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back to index backASIAtalk March,  2006

The rise of China and its implications for the division of labor in Asia

Globalization has significantly hastened the process of catch-up in the Asian emerging markets over the past two decades. Dynamic economic development in the Far East reflects the Asian countries’ powerful international competitiveness and their consequent export boom. Since the beginning of the 1980s, and in spite of the setbacks caused by the Asian crisis, the economies of Asia have almost doubled their share of world trade. Roughly half this external trade is conducted within the region itself. For years now a process of redirection in trade flows has been taking place in the Far East, with China as the biggest winner” in Asia’s re-division of labor. Japan and the ASEAN states, on the other hand, have lost trade shares. Already, China is the third largest trading nation in the world and will further expand on this position moving forward.

Regional Integration Tendencies
In the past, moves towards economic integration have taken place in all world regions. In Europe, the internal market has become reality in important areas as a result of the EU. On the other side of the Atlantic the US, Canada and Mexico have intensified their economic cooperation in NAFTA. In Asia, too, moves towards integration in the 1970s and 80s led to the establishment of a host of organizations and alliances, although these did not produce the hoped-for results. Different levels of development, political and cultural autonomy aspirations and differing interests prevented the development of economic cooperation on a more ambitious scale. The Association of Southeast Asian Nations, ASEAN, restricted its cooperation essentially to collective export promotion. So far, closer domestic economic cooperation with far-reaching integration targets along the lines of the EU has not taken place. The Asia-Pacific Economic Cooperation APEC, as a loose association, likewise seeks merely to coordinate its members’ economic activities in a very broad-brush approach.

Inadequate as institutionalized regional cooperation may have been, practically all Asian emerging markets have pursued an export-based development strategy. That has been the real common denominator of economic cooperation in the region. The interlinkage of the Asian economies is manifesting itself in the increasing momentum of cross-border commercial transactions, in the relocation of production
facilities and in intra-industrial investment flows. Of course further progress will be made on economic integration as a result of increasing liberalization and deregulation of markets in Asia. China’s accession to the WTO four years ago has undoubtedly played a part in this.

To download the 48-page Economy & Markets newsletter from Dresdner Bank/Allianze, click here.   (Please note the article above starts on page 22)

Source: Economy & Markets newsletter by Dresdner Bank / Allianz - GAI

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