquality products to compete in
virtually all segments and price points. The end of the quota regime in 2005 was expected to
lead to a dramatic improvement in C h i ' s global position. In January 2005, China's garment
and textile exports grew by 13.9% over the previous year. This was after China registered
growth of more than 20% in garment and textile exports in 2004. Guangdong Province alone
exported USfl billion worth of garments and textiles in January 2005, up 29.6% fiom the
previous year. Industry analysts estimated that China's share of the global garment and
textile market would go from 17% in 2003 to 50% by 2008.'0 US sources estimated that
China would be responsible for the elimination of two-thirds of US textile and apparel jobs
within two years of quota removal." The biggest losers were expected to be the garment and

Saywell, T., " S t d y as She Goesn, FmEafrmEawMnric Review. October I" 1998.
"K m Shipyard Orders Soar," Swrh ChinaMorning Post, September91998, p. 19 and 3.Konai! Shiwards Swamped
With Ordas," CMM Doily, North Amaican edition, Juae 28* 2000, p.6.
"Press Rel- of the Chai- on the ASEAN+3 Summit Meetings bawccn he Heads of SfatdGovemmcnt of ASEAN and
China, Japan and the Republic of Korea, Manila", November 2Sh 1999.
lo "China's Textile Industry to Adopt Export Controls." Business Daily Updatc, Financial Z'imes Informarion, March 4* 2005,
and " ~ h ~ to
n aPost US15 Billion Trade Surplusin 2005," Business Daily Update, Financial Times Infbrmarion, February 1 9
2005.
" McWilliams. J.D., Columbia, S.C- Textile I d w h y Braces For More Job Losses," The Sme, January 12h 2005.
 OWlC China andb Neighbousin 2005

textile industries in other Asian countries, like Sri Lanka, Bangladesh, Thailand, India and
others. By 2005, China had already instituted export taxes in order to reduce the disruption to
world markets, and avoid potential trade frictions. The United States had already imposed
restrictions on imports of ladies brassieres, dressing gowns, socks and knitted fabrics in 2004.
China's rise had caused concern because the garment and textile industry had often provided
the initial impetus to industrialisation in developing economies, and there was a fear that
China's rapid progress would prevent other developing countries fiom getting on to the
industrialisation ladder. Also, many companies were shitiig production to China fiom
elsewhere in the region.

In electronics, China's rise had been the result of its specialisation in division of labour, in
which Chinese facilities specialised in the labour-intensive assembly stages of the production
process, while other economies in the region (in ASEAN, Japan, Korea and Taiwan) supplied
key &mments, subassemblies and other inputs. China had already displaced substantial
assembly activities from Hong Kong, Taiwan, Japan and Singapore, and was displacing
-
assembly ip other economies such as Thailand, Malaysia, Indonesia and the Philippines. By
2005, Chink. was producing two-thiuds of the world's photocopiers, microwave ovens and
DVD players; more than half of all digital cameras and about 40% of all personal computers.
Overall, China was producing roughly half of the world's consumer electronics products.
China exported 146 million mobile hand phones in 2004, up 92.2% over 2003,'2 China's IT
and electronics sales were forecast to reach US$411 billion in 2005, up 28.3% over 2004,
when it had registered a growth of 40% over 2003. ~ x p 6 & of IT and electronics products
fiom China were US$200 billion in 2004, up 40% fiom 2003." While as of the early 2000s,
China's electronics sector was importing components fiom around the region, there was a fear
that an increasing number of components would be made in China, and that other Asian
countries, particularly in Southeast Asia, would lose out. Several major companies, such as
Sony, Toshiba and NEC had already shut down or downsized facilities in Southeast Asia, and
shifted production base to China.

In furniture, which had long been an bdustry in which production took place close to the
market, China had completely changed the dynaniics of competition. Furniture from
Dongguan in South China was rapidly replacing furniture produced elsewhere. China's
u exports of furniture to the United States tripled in. the early 2000s, cutting US furniture
employment in the industry by more than a third. By 2005, China was producing 80% of the
world's toys and similar proportion of the world's pens, travel goods, plastic house wares and
other products. While China was still a substantial importer of automobiles, Honda was
building China's first export-oriented auto plant in Guangzhou. China also was viewed as a
potentially strong source of auto parts, forgings and other machinery products.

However, China was not considered competitive in many natural resource-basedindustries,

highly engineered systems like fixtory automation equipment or advanced industries like
aerospace and pharmaceuticals. China also was considered to lag well behind in advanced
services like financial services, consulting, accounting and other professional services.

