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I China’s emergence in the World Economy

• Basic figures of the World Economy• China’s emergence…• … and a few consequences

II Economic relations in Northeast Asia

• Economic relations: Multilateralism / Regionalism / FTA

• Asian regional institutions • China’s trade

China and the economic relations in Northeast-Asia

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I China’s emergence in the World Economy

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World Economy

GDP (billion $)

Pop(millions)

GDP perCapita ($) GDP PPP Growth

1 United States 11,500 300 38,000 40,000 4

2 Japan 4,500 130 34,000 30,000 2

3 Germany 2,700 80 34,000 28,000 2

4 United Kingdom 2,100 60 35,000 31,000 4

5 France 2,000 60 33,000 29,000 2

6 Italy 1,650 60 27,000 28,000 2

7 China 1,650 1,300 1,270 5,500 10

8 Spain 1,000 40 25,000 25,000

9 Canada 1,000 30 33,000 30,000

10 India 700 1,000 700 3,000

11 Korea 700 23 30,000 20,000

20052007

2009

China is 20% of the world population and 5% of its production; the US is just the opposite. China is now at the same development level as Japan around 40 years ago.

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China’s emergence…

• 9% of growth since 1978 GDPX7 in 25 years

• Industrial Revolution

Liberalization of agriculture

industrialization + urbanization,

but what differs is the size of the plane, its engine and the time of its take-off

GDP per capita doubled in the first 8 years in China, it took Great-Britain 58 years

• Sources of growth: Consumption

Investment

TradeLeading destination for FDI: $ 550 billion since 1980, 53% by Foreign Invested Companies

gains in productivity rural migration

better living condition Middle-class

conjunctural, fluctuating

Foreign Dependence

Another plane is taking off?

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• Competition with other developing countries (Mexico, end of MFA)

• Competition for commodities (oil,

40% of world copper, 25% of steel)

… and a few consequences

• China is becoming an ever stronger competitor in almost any market

• Business investors shifted their focus from South-East Asia to China after Asian financial crisis & China’s accession to WTO

• China is also an engine of growth: ASEAN experienced a growth in trade with China of 35% in 2004 & a trade surplus of $20 bn

• Even for FDI, the growing interest in China can also lead MNC to locate other aspects of their operation in Asia for proximity to investments in China

Challenge Opportunity

• World workshop (cheaper products)• World market (more than 1,000 KFC)

the size of domestic market is one of the main reasons of US leadership today

Regionally

Globally

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II Economic relations in Northeast Asia

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• Multilateralism

- Rounds of multilateral negotiations aiming at liberalizing trade under the GATT in 1947, and then inside the WTO since 1995: 148 equal members (MFN),

Japan joined in 1955, Korea in 1967, 7 ASEAN countries in 1995

«one of the most important developments in China since the reform era began» Thomas G. Moore

Tariff rates: 40% in 92 20% in 99 10% for industry and 15% for agriculture

• Typology of regionalism (Balassa, 1961)

Preferential Trade Area Unilateral advantages EU + ACP

Free Trade Area No Internal Tariff NAFTA

Customs Union FTA + Common External Tariff MERCOSUR

Common Market CU + free flow of factors (W, K)

Economic Union Harmonized Economic Policies EU

Economic relations (I)

Dispute Settlement

Body

and China in 2001

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• Free Trade Agreements: more and more FTA appeared after the sinking of multilateral negotiations in Seattle and Cancun: 30 agreements in 90 150 in 2004

- China: discussions with ASEAN since 2000 but also Australia, Chile, New Zealand…

- Japan: Singapore (2002) and Mexico (2004) + ongoing negotiations with Malaysia and Thailand (2005), discussions with Australia, ASEAN… which have an impact on internal reforms (improving market access and introducing market forces in protected sectors such as agriculture or services) but overall on its influence in Asia

• Regionalism vs Multilateralism

Multilateralism is based on the Most Favored Nation Status (GATT ‘s 1st article) but regional agreements are allowed by WTO (GATT’s article 24) if they aim at facilitating trade between members and not at raising new barriers to non members

