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The rise of China
&
Korea’s Responses
Dept. of Economics
Gyeongsang National University
Contents
Subject : China.
Ⅰ. Impact of China’s Emergence .
Ⅱ. East Asia’s Changing Economic Landscape .
Ⅲ. Impacts by Country .
Ⅳ. The Emergence of the Chinese .
Ⅴ. Assessing the impact of china’s rise .
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Ⅰ. Impact of China’s Emergence .
“If Chinese fulfill their empty stomach, one fifth
in world people are escaped from hunger.
And if Chinese are rich, one fifth in world
people are escaped from poverty . ”
Spoken by Napoleon 200 years ago
“ China is a sleeping giant. Have it sleep.
If it wakes up, the world shivers . ”
“ China will be the biggest country of economics
after 75 year . ”
-wall street journal
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Why China?
“ In 2079, Pax America
Pax China”
We recognize it as reality. So,
we should have to prepare for it.
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The spectacular rise of China.
China’s economy has managed to maintain a high
growth for the past two decades following the
start of its reform and opening since 1978 .
1. Growth rate in 2003 : 9.1 %
2. GDP : US $ 1,090
3. Trade volume : 37.1 %
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Comparison of China and East Asia.
Intense competition
East Asia’s
Slowdown
China’s
growth
Outward-looking
industrialization policy
• Fallacy of composition
• Lower export prices
• Foreign direct investment
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Ⅱ. East Asia’s Changing Economic Landscape .
Today, trade of East Asia
The East Asian economies have moved in the two decades.
Labor intensive
Technology
intensive
-Their high growth pattern established an EAEM
EAEM : East Asia Economic Model is based on
outward-looking strategies fuelled by high investment
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Changes of East Asia’s world export market share
E.Asia Japan
NIEs
E.S
China U. S
E.U
World
1980
1990
13.4
6.4
3.8
2.3
0.9
11.1
37.1
100.0
20.4
8.3
7.8
2.5
1.8
11.4
43.7
100.0
1995
2000
2003
25.6
8.6
10.4
3.7
2.9
11.3
40.4
100.0
25.7
7.4
10.3
4.1
3.9
12.1
35.9
100.0
25.4
6.3
9.5
3.7
5.9
9.7
38.7
100.0
Footnote : East Asia is Japan + NIEs + East south 4 + China.
East south 4 : Malaysia, Thailand, Indonesia, Philippine
Source : Association of Trade.(2004)
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Japan’s role in East Asia
Down sides
Up sides
• Japan’s investment in East
Asia established a vertical
division of labor.
• Required to sustain its
export engine as well as
export merchandise.
• Generated chronic trade
deficits in less competitive
Countries.
• China’s emergence as a
major importer of capital
and durable goods has
boosted East Asia’s Trade
with China.
• Flying geese
ruffled
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Export to China as a Percentage of total Exports by Asian Economics (2003)
Philippines
Indonesia
Thailand
47.1
15.3
18.5
Malaysia
East Asian Singapore
27.3
17.2
Hong Kong
70.8
Taiwan
43.4
Korea
Japan
45.2
31.5
%
Source : Korea International
Trade Association (2004)
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Ⅲ. Impacts by Country .
Different impacts on the countries In the region.
Japan
Korea
China
Taiwan
Singapore
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Japan
Japan.
Korea
China
Taiwan
• Japan & China have a complementary- rather
than competitive-relationship on the global
marketplace because of wide technology gaps.
1998
China
Japan
2000
2002
Singapore
2003
Increase
Total import
1,404
2,947
2,954
4,128
24.1
E • Asia
790
1,080
1,606
2,231
23.1
Total import
2,808
3,811
3,368
3,815
6.3
E • Asia
976
1,508
1,394
1,618
10.6
Reference : East Asia is Japan, China, NIEs 4 nation & East-South Asia’s 4 nation
Source : World Trade Statistics & Japan JETRO, Taiwan Ministry of Finance and Economy Statistics(2004)
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Japan
Taiwan.
