China’s Economic Relations with Developing Countries

Barbara StallingsBrown UniversityDecember 12, 2007

Agenda for Presentation

Introduction

Characteristics of Chinese economy

Statistical overview of China’s relations with developing countries

Regional sketches

Conclusions

Introduction

Joint venture with two colleagues Importance of topic Increased role of China as partner for

developing countries in last decade Vast differences across regions Opportunities and challenges

Five Characteristics of China’s Economy

Very high growth in very large economy

Output structure (dominance of industry)

Sources of growth (investment, exports)

Major role of FDI in China

Changing composition of trade

Possible changes going forward

Comparative GDP Growth

0

2

4

6

8

10

12

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

China Asia EU World US Japan

Exports and Imports (% GDP)

0

5

10

15

20

25

30

35

40

1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Exports Imports

Sources of Growth (Output)

0

2

4

6

8

10

12

2002 2003 2004 2005 2006

Services Industry Agriculture

Sources of Growth (Demand)

0

2

4

6

8

10

12

2002 2003 2004 2005 2006

Net Exports Investment Government Private

Foreign Direct Investment

0

10

20

30

40

50

60

70

80

90

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005

Inflows Outflows

Composition of Trade

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1987 1995 2003 1987 1995 2003

Primary Resource Low Medium High Electronics

Exports Imports

China and Developing Economies

Main positive contributions

-- Imports provide markets

-- Positive price effects

-- Outward FDI, aid provide funds

Problematic elements

-- Exports provide competition

-- Price effects in reverse

-- Inward FDI may crowd out others

Chinese Imports by Region

Region $ bn % $ bn %

North America 19.0 13.7 69.6 8.8Europe 21.5 15.5 97.2 12.3Asia 81.9 59.0 500.8 63.3 Japan 29.2 21.0 115.7 14.6 Other Asia 52.7 37.9 385.1 48.7Africa 1.5 1.1 28.8 3.6Latin America 3.3 2.4 31.5 4.0

World 138.8 100 791.5 100

1996 2006

Developing Country Exports to China

Region/country$ billions % exports $ billions % exports

Asia 180.1 18.4 511.3 22.3 Korea 14.2 10.9 77.4 27.2 Taiwan 32.0 24.8 96.4 38.9 Singapore 13.6 10.9 41.3 20.0Latin America 4.2 2.6 21.7 3.7 Brazil 1.5 3.1 6.8 5.8 Chile 0.5 3.0 4.4 11.1 Peru 0.5 8.1 1.0 11.0Africa 1.6 1.6 17.8 7.4 Angola 0.2 4.4 6.0 30.0 Congo 0 0 2.1 38.9 Sudan 0.04 7.7 3.4 70.8

1996 2005

China as Source of Growth

Region/Country Growth of totalexports ($ bn)

Asia 288.0 1026.4 28.1 Korea 48.3 112.1 43.1 Taiwan 49.2 78.9 62.4 Malaysia 10.1 42.8 23.6Latin America 17.1 218.7 7.8 Brazil 6.2 58.9 10.5 Chile 3.6 20.2 17.8 Peru 1.4 10.4 13.5Africa 13.5 107.0 12.6 Angola 4.3 12.8 33.6 Congo 1.9 3.2 59.4 Sudan 2.8 3.2 86.3

Growth of exports Share of totalto China ($ bn) export growth (%)

China’s Import Characteristics

Region$bn % $bn % $ bn % $ bn %

Northeast Asia 1.6 0.9 12.7 7.2 162.4 91.9 85.8 48.5

Other Asia 15.3 7.7 35.2 17.8 146.7 74.3 112.9 57.2

Africa 2.0 6.9 24.5 85.1 1.9 6.6 0.4 1.4

Latin America 9.0 28.6 18.2 57.8 4.3 13.7 2.2 7.0

Ind. Countries 18.5 6.5 17.7 6.3 245.5 86.9 156.0 55.2

World 51.7 6.5 158.3 20.0 579.5 73.2 357 45.1

Agriculture Fuel/Minerals Manufactures Machinery

China’s Inward FDI (Flows)

$ bn % $ bn %

Asia 45.1 27.7 88.3 28.4 China 38.4 23.6 76 23.8 ASEAN 5.2 3.2 14.4 4.5Latin America 79.8 49.0 69.4 21.8 Brazil 32.8 20.1 18.8 5.9 Mexico 17.1 10.5 19.9 6.2EEurope/CAsia 25.2 15.5 116.4 36.5 Russia 2.7 1.7 28.0 8.8 Turkey 1.0 0.6 19.0 6.0Africa 3.5 2.1 12.5 3.9

Total 162.8 100 318.7 100

China’s Outward FDI (Stock)

Region/country 2003 2006$ bn Share $ bn Share

Asia 26.51 91.40 46.58 83.07 Hong Kong 24.62 84.90 42.27 75.39 ASEAN 10 0.24 0.83 1.76 3.14 Korea 0.15 0.52 0.95 1.69Africa 0.49 1.69 2.56 4.57 Algeria 0 0 0.25 0.45 Nigeria 0.03 0.10 0.22 0.39 Sudan 0 0 0.50 0.89Latin America 0.40 1.38 0.74 1.32 Peru 0.13 0.45 0.13 0.23 Mexico 0.10 0.34 0.13 0.23 Brazil 0.05 0.17 0.13 0.23US/Europe 1.04 3.59 3.86 6.89World 29.0 100 56.07 100

China and Northeast Asia

Most advantageous position; high development; leading role in Asia

Export capital goods and FDI to China

Import consumer goods

Successful, but concerned re future

Strategies: alter division of labor? global strategy

China and ASEAN (5)

Medium development level; also integrated into Asian production

Most vulnerable group at present: direct competition with China in low- to-medium skill goods and FDI

Strategy:-- Upgrade skills

-- Speed up ASEAN regional integration-- Deepen alliance with Japan

China and Africa

Much less developed; blame colonial past; welcome China as new kind of partner

Export raw materials; import industrial goods

Investment and aid to support exports Many fewer concerns about China, but

some worries about domestic industry

China and Latin America

Development level similar to ASEAN, but geography, history very different

Commodity exports to China and industrial imports; fears re both

FDI: some competition, some inflows

Strategy options similar to ASEAN

Conclusions (1)

China has very different impact across regions because of geography and development level of partners

Most positive cases: nearby countries that build on dynamic comparative advantage to take part in production chains and complement China on the high end of production

Conclusions (2)

Most problematic cases: countries that take part in arms length trade and compete on basis of static comparative advantage (commodities, low-skill goods)

Policies? We know many of the answers; problem is implementation

Education and training; investment and technology; infrastructure; finance

Conclusions (3)

Possible changes in China’s economy Slow-down in growth? Greater consumer orientation? Impact on developing countries: winners

and losers (location, sector) Developing countries must seek greater

expertise to make strategic decisions

China’s Economic Relations with Developing Countries

Barbara StallingsBrown UniversityDecember 12, 2007