China's Markets
China's development was having a profound impact on input and commodity markets. While
China was self-sufficient in coal, it had to import most metals, as well as oil; China's
agriculture was considered outmoded and inefficient by world standards, particularly in wheat
and other grains. Under its WTO accession agreement, protection of the agricultural sector

UChin6~xp~fted146 Million Hsndsds in 2004," SimCust, China Business Daily News,February lp 2005.
ZOOS IT,Electronics Product Sales to Hit USS410.8B." Business Daily Update,Fimdd Times Infirnation,
l3 "China's
Jmmy 21' 2005.
05/261C China and Its Neighbours in 2005

was to be reduced significantly. By the early 2000s, China was consuming a large portion of
the world's raw materials and commodities [see Exhibit 71. Oil demand soared in China,
which was expected to import as much oil as Saudi Arabia exported by 2010 to 2012, and was
one of the causes given for the rapid rise in oil prices in 2004. In early 2005, iron ore
producers, including Australia's Rio Tinto, were able to obtain a 71.5% price increase for iron
ore, influenced largely by increased demand from China." Overall, mineral and metal prices
worldwide increased to the order of 60% in US dollar terms from 2001 to 2005, and
agricultural prices were up 2g0/0. In both sectors, experts linked the rise in prices to the
decline of the US dollar and rising demand from China."

Concurrently, China's consumer and i n M d markets were growing rapidly. Growth in the
housing mark& created demand for numerous household items. In addition, auto sales in
China grew from just over 500,000 units in 1997 to over 2 million units by 2003. Over the
santq time period, the number of mobile telephone subscriptions grew from 13.8 million to
269 hillion, while home mortgages grew from USS2 billion to US142 billion.16
$'\

China's Economic Interaction with the Region

By 2005, China's economic interaction with the region had become complex. It had not only
emerged as an important trading partner for most of the economies in the region [see Exhibits
8 and 91, but also as a major investment location. By 2005, China's growth was considered a
major contributor to the growth of several East Asian economies. At the same time, many in
the region were concerned about China's emergence as a competitor in export markets and for
foreign investment [see Exhibit 101. There was evidence that the growth rates of the poorer
East Asian countries with relatively labour-intensive economies (mostly the ASEAN
economies of Malaysia, Thailand, Indonesia and the Philippines) were negatively correlated
with China's growth rates since it initiated economic reforms. Similarly, the rate of growth of
FDI into China was negatively correlated with the growth of FDI into other Asian nations,
particularly Indonesia and the Philippines. On the other hand, China's growth in consumption
was positively correlated with export growth of other countries in the region, though more
positively correlated with growth in Japan and Korea than with other ecanornies." What was
becoming clear was that the impact of China's rise was felt differently in different
neighbouring economies. The economies of some of China's neighbours are profiled in
Exhibits 11,12 and 13.

J4ong Kong !

China's toonomy had been particularly intertwined with that of Hong Kong. By 2005, Hong
Kong had emerged as a major metropolitan service centre serving the Asian region as well as
China. As such, it supplied managerial, technical, market, financial and professional service
expertise that had helped China emerge as a major international player. Numerous Chinese
firms, for example, were listed on the Hong Kong Stock Exchange to access international
capital markets. Hong Kong's port and airport still handled large proportions of China's
foreign visitors and trade. Many analysts believed that Hong Kong was ideally situated to
provide many of the services that had been closed to outside firms in the past, but the
situation was changing now that China was opening under its WTO accession agreements. In
addition to Hong Kong firms, others from elsewhere in the world would likely use the Special
Administrative Region as a base to,provide services for the Mainland. This was particularly

14
Dyer. G. "Chinese S ~Acccpt 71.5%
l Prim Rise,"
~ Financial Times, March 2" 2005.
'' "Commodities Soar. The Them-Bust Cycle Remains Despite High Asian Demand,"Financial Times, February 25* 2005.
l6 "Cob of Age: Multinational Companies in China", Ecowmist Intelligence Unit, 2004.
"Di- 1.. and Hoekman, 9.. "Competition, Complementarity and Contagion in East Asia," in Aghor, Miller. Vines and
Weba (cds.), The Asian Financial Crisis, Cambridge University Press, 1999, pp. 312-347.
 051261C China ah Its Neighbourn in 2005

true after the enactment of the Closer Economic Partnership Arrangement (CEPA) between
Hong Kong and the Chinese Mainland whereby most Hong Kong manufactwed goods gained
duty free access to the Mainland, and Hong Kong firms had preferential access to the
Mainland market in a wide range of m i c e sectors.

Once China's economy began to open in the late 1970s, Hong Kong manufacturers began to
shift their facilities to South China. Hong Kong served as the location of managerial,
marketing and "front office" functions, while South China became home of the physical
production and related activities. The bulk of the inputs and outputs of China's export
processing industries went through Hong Kong, which was a separate customs area under the
"one country, two systems" formula under which Hong Kong was returned to Chinese
administration in 1997. Hong Kong's re-exports, mostly fiom China, were many times its
domestic exports, and were larger than its GDP. Hong Kong's trading, financial service and
shiphing industries accounted for 42% of Hong Kong's GDP in 2003. Chinese issuers made
Hong Kong the world's second leading capital raising centre in the world in 2004, led by New
York. S i ~ c the
e beginning of China's reforms, Hong Kong was the largest foreign investor in
China. Its' companies employed an estimated 10 million to 11 million workers in the Pearl
River Dtlta region of neighbouring Guangdong Province." Hong Kong also served a s a
conduit for investment fiom Taiwan, overseas Chinese businesses fiom other economies and .
major Western and Japanese multinational firmsthat used Hong Kong as a regional base.