Korea
China
Taiwan
• The cross-strait tension keeps
Taiwan’s Economic relationships
Singapore
with china indirect, but trade and investment between the two
sides continue expanding.
• Taiwan applies various regulation on investment in china to
prevent technology drains, but investment to china runs to an
aggregate total of China, US 34,3billion$ at the end of 2003.
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Japan
Singapore.
• Singapore is increasing its investment in
Korea
China
Taiwan
Singapore
China by effectively managing its national
assets overseas and upgrading its home-based industrial
structure.
• Singapore is pushing ahead for free trade agreements
(FTAs) with its trading partners in the world in the hope of
liberalizing business activities for its multinational companies.
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Ⅳ. The Emergence of the China .
Growth and Size of Korean Export to China.
(Increase
rate, %
change )
(Export Amount, USD
100 million)
450
351.1
350
80
60
235.4 40
250
181.9
20
119.4
150 113.8
0
50
-20
1996 1997 1998 1999 2000 2001 2002 2003 2004
Amount of Export to China
Increase Rate of Export to China
Total Export Increase Rate
Source: KOTIS datebase(2004)
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Trade Volume and Trade Balance with China
(Unit: USD 100 million, %)
1992
1998
1999
2000
2002
2003
First of
Half
2004
Trade Volume
63.8
(4.0)
184.3
(8.2)
225.5
(8.6)
312.5
(9.4)
411.5
(13.1)
570.2
(15.3)
369.9
(16.0)
(Export`s
share)
(3.5)
(9.0)
(9.5)
(10.7)
(14.6)
(18.1)
(19.1)
(Import`s share)
(4.6)
(7.0)
(7.4)
(8.0)
(11.4)
(12.3)
(12.5)
Total Trade
Balance(A)
-51.4
390.3
239.3
117.9
103.4
149.9
152.8
Trade Balance
with China(B)
-10.7
54.6
48.2
56.6
63.5
132.0
100.9
Ratio(B/A)
20.8
14.0
20.1
48.0
61.4
88.1
66.1
Source: Based on KOTIS database(2004)
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Korea’s Overall investment to China.
(Investment Amount in
China, USD 10 million)
(Increase Rate, %
change )
100
16
14.3
80
14
60
12
40
20
8.4
9.6
9
7.3
6.8
0
6.7
10
8
6
6
-20
4
-40
2
-60
0
Investment Amount in China
Increase Rate of Korea`s Investment to China
Source: Database of The Export-Import Bank of Korea(2004)
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Contribution to Economic Growth through trade with China
(Unit: %, %p)
2000
2002
2003
Nominal GDP Growth Rate
9.3
10.0
5.4
Contribution of export to
China to economic growth
1.07
1.15
2.08
Contribution of import from
China to economic growth
-0.88
-0.85
-0.82
Contribution of trade with
China to economic growth
0.19
0.30
1.25
Source: Database of ECOS(BOK), KOTIS, and THE Export-Import Bank of Korea(2004)
Data: Database of ECOS(BOK), KOTIS, and The Export-Import Bank of Korea
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Market share of Korea and China in the US.
(Market Share, %)
14
12
China
10
8
Korea
6
4
Korea
03
20
02
20
01
20
00
20
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
19
91
19
19
90
2
China
Source: KOTIS DB(2004)
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Comparison of Korea’s Export to China and the U.S (as of 2003)
China
U.S.
Item
Amount(Ratio)
Item
Amount(Ratio)
1
Plastics
2.12(6.0)
Passenger cars
8.30(24.3)
2
Computer parts
2.00(5.7)
Wireless phones
4.67(13.6)
3
Parts for wireless communication
devices
1.74(5.0)
Integrated circuit
semiconductors
3.33(9.7)
4
Integrated circuit semiconductors
1.44(4.1)
Knitted apparel
1.00(2.9)
5
Monitor
1.34(3.8)
Auto parts
0.90(2.6)
6
Wireless phones
1.26(3.6)
Textile apparel
0.72(2.1)
7
Heavy Fuel Oil
1.08(3.1)
Monitor
0.70(2.1)
8
Petrochemical materials
1.08(3.1)
Color TVs
0.50(1.7)
9
Auto parts
0.94(2.7)
Computer
0.48(1.4)
10
Hot-rolled steel plates
0.89(2.5)
Tires
0.46(1.3)
Source: KOTIS DB(2004)
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Why the Korea’s exports to China are
mainly intermediary goods and parts?
