China

["Ian Murray" <seamus2001@xxxxxxxxx>]

China's Rivals Slow to Grasp Export Might
Beijing Building Trade Powerhouse

By Clay Chandler
Washington Post Foreign Service
Saturday, May 25, 2002; Page E01



SHANGHAI, May 24 -- Chinese Prime Minister Zhu Rongji opened a
Beijing-sponsored enclave for Asia-Pacific leaders last month with a
reassuring prediction that China's rise as a manufacturing powerhouse
would prove a boon for the rest of Asia.

"An economically developed China will pose no threat to any country or
region," Zhu declared.

But a more complicated and less benign interpretation emerges from
recent trade data. The good news for Asian neighbors is that as China's
economy roars ahead, it seems to be sucking in raw materials and
components from elsewhere in the region. The bad news is that the
benefits of that trend probably won't last, surely won't be distributed
evenly and, for many Asian economies, already are obscured by the
increased competitiveness of China's exports in other markets.

Zhu's nostrums notwithstanding, the reality is that as its manufacturing
infrastructure matures, China is increasingly claiming the dragon's
share of Asia's exports in textiles, electronics, light machinery and
many other products, wresting business from Asian rivals in crucial
markets in North America, Europe and Japan.

This week, reports from Japan, South Korea, Singapore and Taiwan showed
that exports rose in April from the same month a year earlier, thanks
largely to increased trade with China. Japan's exports in April rose by
1.6 percent, Singapore's by 6.4 percent and South Korea's by 9.2
percent. For all four economies, April's gains marked the first
improvement in monthly export data in more than a year. China's
substantial contribution to the rebound prompted officials in some Asian
nations to laud their burgeoning socialist neighbor as a vital new
engine for regional growth.

But many trade experts warn that the accolades are premature. Close
scrutiny of regional trade flows suggests that much of what China has
been buying from Asia is equipment and components needed to beef up its
own export capacity. China's appetite for such imports could weaken
rapidly as it learns to produce more of them at home.

"As China emerges as the world's low-cost production base, it's putting
pressure on exporters everywhere," said Morgan Stanley economist Andy
Xie. "The rest of Asia is going to have to adjust."

China was the only Asian economy to escape unscathed from the region's
financial crisis in 1997. Three years later, China shrugged off a global
tech slump that battered its Asian neighbors. Now, as the U.S. economic
recovery gains momentum, Chinese exporters are breaking into a sprint
while regional rivals are still picking themselves up off the track.

Consider: In April, China's exports shot up 17 percent above the levels
of the same month last year. That was nearly double the growth in South
Korea, Asia's next-best export performer. During the first three months
of 2002, when exports in most other Asian economies suffered
double-digit year-over-year declines, exports from China leapt more than
9 percent.

Xie estimates that China's share of total East Asian exports has
expanded to 22 percent, from less than 16 percent in 1997.

Since Beijing embraced more market-oriented economic policies in the
late 1980s, China's share of total U.S. imports has grown to 9 percent,
from 1 percent in 1987. During that same period, the rest of East Asia's
share of the U.S. import market has withered -- to 24 percent, from 38
percent -- not only because of business lost to China, but also because
the flood of low-cost Chinese exports has forced rivals elsewhere in the
region to slash prices to compete.

Fueling China's export boom is an unprecedented injection of foreign
capital. Last year alone, foreign direct investment in China reached
nearly $50 billion -- more than five times the value of foreign
investment in the 10-member Association of Southeast Asian Nations
combined. Little wonder, then, that China is expected to overtake Japan
next year as Asia's largest U.S. exporter.

In the face of these momentous shifts in regional trade and investment
flows, leaders of Asia's other export-driven economies have displayed
remarkable complacence. Indeed, most seem reluctant even to acknowledge
the magnitude of the China challenge.

At the same Hainan Island forum where Zhu sought to allay regional
anxieties about China's rise, Japanese Prime Minister Junichiro Koizumi
professed serenity.

"A rising economic tide and expansion of the market in China will
stimulate competition and prove a tremendous opportunity for the world
economy," he declared in a keynote speech. "I see the advancement of
Japan-China economic relations not as a hollowing out of Japanese
industry but as an opportunity to nurture new industries in Japan."

That vision is lost on many Japanese factory workers, thousands of whom
have forfeited their jobs as Japanese manufacturers shift operations to
China, with its cheaper labor. When China wields its new trade power,
increasingly, it is Japan that takes it on the chin. Earlier this year,
Beijing forced Koizumi to abandon an effort to protect Japanese leek and
mushroom growers from cheap Chinese imports by slapping a massive
retaliatory tariff on Japanese autos. And just this week, Beijing
knocked Tokyo for a loop again by threatening duties of as much as 30
percent on steel imports. Billed as a response to U.S. protectionism,
the promised tariffs would be far more costly for steel producers in
Japan and South Korea than in the United States.

Malaysian Prime Minister Mahathir Mohammed and Thai Prime Minister
Thaksin Shinawatra also exude calm when sizing up the Chinese
juggernaut. As China develops, "other countries will also be able to tag
along, and Malaysia is all ready for this," Mahathir assured
participants in an economic forum earlier this month.

"A rich China means a prosperous Asia," echoed Shinawatra at the Hainan
conclave.

Private analysts, however, believe that both countries, with their high
dependence on light manufacturing and low-cost electronic exports, are
sitting directly in the path of the Chinese freight train -- and they
express surprise that so far neither government has done much to move
out of the way.

"For downstream producers like Malaysia and Thailand," warns UBS Warburg
economist Vincent Chan, "life is about to get very, very difficult."