While the rise of the Chinese Mainland had ushered in corresponding prosperity for Hong
Kong, there were some that were concerned about the many companies that had shifted lower
value activities into the Pearl River Delta, or moved China headquarter activities to cities like
Shanghai and Beijing. They feared that Hong Kong would lose out. Others contended that
Hong Kong would continue to benefit b m a growing Mainland economy.

Taiwan
Taiwan's economy also was becoming bcrea$ingly intertwined with that of the Chinese
Mainland. This was true despite bans on direct trade, travel and investment between Taiwan
and the Chinese Mainland (the result was that many Taiwanese entities used Hong Kong as an
intermediate point for conducting their business in the Mainland). Taiwan's trade with the
' Chinese Mainland was roughly US$40 billion from January to August 2004, and was 33%
higher than that in 2003. China's exports to Taiwan in the period were 55% higher than that
in the previous year. Approvals for Taiwanese investment to the Chinese Mainland fiom
January to ~overnbek2004 were up 52% from the same period in 2003.19

Taiwanese firms, especially those involved in footwear, apparel and electronics assembly, had
moved substantial portions of their production activities to the Chinese Mainland, while
retaining dkign, development and other activities in Taiwan. They wen attracted by wages
that were one-tenth those in Taiwan, a common language, the hope of entering the Mainland
market and worker productivity that some managers claimed to be 30% to 40% higher than
that in Taiwan. For instance, in the two-year period 2001-2003, Taiwan's notebook computer
makers moved roughly three quarters of their capacity to Suzhou outside of Shanghai. Prior
to this, nearly all of T a i m " s peripheral manufacturers had shifted base to China. By some
counts, there were approximately one million Taiwanese living,in the Chinese Mainland in
2005, mostly in the Pearl and Yangtze River Delta regions. I

Decentralisation of manufacturing activities to the Mainland had become a source of concern

to the Taiwanese leadership for two reasons: fear of unkmployment, and the fear that such

" mi& W.;Scott. E.E;and Chang, K.M, Regional Powerhouse: The Greater Peurl River Delfaand rhe Rise of Chino.
Singapox. and New York: Wilcy, 2005.
l9 Brown,D.G., "Campaign Fallout," Compmriw Connections,Octobr- Dccanber 2004.
4.. 05/261C China aild Its Neighbows in 2005

investment would be used as a political lever by the PRC. The Taiwanese government had
prohibited certain types of investment in the Mainland, urged Taiwanese companies to invest
elsewhere in Asia and tried to upgrade technological sophistication within Taiwan in order to
meet the challenge. While Taiwanese industrialists supported the notion of upgrading
Taiwan's economy, several voiced concerns that limited access to the Mainland might make
Taiwanese companies uncompetitive. At the same time, continued tensions across the
Taiwan Straits, particularly in the aftermath of the re-election of Chen Shui-bian as President
of Taiwan, further fielled ongoing uncertainty over Taiwan's relationship with the Mainland.

Japan
Japan's economic l i i with China had grown substantially since the mid-1990s. When re-
exports to and from Hong Kong were factored in, by 2004, each, China and Japan, were the
o t h v ' largest trading partner. Over the years, the composition of trade between China and
Japah, had changed dramatically. Earlier China supplied Japan with raw materials and
agricdhual goods, while Japan supplied capital goods to China. By 2005, manufactured
goods quesented roughly 90% of Japan's imports from China. Electronics (70%) was the
largest sinae category. Most of Japan's exports to China were in capital goods, components
and inputs for electronics. Trade between the two countries grew at a rate of approximately
25% per year from 2000 to 2004. In early 2005, the Japan External Trade Organisation
(JETRO) announced that trade volume between Japan and China, including HK,had reached
USS2ll billion in 2004, up 27% from the previous year, and was expected to grow by more
than 20% in 2005.20

China had become the dominant production location for many Japanese companies. In
February 2000, the Asian Wall Street Journal stated: "Japan's biggest factory these days is a
country called China. Japanese companies in China are pumping out more and more goods
aimed for exports back to Japan, with trade booming as a res~lt."~'At that time, according to
JETRO, 73% of the Japanese companies operating facilities in China exported more than half
of their main products back to Japan.= By 2000, Matsushita, which had been in China for
nearly 20 years, had 35 operations around the country, with products ranging from fans to
television tubes. In early 2001, Sony announced that it would close down nine factories in
ASEAN economies that produced for the Aiwa brand, and shift all of its production to China
Toshiba announced shortly thereafter that all of its Asian television production would be
moved to China. NEC also announced that the bulk of its computer manufacturing would
take place in China. In 2005, Toyota, Honda and Nissan were making large investments in
S;hina; this despite the predictions made before China's accession into the WTO by some
experts that China's auto industry would suffer. In 2004, many analysts credited China's
growth with putting Japan's economy on the road toward recovery.

China was also the largest destination for Japanese FDI in Asia, with investment concentrated
in electronics, textiles, transportation equipment and metals and materials. Increasingly,
Japanese investors, along with those from other nations, were focusing not only on china's
vast unskilled labour force. but also on its skilled technical ~rsonnel. The Dattern of
researching and developingskey technology and products at hohe while using china as a
production base continued to create two-way trade and mutual benefits. However, many FIEs
had been surprised at the speed with which their local counterparts had become viable
competitors in the Chiia market. Several Japanese consumer electronics companies, for
example, anticipatkd tough competition in the international markets from Chinese companies.

