Production Specialization Effects

In these exercises part of the income increases estimated for regional economies will be due to demand growth, but part will also be due to the changing composition of production based on increased intra-regional specialization, where goods with a comparative advantage, that is a lower opportunity cost, are expanded relative to goods with a higher opportunity cost.

The potential for future regional specialization will be strongly influenced by the extent of current and potential dissimilarities in trade and production structure between PRC and its neighbors. PRC’s rapid macro economic growth is changing its trade and production structure rapidly but as a broad generalization it is still accurate to say that relatively simple low technology products still dominate its exports (at around 45%), although the share of high technology products is rising rapidly (at around 25%).

Significantly the share of resource-based products at around 10% is relatively low and indicates a relative scarcity of natural resources in PRC relative to the vast labour-power available. Formal tests of similarity of export structure for example find that PRC in 2000 was closer to the Republic of Korea and Taipei,China ten years earlier than to most of the ASEAN economies in 2000.⁴ It is still very dissimilar from Japan. Given its current structure the expectation is that in the medium term PRC will import high technology goods and equipment from Japan and the Republic of Korea, and foodstuffs, some natural resource –based products, and various parts and components for use in the production of high technology final goods from its ASEAN partners. This will give a future regional production specialization that underpins the positive income and trade projections noted above.

The modelling exercises referred to earlier have industry-level projections that support this view, although the level of aggregation at which such models are constructed means that detailed predictions of individual product growth cannot be derived from them. For example, table 5 shows predicted net trade balances as a proportion of trade (or intra industry competitiveness) for PRC in its trade with Japan, the Republic of Korea and Taipei,China and ASEAN in 2020 on the assumption of an East Asian Free Trade Area.⁵

Table 5 [ PDF 51.7KB | 1 page ]confirms this broad picture with PRC running trade deficits with Japan and the Republic of Korea in Electronics, the most technologically sophisticated industry shown in the table. It runs a significant surplus with all partners in the important low technology clothing sector and is heavily in deficit with ASEAN in important foods like rice, sugar and livestock. However the industry categories used are too aggregate to identify the expected flows of manufactured parts and components from ASEAN to PRC.⁶ The figure of 0.02 for Electronics trade with ASEAN indicates PRC’s exports only marginally exceed her imports and this overall balance masks very substantial projected exports and imports in Electronics (that is ‘intra-industry trade’) between the two partners.

Broadly similar results are reported by Chirathivat and Mallikamas (2005) in their assessment of the consequences for ASEAN countries of PRC entering into the free trade area. For selected countries substantial gains in exports and production are projected for the primary products rice (from Thailand and Viet Nam), sugar (also from Thailand and Viet Nam), and vegetable oils (from Malaysia). Textiles and chemical and rubber products are other activities that are projected to expand significantly. However within manufacturing the results of the model do not highlight enhanced trade in parts and components.⁷

In general there is empirical support for the view that a regional division of labour is emerging based around the large and dynamic Chinese market. If this is the case are there any remaining grounds for concern that PRC’s re-emergence may create threats as well as challenges? To address this we examine the case for ‘competitive effects’.

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1. Kazi Iqbal Sayeed
   (posted 03 September 2005 / 07:09:19 PM)
   
   Just define the way exactly you want to fetch results from and proceed it with 100 %. That's all that makes a pattern of success. Thank you.
   - Kazi I.S.