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-1-China’sCompetitivePerformance:AThreatToEastAsianManufacturedExports?ThereisgrowingconcerninSoutheastandEastAsiaaboutthecompetitivethreatposedbyChina’sburgeoningexports,exacerbatedbyitsaccessiontotheWTO.Thethreatisnotconfinedtolabor-intensiveproductsbutspansthewholetechnologicalandskillrange.Atthesametime,Chinaisrapidlyraisingitsimportsfromtheregion,anditisnotclearwhetheritsburgeoningexportswilldamageitsneighbors.WeexaminethedimensionsofChina’scompetitivethreatinthe1990s,benchmarkingcompetitiveperformancebytechnologyandmarket,andfindsthatmarketsharelossesaresofarmainlyinlowtechnologyproducts,withJapanbeingthemostvulnerablemarket.Weanalyzemarketsharechangesandhighlightproductgroupsthataredirectlyorindirectlyexposedtoacompetitivethreat.Weexamineintra-regionaltradeandfindthatChinaanditsneighborsareraisinghightechnologyexportsintandem:thenatureoftheinternationalproductionsystemsinvolvedleadtocomplementarilyratherthanconfrontation.Chinaisthusactingasanengineofexportgrowthforitsneighborsintermsofdirecttrade.However,thiswillchangeasChinamovesupthevaluechainandtakesontheactivitiesthathavedrivenEastAsianexportgrowth.IntroductionConcernaboutChina’scompetitivethreatiswidespread(indevelopedeconomieslikeUSaswellasdevelopingoneslikeMexico),butisstrongestinEastandSoutheastAsia.China’sburgeoningexports–backedbycheapandproductivelabor,alargestockoftechnicalmanpower,hugeanddiversifiedindustrialsector,attractivenesstoforeigninvestors,pragmaticuseofindustrialpolicy,and,now,freeraccesstoworldmarketsunderWTO–leadtoapocalypticvisionsofexportlosses.2Chinaismostthreateningtoneighborsthatrelyprimarilyonlowwagesfortheirexportadvantage.However,asitupgradesitsexportstructure,themoreadvancedeconomies(Singapore,HongKong,KoreaandTaiwan)alsofearfortheircompetitiveness.Thecurrenthollowingoutoftheirlow-endmanufacturingmaysoonextendtocomplexproduction,design,developmentandrelatedservices.DomesticmarketsarealsothreatenedbyChina,butsofarmostattentionseemstohavebeenonexports.OffsettingthisthreatarethepromiseofthegiantChinesemarket(WTO-2-accessionisonlyoneofseveralinitiativestoliberalizeregionaltrade)andthepotentialforcollaborationwithitinexportingtotherestoftheworld.TradewithintheEastAsianregionisflourishing.Chinaisagrowingimporterfromtheregionofnaturalresourcesthatitdoesnotpossess.Itisalsoraisingimportsofmanufacturedproducts.Itsadvancedneighborsaresellingitsophisticatedconsumerandproducergoods,andusingitasabaseforprocessingexportstothirdcountries.Themultinationalcompanies(MNCs)thatnowaccountforaroundhalfofChineseexports(andfarmoreofitshightechnologyexports,UNCTAD,2002)areincorporatingChinaintoproductionsystemsspanningtheregion(‘fragmentation’and‘segmentation’areusedtodescribethisphenomenon3),sopromotingconsiderableintra-firmtradewithotherregionalbases.China’sownenterprisesarelikelytospecializewithrespecttoregionalcounterpartsandsoraiseintra-industrytradeindifferentiatedproducts.Perhapsworryinglyforcompetitorsinotherregions,suchintegrationcanleadChinatocomplementregionalcompetitivenessasawhole,ratherthansubstituteitsexportsforthoseofitsneighbors.Itisdifficulttoassess,however,whethercomplementarilybetweenChinaandtheregionaleconomieswillfullyoffsetitscompetitivethreat.Thedynamicsandcomplexityoftheinteractionsmakeitimpossibletoquantifytheoutcome,eventopredictbroaddirections.ThebasicissueiswhetherChina’shigherwageneighborscanmoveintomoreadvancedexportactivitiesorfunctionsrapidlyenoughtopermitcontinuedexportexpansion.Iftheycan,theycancontinuewithexport-ledgrowth.Iftheycannot,theywillsufferexportdecelerationand/orashiftinspecializationtowardsprimaryproductsorslow-growingsegmentsofmanufacturedexports.Theoutcome,inotherwords,willdependontherelativegrowthoftechnologicalandothercapabilitiesinChineseandregionalenterprises,withtheformerhavingsuchadvantagesaslowerwages,largerscaleeconomies,greaterindustrialdepth,poolsoftechnicalskillandaproactivegovernment.However,asEastAsiancountriesdifferwidelyinthesefactors(Lall,2001),theyfacedifferentkindsandintensityofcompetitivethreat.Thenatureofthethreatdepends,moreover,ontheorganizationoftheproductionandmarketingsystem:independentlocalfirmsarelikelytocompetemoredirectlythanaffiliatesofthe-3-sameMNCspreadoverdifferentcountriesinanintegratedsystem.ThispaperdoesnottrytomeasureChina’scompetitivethreatoritseffects,buttomaprelativeexportperformanceinthe1990sbytechnologyanddestinationandsoassesswherethethreatappearsmostintense.WefocusonmajorEastAsianexporters5andonexportstothirdmarkets,butwealsoanalysescomplementaritiesbetweenChinaandEastAsia,particularlyinelectronics,theregion’slargestexportandtheonewhereMNCsystemsdominate.Asthe1990spredateChina’sWTOaccession,wedonotgointotheimplicationsofthisaccession;however,theanalysisofcompetitivetrendshasimplicationsfortheevolutionoffuturetradebytheregionasliberalizationgrows.BackgroundonChineseexportperformanceChinesemanufacturedexportsgrewby16.9%perannumover1990-2000,comparedto6.4%fortheworld,12.0%foralldevelopingcountriesand10.3%fortherestofEastAsia.Itsshareofworldmanufacturedexp