'O"JEl"R0 Predicts Record-HighTrade with China in 2005." Daily Update, Financial Times Information, February 22"" 2005.
~ana&yashi,M.,"Japan and Asia: ChinaToils to Meet Consumers' Demand for Japanese Goods,"Asian Wall Street Journal.
February 17" 2000. p. 12.
JEIRO. "Japanese Finns in China Foresee Better Sales this Year," Press Release, May 2"62000.
 05nBlC China and Its Neiahboursin 2005

South Korea
In the early 1990s, China was only a minor economic partner for South Korea. Since then,
South Korea's economic relations with China had been growing dramatically. In 2003, China
surpassed the United States as a destination for Korean exports and FDI. By 2005, direct
trade between China and Korea had averaged growth of greater than 20% per year for more
than a decade. In 2003, for example, Korean exports to China grew by 49%. Bilateral trade
was expected to reach USSlOO billion by 2010. By 2003, over one third of Korea's FDI was
going to Chinan For several years, Korean companies had been decentralising ptoduction
and moving base to China for manufacture of low value added goods. By 2005, nearly all the
textile, garment and footwear companies had moved base to China Korea's electronics and
home appliance companies were major investors in China, both in Northeast China, near
Korea and in Southern C h i China's \NTO entry had coincided with increases in Korean
ex- to China in a wide range of intenhediate goods, such as synthetic fibre yam, textiles,
iron 'and steel, petrochemicals, electronic parts, components and semiconductors, as well as
telecotnmunications equipment, processed foods and computer software. China, in turn, had
provided Korea with raw materials, consumer goods and most of Korea's agriculture imports.

Mirroring economic relations, political relations between China and South Korea, though
potentially strained by the actions of North Korea, benefited fiom a series of high-level
meetings in the early 2000s. In 2002, China's Prime Minister Zhu Rongji had proposed that
China, Japan and Korea consider a free trade agreement among the three nations. However,
not much progress had been made by 2005. By 2002, 36,000 South Korean students were
studying in China, as compared to 49,000 in the United States. For many in Korea, China
represented an alternative from being under the wing of the United States.

Economic relations with China were viewed as having a few downsides for Korea through
' 2004. One concern of Korean companies was their ability to stay ahead of China in
developing newer technologies and products. Many analysts indicated that Chinese
companies would increasingly try to do to Korean firms what Korean firms had done to
Japanese firms, ie,' offer a reasonable quality alternative at significantly lower prices. China's
imports of capital .equipment from Japan and Korea were expected to help them in this effort.
China also was increasingly able to produce the heavy equipment that it had hitherto been
" importing fiom Korea.
! ASEAN Economies
China's emergence had significant impact, with potential ripple effect, on ASEAN economies.
Increasingly, ASEAN countries were shifting the focus of their economic and political efforts
toward China China was becoming an indispensable early stop for new heads of state in the
region. In November 2002, China and ASEAN negotiated a framework agreement designed
to lay the groundwork for a subsequent free trade agreement. In November 2004, China and
ASEAN committed to establish a free trade agreement by 2010 with the six core members of
ASEAN (Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand). The
commitment began with a process of tariff reductions and removals of restrictions in some
service sectors. The free trade agreement was to take full effect for other ASEAN members
(Cambodia, Laos, Myanmar and Vietnam) by 2015.

Indonesia's economy had initially develop& around its natural resource endowments,
particularly oil, minerals and wood products. In the 1980s and 1990s, the focus began to shift
to development based on exports of light manufactured goods. Efforts to expand into more
advanced industries, such as auto and aerospace, met with only limited success. Indonesia

Flake,, L.G.. 'Testimony Befm thc Commissionon U.S.-China Economic and Security Review", Deoember 4* 2003.
 0512BlC . China aid Its Neighboursin 2005

had been hit hard by the Asian crisis of 1997-1999, which saw a virtual economic collapse
and the end of the 32-year rule of President Suharto. Since the onset of the Asian crisis,
Indonesian wages had fallen below the levels in China. However, productivity levels in
Chiia had been far higher than that in Indonesia, and China's infrastructure was considered
superior. By 2005, the political uncertainty that had seen four presidents in office in four
years in the late 1990s had diminished with the election of Susilo Bambang Yudhoyono.
However, fears of potential terrorism in the aftermath of bombings in Bali and Jakarta,
economic hardships and the tsunami of 2004 made recovery and attraction of inward
investment difficult.

Thailand's economy had grown rapidly in the years preceding the Asian crisis. Over the
years, it had evolved fiom an agricultural and.natura1 resourcebased economy to one that also
had a strong manufacturing component. -Thailand had become a centre for electronics
ass*bly as well as the ASEAN centre for foreign investment in the automobile industry.
~raditionall~, Thai manufacturing facilities competed on the basis of low cost. Thailand was
an exporter of food products to China, as well as of electronic components and subassemblies
and components for other light manufactured goods. Thailand was also becoming an
important tourist destination for Chinese travellers. China and Thailand shared a border, and
some analysts suggested that greater interaction could stimulate the economies of China's
southwest provinces of Yunnan, Guangxi and Guizhou as well as Thailand's northern
provinces.

