The new drivers of Asia’s economy

Export-oriented investments that dominated China’s overseas direct investments (ODI) in Asia are set to drive Asia’s economy over the next 10 years. Due to the increasing labor cost and industrial upgrades in China, the country is moving its labor-intensive production plants through ODIs to less developed Asian countries where labor costs are lower. As a result, the processing trade in China will weaken considerably as more Asian countries take over the production of Chinese goods, and then export them to other countries. Over the past 10 years, China’s trade to East Asian countries has rapidly developed, contributing much to its surging exports. China’s foreign trade has been rising at a staggering rate – especially from December 2001 when China joined the WTO – with exports volume up to $1.2 trillion in 2009 from $270 billion of 2001, becoming the biggest exporter in the world. Investments from developed economies in East Asia – including Japan, the Republic of Korea, Taiwan, Hong Kong and Singapore – have flowed into the Chinese mainland, with manufacturing and processing industries that lost dominance in their home. Over the past 10 years, too, exports and imports of foreign enterprises in China accounted for more than 50 percent of China’s total exports and imports. In addition, most exports from China were from the processing trade. Furthermore, the foreign capital that drove the development of China’s processing industry came mostly from East Asia. At present, increasing exports have resulted in an increasing foreign exchange reserve, which reached about $3 trillion in 2010, ranking top worldwide. The yuan exchange rate has appreciated by 20 percent accumulatively over the past six years. It’s time to liberalize the foreign exchange to adapt to the constant trade surplus and rising foreign exchange reserves. From the macroeconomics viewpoint, wages will increase with resulting inflation and China will lose the advantage on labor-intensive industries. The advantage of China as a processing center among other developed economies in East Asia will disappear, due to the liberalized exchange rate and increased labor cost in China. China will shift the processing industry into an export module, focusing on advanced efficiency and technology, and taking advantage of exchange and interest rates. Investing in other countries in Asia, transferring the labor-intensive industries there and exporting the goods produced there will become the new pattern involving in the development of East Asia’s economy of Chinese enterprises, which will act as the economic driver within the bloc. The writer is a researcher with the Chinese Academy of Social Sciences.

Export-oriented investments that dominated China’s overseas direct investments (ODI) in Asia are set to drive Asia’s economy over the next 10 years.

Due to the increasing labor cost and industrial upgrades in China, the country is moving its labor-intensive production plants through ODIs to less developed Asian countries where labor costs are lower.

As a result, the processing trade in China will weaken considerably as more Asian countries take over the production of Chinese goods, and then export them to other countries.

Over the past 10 years, China’s trade to East Asian countries has rapidly developed, contributing much to its surging exports.

China’s foreign trade has been rising at a staggering rate – especially from December 2001 when China joined the WTO – with exports volume up to $1.2 trillion in 2009 from $270 billion of 2001, becoming the biggest exporter in the world.

Investments from developed economies in East Asia – including Japan, the Republic of Korea, Taiwan, Hong Kong and Singapore – have flowed into the Chinese mainland, with manufacturing and processing industries that lost dominance in their home.

Over the past 10 years, too, exports and imports of foreign enterprises in China accounted for more than 50 percent of China’s total exports and imports. In addition, most exports from China were from the processing trade. Furthermore, the foreign capital that drove the development of China’s processing industry came mostly from East Asia.

At present, increasing exports have resulted in an increasing foreign exchange reserve, which reached about $3 trillion in 2010, ranking top worldwide. The yuan exchange rate has appreciated by 20 percent accumulatively over the past six years.

It’s time to liberalize the foreign exchange to adapt to the constant trade surplus and rising foreign exchange reserves. From the macroeconomics viewpoint, wages will increase with resulting inflation and China will lose the advantage on labor-intensive industries.

The advantage of China as a processing center among other developed economies in East Asia will disappear, due to the liberalized exchange rate and increased labor cost in China.

China will shift the processing industry into an export module, focusing on advanced efficiency and technology, and taking advantage of exchange and interest rates.

Investing in other countries in Asia, transferring the labor-intensive industries there and exporting the goods produced there will become the new pattern involving in the development of East Asia’s economy of Chinese enterprises, which will act as the economic driver within the bloc.

The writer is a researcher with the Chinese Academy of Social Sciences.

Story run on http://www.chinadaily.com.