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S. Majumder

MORE than a threat, China has emerged a saviour to South-East Asian nations, especially those hit by the currency turmoil. There was a fear that with the entry of cheap Chinese-made goods into the global market, the recovery efforts of these economies would be affected.

However, the China phobia has eased considerably, thanks to it becoming a major export destination for these countries. China, for the first time, outpaced the EU and became the second biggest export destination for South Korea in 2002. It also came much closer to the US, traditionally the leading export destination for South Korea, and is predicted to take the No. 1 slot in the current year.

Taiwan too, whose main export destination was the US, has become more dependent on China — in 2002, its exports to China were more than to the US. Despite legal trade between the two countries beginning only after the mid-1990s, China has become the top export market for Taiwan.

Thus, China has turned out to be a stimulant for economic recovery in South-East Asia rather than a threat, especially as the latter is export oriented. In 2002, South Korea's exports to China surged by 31 per cent against a mere 5 per cent to the US; and in Taiwan's case, it was 58 per cent and a negative 3 per cent respectively. Thus, the status of the US as the growth anchor in South-East Asia is diminishing following China's emergence as an economic powerhouse and a global workshop.

China is the world's biggest producer of crude steel, accounting for 15 per cent of world output. With a 23 per cent market share, it is the leading manufacturer of synthetic textiles as well. In 2000, over a fourth of the world's colour TVs, washing machines and refrigerators and over half the air-conditioners were produced in China.

China, however, does not produce all these by itself. It has become the global platform for assembly operations, with South-East Asia its supporting legs.

A World Bank report says that "China specialises in assembling imported parts and components... often these components are produced in relatively high-wage countries such as Singapore and South Korea, which then capitalise on China's relatively low wage-costs for product assembly."

These changing patterns of trade demonstrate China's growing influence as the future engine for South-East Asia's export growth. Besides being the world's premier workshop, the other factors responsible for South-East Asia's robust export growth to China are the latter's steady 8 per cent economic growth, its low tariff levels, its preparation for the 2008 Beijing Olympic and the efforts under way at developing its western regions.

In January, China slashed its tariff rate to 11 per cent and will further reduce it to 10 per cent by 2005. And for about 90 information technology products the tariff rate is nil.

China, at present, is on a high-import phase. During 1999-2002, its imports surged by over 77 per cent. This was mainly to support its export buoyancy, which leapfrogged by over 67 per cent. In 2000-02,

China's single largest import item was electronic components, with its share in total imports rising from 9 per cent in 2000 to 13 per cent in 2002. This has helped bolster its strength in high-tech manufacturing.

China's up-gradation from an exporter of low-technology items (such as light engineering, travel and textile goods) to high-tech products, with the help of gushing foreign investment, has seen its imports of electronic components gallop.

Foreign investors are the dominant players in manufacturing and exporting finished electronic products in China. They import electronic components and assemble them in China to benefit from cheap labour and land costs.

The LG Group of South Korea, for instance, is the top exporter of China-made colour TVs. About 90 per cent of the annual revenues of Taiwan's Life-On Technology Corporation, which manufactures and exports flat-screen monitors and printers, come from its China operation.

The company has merely 3,000 employees in Taiwan, compared to 3,00,000 at its 18 factories in China. "We assemble in China, because labour and land costs are very cheap. Most of our products are exported to the US and Europe," says a company official.

With China emerging as a major export market, there is greater scope for India as well to reap the benefits. The Prime Minister, Mr Atal Bihari Vajpayee's visit to China has paved the way for strengthening economic and trade relations between the two countries.

Both the countries have realised each other's importance. While China has become important to India for enhancing global trade, China banks heavily on India to achieve IT supremacy.

Recently, India successfully ventured into the global market for electronic goods and auto-parts. Between 1999-2000 and 2001-02, exports of electronic goods (mainly components) jumped by over 70 per cent and that of auto-parts by 51 per cent.

An important feature is that Singapore was one of the top three destinations to which electronic components were exported and China imports the same substantially from Singapore.

China's annual electronic component imports average $16 billion. With India's share in this vast market at less than 1 per cent, there is great potential in this market. If India can export electronic components to Singapore, what deters it from making inroads into the Chinese market?

China's automobile industry is booming as well. The annual production of automobile zoomed by over 66 per cent during China's economic boom.

At present, it produces more than three million vehicles, of which, nearly a million are cars. Its ancillary industries have also grown. However, auto component imports have risen — by over 20 per cent in 2001 and is valued at $2527.7 million annually — to supplement its growing auto industry. In 2001-02, India's share in this import market, at $2.53 million, was less than 1 per cent.

According to a World Bank report, with China's accession to the WTO, it has plans to restructure its automobile industry. This will make it an efficient assembler of motor vehicles and eventually an exporter. The report apprehends that this may lead to a contraction in automobile production in Japan and East Asia.

Thus, China offers a growing and big import market for components and parts vis-à-vis the Western world, which is reeling under a prolonged recession. China is looking at quadrupling its GDP by 2020, which means a concomitant increase in its market size.

A free-trade agreement between China and the Asean in the next 10 years will further broaden the East Asia market, which currently accounts for a sixth of global imports. Can India's growing potential in electronic components and auto parts, its IT supremacy, and its FTA with the Asean, which is to come into effect in 2011, help it reap the gains from this expanding China-Asean market?

(The author is a senior researcher in a Japanese multinational.)

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