Malaysia's economy had progressed farther than most of the other ASEAN economies. In
addition to assembly manufacturing, Malaysia had attracted investments in components and
some capital goods. The Malaysian government had embarked upon aggressive programmes
to improve its technology base. Malaysian facilities supplied components and subassemblies
that were often sent to China for final assembly. However, some companies had begun to
invest in component manufacture*in China. Malaysia had not been hit as hard as some of the
other ASEAN economies during the Asian crisis. However, in the late 1990s, internal
political difficulties, capital controls and statements of Prime Minister Mahathir Mohammed
tended to keep foreign investment away. Malaysia had also slowed the ASEAN Free Trade
Area (AFTA) programme by insisting on continued protection for its automobile industry. As
of 2005, under new Prime Minister Abdullah bin Ahmad Badawi, Malaysia was seeking to re-
invigorate its economy, and its relations with foreign investors.

The Philippines had been transitioning fiom an economy based on agriculture to one focused
6 n exports of light manufactured goods. While electronics assembly had become a mainstay
" 'of the Philippines' exports, services such as logistics, call centres and backroom processing
*;
v
b
had also become increasingly important. Philippine officials had stated that China's
development and entry into the WTO would only affect the Philippines in the long run,
claiming that the two nations did not compete in the same industries, and that the Philippines
- enjoyed advantages in educated and skilled people that would take China a long time to match.
8C
However, others believed that the Philippines' main export to China, electronic components,
would come under threat as China developed in-house the capability to provide the
iE' components. In addition, the Philippines exported agricultural goods, notably bananas,
.!r:! pineapples and fertilisers, to China, and had begun to bring Chinese agricultural expertise into
$he Philippines.
E l

E Singapore had developed into a largely service-oriented wonomy serving the ASEAN region.
As such, it depended to a great extent on economic activity in neighbouring countries. The
li service sector accounted for roughly three-quarters of the Singaporean economy, which also
had significant electronics and chemical industries. In 2005, Singapore was trying to
overcome its position as a "good house in a bad neighbourhood" by pursuing free trade
 OSnslC ~hina'andIts Nelghboursin 2005

agreements with major economies around the world, developing its knowledge-intensive
technology and education sectors and trying to become known as a "global city". Singapore
had once tried to position itself as a good link to China, but this had not proven credible. The
Singapore government had to turn over majority control of its own flagship China project, an
industrial park in Suzhou, near Shanghai, when it proved to be a failure as an investment.

Other Economies
Although China's longest border was with Russia, the economic interaction between the two
countries was relatively limited. In comparison with China, Russia's Far East was sparsely
populated, and its enormous resources, including oil, natural gas, minerals and timber, were
relatively underdeveloped. The infhstm& necessary to develop these resources was also
not in place. Some discussions about trade and logistics were initiated between Chinese and
R e i a n officials, but little concrete action had taken place. China had attempted to push
thrdrugh a pipeline project to bring Siberian oil directly to China, but Russia decided to keep
its o@ons open, and chose to work instead on a pipeline to its own Pacific coast, where the
oil could be put on tankers for Japan, Korea or China. In addition, Chinese officials had
begun dibussions with representatives from Russia and the United States on developing a
new transportation corridor connecting China's north-eastern provinces to North America
through Pacific Russian ports. Virtually all the international trade of Jilin and Heilongjiang
provinces passed through the port of Dalian, and required two to five days' overland transit.
The new corridor could save a week or more in transit time and up to US$1,000 per container
in shipping charges. Though significant obstacles remained, the potential partners all
expressed a desire to make the new route viable.

Greater interaction had been achieved with one of China's western neighbours, Kazakhstan.
' In September 1997, China and ?kakh&m reached a US$9.5 billion agreement, including a
3,000-kmlong pipeline through Xinjiang in Western China, a minimum passage of 20 million
tonnes of crude oil a year and rights to develop some of the Kazakhstan's largest oil fields.
Analysts reckoned the Caspian Sea region, including Kazakhstan, might have reserves of up
to 200 billion barrels of oil (compared to 97 billion barrels for Kuwait). The project appeared
to be stalled in mid-1999, but it was revived in 2000, when one of the world's largest oil
fields was discovered in the Caspian seabed?'
r

Regional Groupings
By 2005, China had begun to participate in several regional organisations in addition to its
.$raditional participation in APEC, the Asia Pacific Economic Co-operation forum. China
. .participated in the "ASEAN+3" forum along with Japan, Korea and the ASEAN countries.
Talks began in 1997, and the forum's first joint statement was issued in November 1999.
Stressing wmmitment to build upon existing consultative and co-operative processes, the
statement emphasised co-operation in economic, monetary, financial, social, human resource,
scientific and technical development. The ASEAN+3 forum received a boost from the Asian
crisis, when members realised that existing multilateral mechanisms were not capable of
dealing with the region's problems. In May 2000, ASEAN+3 financial ministers agreed to
establish a network of swaps and repurchase arrangements and an early warning system to
guard against fimue currency crises and financial instability. By 2005, many observers
believed that eventual econorqic integration among the ASEAN+3 was a matter of working
out how far and how fast it would happen, rather than ponder about whether it would happen.
However, by 2005, there were relatively few initiatives acfively taking shape.

