Tuesday 24 April 2007

China and Production Networks

I am particularly interested in my academic work on the relationship between China and its near neighbours - Malaysia, Thailand, Indonesia, Singapore, Vietnam etc.

From an adjustment perspective, the rise of China provides both an opportunity and a threat. China's growing consumer lead society will demand more products but the intense competition from Chinese firms may lead to import as well as increased competition in their home markets.

This World Bank working paper looks at a related topic - that of production networks across East Asia and the integration of China. The issue above is touched on in the abstract - although Chinese growth has been beneficial it has resulted in some vulnerabilities.

This is not a technically demanding paper and has lots of pictures and simple to understand tables.

Trade Integration in East Asia: The Role of China and Production Networks

World Bank - EASPR March 1, 2007

World Bank Policy Research Working Paper No. 4160

Production networks have been at the heart of the recent growth in trade among East Asian countries. Fragmentation trade, reflected mainly in the trade in parts and components, is expanding more rapidly than the conventional trade in final goods. This is mainly due to the relatively more favorable policy setting for international production, agglomeration benefits arising from the early entry into this new form of specialization, considerable intercountry wage differentials in the region, lower trade and transport costs, and specialization in products exhibiting increasing returns to scale. The economic integration of China has deepened production fragmentation in East Asia, countering fears of crowding out other countries for international specialization. International production fragmentation in East Asia has intensified intraregional trade but has depended heavily on extraregional trade in final goods. While production networks centered on China have contributed significantly to growth in East Asia, they also breed vulnerabilities. They have not automatically led to technology spillovers and have led to an extreme interdependence across East Asian countries.

Keywords: Economic Theory & Research, Free Trade, Trade Policy, Trade Law, Technology Industry

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