1. Korean companies
that have established
their presence
overseas receive
parts from their
companies in Korea .
2. China’s export-driven
industrialization
The export to China will
slow down.
1. China is expected to
implement policies
designed to promote the
localization of parts and
materials.
2. Korean companies will
be pressured to
purchase more parts in
the local market.
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Ⅴ. Assessing the impact of china’s rise .
(1) Maintaining vertical division of production with China.
The Chinese economy is expected to follow domestic
demand-driven pattern in the future, it will nevertheless
continue following the export-driven pattern of
development for the time being.
Korea
major parts
&
capital goods
China
Mass production
Of
Labor intensive
goods
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A plan for Korea Economic Development.
Korean industries to secure a competitive edge over China
in terms of technology. It is necessary to stimulate SMEs
to develop part?
Higher Position
SMEs to parts
exclusively
Government
support
- Korea needs to foster parts and capital goods that are
expected to be in high demand in China.
market segmentation
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(2) Improving investment environment in Korea .
The present position
Despite of corporate Korea’s rush to invest overseas, including
China, FDI flow into Korea is still insufficient compared to
competing economies.
(Comparison of Export, Overseas Investment, and FDI by Nation) unit : %
Korea
Taiwan
Singapore
Sweden
Finland
Ireland
.
Export /GDP
32.0
52.8
158.2
33.4
27.8
59.6
Over Investment / GDP
7.3
21.0
78.0
48.0
39.5
23.1
FDI / GDP
7.3
11.5
136.3
36.4
21.0
100.6
Data :IMD,world
competitiveness
Report,2004
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A plan for Korea economics development .
To nurture SME- parts manufacturers, which are
competitive with Chinese manufacturers, Korea has
to attract more Japanese part manufacturers through
an expected FTA between Korea and Japan.
Encourage Japanese companies with superior technology
to establish their own firms in Korea, and encouraging
them to invest in Korea companies is effective.
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(3) Expanding Trade between Korea and China and
pushes for FTA.
In response to the rise of China, Korea needs to make
active pushes for FTAs with China an Japan in order to
promote globalization and facilitate cooperation within the
region.
China
Korea
Tariff
rate
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Economic Hub of East Asia.
Korea to be the economic hub of East Asia.
Develop major
Parts of
Korea
Korean economy’s
innovation
+
Human net work
+
International joint
Research system
Logistics
Hub
R&D
Hub
Korea
Finance
Hub
Various policy
incentives
+
To attract foreign
Financial
institution
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(4) Pursuit of Effective Investment into China.
When investing in China, Korea should respond
effectively to China’s regional development strategy.
Development strategy
Cluster Strategically
to increase.
Three provinces in
the northeast have
Abundant natural
resources.
Yellow Sea sub-region
Providing an
opportunity for Korea’s
energy sector
+
A Win-Win
Situation
Kyunggi-do
Chungcheong
Honam areas
=
division of production
among regions of both
countries
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(5) Minimizing risks
In order for Korea to take advantage of the vast opportunities
provided by the Chinese market, efforts should be made to
minimize the risk factors through facilitating economic exchange
between the two countries.
(Government & Companies)
KOREA
Human network
+
local research institution
= Accurate investment
Information of raw materials
Prepare for the raw material crisis.
(Chinese market)
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Korea’s Development.
Opportunity Factor
• Global economic downturn
• Slack domestic demand
Overcome
Threat Factor
• Depending too much on the
Chinese market.
- Enhance the competitiveness of
our export products
• Unlimited potential
- Competitiveness
- Geographical & Cultural proximity
- Reduce their motivation to
developing high tech & high value
added products
- Export market
IT
BT NT : Establish a wider range of export products.
Both the government & companies should continue with their
efforts to take the rise of China as an opportunity.
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