"KaniLhstsn's Pipdine to Rospcrity." Thc ~ i s lOctober , 11' 1997, p. 47; 'Y-'NPC Shelves China-Kazakhastan Oil
Pipeline," Oil & GUTJounral. August 30' 1999, p. 44; and "Chinese and Kazakhstan Leaden to Accelcratc Work on Atyrtau-
Western China Oil Pipeline Construction," The R&m 011 & Gar Reporf,July 31a 2000.
 051281C China and Its Neiahboursin 2005

The Mekong Basin Development Project, which focused on transportation, energy,

communications, trade and invesfment, aimed at linking the region into a single economic
bloc. The Project had been administered by the Mekong River Commission, which included
Thailand, Laos, Cambodia, Vietnam, the UN and the Asian Development Bank (ADB), and
had China and Myanmar as "dialogue partners". Despite this status, China notably refused to
discuss its activities on the Mekong. In 2005, it was pushing ahead with plans to build several
dams along the Mekong despite opposition of the members of the Mekong River Commission.

The Shanghai Five (Russia; China, m n , Kyrgyzstan and Tajikistan) was a forum to
discuss border security, military co-operation, anti-terrorism-andeconomic co-operation, first
met in 1996. Observers saw the forum as a means for Russia and China to counter the
influence of the United States and NATO. At the group's 2000 forum, the Shanghai Five
appeared ready to form a closer-knit and larger organisation. Uzbekistan participated as an
observer, and the Russian officials suggested including India, and there was talk of setting up
a full$;fledged secretariat. The Shanghai Five focused mostly on non-economic issues. In
the statkment issued by the heads of state in Dushanbe in July 2000, for example, economic
issues did.not appear until the fourteenth article, and then only in perfunctory form.z The
successor, Shanghai Cooperation Organisation, which opened its secretariat in Shanghai in
January 2004, has been credited with helping to resolve long-term boundary disputes among
members as well as supporting members' initiatives against "three evils- terrorism, separatism
and extremism".

The Impact of China on its Neighbours

By 2005, the rise of China's economy was having a strong impact on its neighbours. For
some neighbours, the impact had been largely beneficial. For others, there had been a
' mixture of costs and benefits. For most of the region, China's emergence was seen as
potentially even more important than Japan's economic rise a few decades earlier. Japan had
been a much more advanced economy than its neighbours, and it rapidly became a source of
investment, technology and markets for the rest of East Asia China, in contrast, was still a
developing country, one that could match up with other developing economies in the region.
At the same time, China's growing investments in education and technology made it a
potential competitor in higher skilled and technology industries in the foreseeable future.

There was early evidence to show that the development paths of economies around the region
had been changed, possibly forever. Companies from Japan, Korea and Taiwan had taken
ddvantage of China's costs, capabilities and infrastructure to make major investments and to
"'
'serve China's markets. Southeast Asian nations had seen some facilities benefit from China's
emergence as a market for resources and intermediate goods, while other facilities were shut
down or shifted to China. Some officials in ASEAN had voiced concern that China's rise
would make Southeast Asia an economic backwater.

The only certainty was that China would become an ever more important player in the Asia-
Pacific region. Managers and policy makers were left pondering over its impact on their own
activities. All over the region, the same questions were being asked: What economic roles
would China play in the region? What would be the impact on the different economies and
industries in the region? What should the governments and finns in neighbouring economies
do in response to the emergence of China's economy?

"Dushanbe Statement of the Heads of State of the Republic of Kazakhstan, the People's Republic of Chin4 thc Republic of
Kyrgystan, the Russian Federation and the Republic of Tajikistan," Dushanbe. Tajikistan, July 6*2000.
 . .. . . ., . ... . . . ' ... -T," ....,.,, "..1'7 ' " ' 'a'.Tm*t+*.*w ' l l * ? * ~ ~ R .F.+!y
; w :% ( 9 '.?I I p W pv
Wy?iTTQ+

051261C China and Its Neighboun In 2005

I

j rd

: a EXHIBIT 1: CHINA'S ECONOMY

Sources: Economist Intelligence Unit, Asian Development Bank, and China Statistteal Yearbook, various years.
 Om81C China and Its Neighbouts in 2005

EXHIBIT 2: LEADING INTERNATIONAL TRADING ECONOMIES, 2003

Source: World Trade Organization.