Regionalism can sometimes prepare for multilateralism (China joining APEC in 1991 before joining WTO) or be its product (Mexico joining NAFTA after GATT)

Economic relations (II)

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Regional Institutions in Asia

ASEAN+31997

EAEC1990

ASEAN1967

CMI1998

AFTA2005

FTA 2010

Reg

iona

l voc

atio

nO

rgan

isat

ions O

utside D

ialogue

ASEM1996

APEC1989

ASEAN PMC1974

Economic Organisations

ARF1993

Security Organizations

SCO2001

TRADP1991

Boao Forum2001

TAC1976

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Regional Institutions• ASEAN (1967)

• ASEAN Post Ministerial Conference (1974): outside powers invited after the conference

• TAC: Treaty of Amity and Cooperation (1976): non-interference, China signed in 2003

• ARF: ASEAN Regional Forum (1993): security, Joint Declaration on the Conduct of the Parties in China Sea (11/2002)

• ASEAN+3 (Japan, China, South Korea, 1997)

• APEC (1989)

• East Asia Economic Group (1990) East Asia Economic Caucus: Malaysian initiative to counter APEC without non-Asian country members, in order to promote « Asian values »

• TRADP: Tumen River Area Development Program (1991): multilateral forum intense in the early 90’s (China, South and North Korea, Mongolia, Russia)

• ASEM: ASia Europe Meeting (1996)

• SCO: Shanghai Cooperation Organization (2001): security (against terrorism), China, Russia and Central Asian States

• AFTA: after China’s FTA proposal with ASEAN (2000) Free Trade Area (“2010”)

• CMI: Chiang Mai Initiative (1998): swap schemes to moderate monetary fluctuations

• Boao Forum for Asia (2001): Asian version of the global Davos World Economic Forum

after AFC center of gravity for economic regionalism

marginalizes Taiwan, unlike APEC & WTO

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China’s trade with Northeast-Asia

• Over the past 25 years, China 30th world trader 3rd

$1 trillion, 50% intraregional (relatively balanced)

• Japan: China’s 2nd largest trading partner

China is Japan’s largest trading partner

Complementarities “hot” economic relations even if “cold” political relations

JETRO 2003: “China drives Japanese trade recovery”

• Taiwan: China’s 2nd largest source of FDI

China is Taiwan’s largest trading partner

Beijing uses economic integration to slow Taiwan’s independence

• South Korea: China is SK’s largest trading partner with annual trade of $60 bn (Chinese trade deficit) economic and strategic dimension (against US, Japan)

• Russia: commercial relations are secondary to political and military ones

• North Korea: China is North Korea’s leading trade partner

Cooperation& Rivalry

$160 billion a year

“and economy” ©Jonathan

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« Bilateral trade underscores the fundamental connection between economics and politics »

25%0.2%

7% 2%

13%

7%

18%

7%

16%

14%

24%

8%

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China’s trade with the United States

China overtook Mexico as the 2nd leading supplier of goods Trade surplus ($175 billion in 2004)

Interdependence

• United States: China’s top trading partner

Foreign ExchangeReserve: $711 billion

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Thank you everybody

謝謝大家

Some questions to conclude

1. Will China be able to sustain its high growth rate for another 25 years (bottlenecks like transparency and corruption, state-owned companies, financial and fiscal systems…)?

Even if it could, at what price (rural-urban / social / regional disparities, pollution…)?

2. How do you see the future of economic relations in Northeast-Asia? Still through market-driven and informal integration or under a formal institution (ASEAN, APEC…)?

3. Will China and Japan’s economic interdependence end up improving their political relations, or will their political tensions end up poisoning their economic relations?

4. Will China always be ready to buy US Treasury Bonds and lend it the money it needs to purchase its products? Won’t they one day prefer spending money too?

5. Will China continue to under-evaluate its money or will it crack against US pressure?