'.
EXHIBIT 3: CHINA'S LEADING TRADING PARTNERS, 2003

I Expo* from China I Imports to China

Economv Value I Year on Year 1 Value 1 Yearon Year
US$ million increase US$ million Increase
World 438.227 +40% 412.759 1 +35%
Japan 59,408 +39% 88,997 +33%
United States 92,466 +24% 41,178 +30%
EUl5 72.054
- +38% 62.265 +29%
-

1
I I I I
* Hong Kong I 76,274 I +4% I 11,118 I +30%
South Korea 20.094 +51% 54.804 +49%
Taiwan 9,004 +30% 53,125 +50%
Singapore 8,863 +49% 11,193 +37%
Australia 6,263 +25% 8,730 +37%
Russia 6,029 +16% 9,728 +71%
* Malaysia 6,140 +50% ' 14,426 +36%

Source: China Customs.

EXHIBIT 4: LEADING DESTINATIONS FOR FOREIGN DIRECT INVESTMENT,

h.
2003

Source: UNCTAD, World Investment Report 2004.

054261C China and lts Neighbours in 2005

EXHIBIT 5: INWARD FDI TO CHHA

Source: Cbina Statistical Yearbook.

EXHIBIT 6: OUTWARD FDI FROM CHINA

Source: MOFCOM
0512616: . China and Its Ndghbours in 2005

EXHIBIT 7: CHINA'S CONSUMPTION OF COMMODITIES AS A PERCENT OF

WORLD TOTAL

Sources: China Statistical Bureau, China Economic Quarterly, UBS.

EXHIBIT 8: CONTRIBUTION OF EXPORTS TO CHINA TO SELECTED

ECONOMIES
(SEPTEMBER 2003-SEPTEMBER 2004)

Source: CEICNBS.
 I
v
. ~ ~ , N ? ~ w l l m m - ~ ? * 'r r . ., .. .. . ,.. , ..
., , , -.-*
?.'

-'=m
; 8
.
8 . ~.
1I 051261C Chlna and Its Ndghbm In 2005

P #

EXMIBIT 10: INBOUND FDI OF ASIAN ECONOMIES

. .
Source: UNCTAD, World Investment Report, various years
mFm-.r*eP.y. rr .
r.* r -..- . - -,. -,. * .,-.
, ,.-7 6 -* " r p . m p
v
1 1
OSt26lC China and Its Neighbows in 2005

i'.
EXHIBIT 11: BASIC PROFILE OF SELECTED ECONOMIES

Economy China Hong Kong Taiwan ~apah'/ South Korea Russia

GDP 2003 (US$ billion) 1,445 156.7 286.1 4,296 605 433.5
Real GDP Growth 2003 (%) 9.3 3.2 3.2 2.7 3.1 7.3
2002 8.0 1.9 3.6 -0.3 6.9 . 4.7
2001 7.5 0.5 -2.2 0.4 3.8 7.3
2000 8.0 10.5 6.5 1.7 8.8 n/a
1999 7.2 3.0 5.7 0.8 10.9 1.7
1998 7.8 -5.3 4.6 -1 . I -6.7 -1.7
1997 8.8 5.0 6.7 1.9 5.0 1.7
Population 2003 (million) 1,292 6.9 22.6 127.6 48.2 143.8
Per capita GDP 2003 (US$) 1,118 22,730 12,650 33,774 12,620 3,014

Economy Indonesia Thailand Phillppines Malaysia Singapore

GDP 2003 (US$ billion) 243.3 - 142 79.3 95.2 91.3
Real GDP Growth 2003 (%) 4.5 6.7 4.7 5.3 1.1
2002 4.3 5.4 4.3 4.1 2.2
2001 3.8 2.1 1.8 0.3 -1.9
2000 4.8 4.3 3.9 8.5 9.9
1999 0.3 4.2 3.3 5.8 5.9
1998 -13.0 -10.8 4.6 -7.4 0.3
1997 4.5 -1.4 5.2 7.3 8.2
Population 2003 (million) 221 62.9 82.7 25.6 4.3
Per capifa GDP 2003 (US$) 1,103 2,257 937 3,793 21,790
l 1i
I
I I Sources: EIU for all countries except Russia (World Bank and CIA Fact Book).
I

I I
 /

051261C China and ka Nebhbours In 2005

? .f-

EXHIBIT 12: PRINCIPAL EXPORTS OF SELECTED ECONOMIES

-/
- US$ billion
China Hong Kong Taiwan Japan / South Korea Russia
2003 2003 2003 2003 2004 2003
(domestic exports)
Machinery & 188 Apparel & 8.2 Industrial 142.0 Transport 114 Electronic products 87.8 Crude oil 39
transport clothing products equipment
equipment
Miscellaneous 126 Electrical 1.3 ~achineriei& 75.4 Electrical 111 Information & 45.9 Natural gas 20
products equipment & electrical machinery communications
machinery equipment equipment
Lght industrial 69 Textile yam & 0.8 Textile products 11.9 Non-electrical 95 Semiconductors 26.5 Manufactures 13
products, rubber, fabric machinery
minerals, iron etc
Primary goods 35 Jewellery, 0.7 Agricultural 0.4 Motor vehicles 76 Passenger cars 24.6
goldsmiths 8 products
silverware
Chemicals & 20 Printed matter 0.5 Chemicals 39 Machinery & 22.6
related products equipment
Office machinery 0.3 Semiconductors 35 Chemicals & 20.5
& data-process. chemical compounds >
Equipment
Indonesia Thailand Phlllppines Malaysia Singapore
2003 2003 2003 2003 2003
Crude petroleum & 7.2 Machinery 8 mechanical 10.6 Electronic products 23.7 Semiconductors 22.4 Machinery & 88.2
products appliances equipment
Textiles & garments 7.2 Electrical apparatus for 10.6 Semiconductors 16.7 Electronic equipment 8 21.7 Chemicals 17.0
circuits parts
Liquefied natural gas 6.5 Fuel & lubricants 8.9 Electronic data- 5.5 Electrical machinery & 14.7 Mineral fuels 16.1
processinq equipment appliances
Wood & products 3.2 Electrical machinery 8.5 Apparel & clothing 2.3 Chemicals & chemical 5.6 Miscellaneous 12.3
products manufactures
Crude petroleum 8 prod. 7.2 Nonelectronic machinery 8.0 Petroleum products 0.5 Crude palm oil 5.3 Manufactured 5.4
goods
Textiles 8 garments 7.1 Consumer electronics 0.5 Crude petroleum 4.1 Food, bever., tobac. 2.5
Sources: EIU for all countries except Russia (World Bank and CLA Fact Book).
",,. -

05/261C
?- . --
I

I China and Its Neighbours in 2005

I EXHIBIT 13: PRINCIPAL TRADING PARTNERS OF SELECTED SjCONOMIES

PRC Hong Kong Taiwan Japan south K o m Ruuk
Exports (%) 2003 Domestic exports (X) 2003 Exports (%) 2003 Exporb (%) 2003 ,,'- Exports (X) 2004 Exports (%) 2003
I us 21.1 US 32.2 Hong Kong 21.7 US 24.6 China 19.6 Germany 7.8
, Hong Kong 17.4 China 30.2 US 18.0 EU 15.3 US 16.9 Netherlands 6.5
I I Japan 13.6 UK 6.4 China 16.4 China 12.2 Japan 8.5 Italy 6.3
S. Korea 4.6 Germany 4.Q Japan 9.2 South Korea 7.4 Hong Kong 7.1 China 6.2
' Germany
Netherlands
4.0
3.1
Taiwan
Japan
3.0 Singapom
2.3
3.8 Taiwan
Hong Kong
6.6 Taiwan
6.3 Singapore,
3.9 Belarus
2.2 Ukraine
5.7
5.7
Imports (%) 2003 Imports (X) 2003 Imports (X) 2003 Imports (X) 2003 Imports (Y.) 2003 Imports (X) 2003
'I 1
'
Japan
Taiwan
18.0
12.0
China
Japan
43.5 Japan
11.9 US
25.6 China
13.2 US
19.7 Japan
15.4 China
20.6 Germany
13.2 Belarus
14.0
8.6
I South Korea 10.4 Taiwan 6.9 China 8.6 Middle East 13.4 US 12.8 Ukraine 7.7
US 8.2 US 5.5 South Korea 6.8 EU 12.8 Saudi Arabia 5.3 China 5.8
/ Germany 5.9 Singapore 5.0 Gennany 3.9 South Korea 4.7 Germany 3.8 US 5.2
I Malaysia 3.4 South Korea 4.8 Australia 3.3 Kazakhstan 4.7
I ' Indonesia Thalland Phlllppines Malaysia Singapore
i, 1
Japan
S 2003
E X P O ~ ~(%)
22.3 US
~ x p ~ r(.x)
t s 2003
17.0 US -
Exports (x) 2003
19.8 US
EXPO- (%) 2003 EXPO*
19.6 Malaysia
(%) 2003
15.8
I , Us 12.1 Japan 14.2 Japan 16.1 Singapore 15.7 US 13.3
I Singapore 8.9 Singapore 7.3 Hong Kong 8.6 Japan 10.7 Hong Kong 10.0
South Korea 7.1 Hong Kong ' 5.4 Netherlands 8.2 Hong Kong 6.5 China 7.0
China 62 Singapore 6.8 China 6.5 Japan 6.7

' I
I Malaysia 6.5 Thailand 4.4 Taiwan 4.8
Imports (%) 2003 Imports (X) 2003 Imports (X) 2003 Imports (X) 2003 Imports (%) 2003
1I
/ I
.Japan
Singapore
13.0
12.8
Japan
US
24.1 Japan
9.5 US
20.4 Japan
19.7 US
17.1 Malaysia
15.3 US
16.8
13.9

'
I

I t
China
us
9.1
8.3
Malaysia
Singapore
6.0 Singapore
4.3 South Korea
6.8 Singapore
6.4 China
11.7 Japan
8.7 China
12.0
8.7
I / Thailand 5.2 Taiwan 5.0 South Korea 5.4 Taiwan 5.1
Australia 5.1 Hong Kong 4.3 Taiwan 4.9 Thailand
1 / ,
4.3
1 Sources: EIU for all countries except Russia (World Bank and CIA Pact Book).
I EXHIBIT 14: RANK ORDER CORRELATIONS WITH CHINA BY SITC 3 DIGIT INDUSTRIES
Source: Computed based on UNCommodity Trade Statistics Database (UNComtrade).
Remark: Taiwan is not covered by UN Comtrade.