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Rafaelita M. Aldaba Philippine Institute for Development Studies

East Asia: A Decade After the Financial Crisis need for closer investment cooperation to increase competitiveness & sustain growth. Rafaelita M. Aldaba Philippine Institute for Development Studies. East Asian high economic growth led by China.

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Rafaelita M. Aldaba Philippine Institute for Development Studies

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  1. East Asia: A Decade After the Financial Crisisneed for closer investment cooperation to increase competitiveness & sustain growth Rafaelita M. Aldaba Philippine Institute for Development Studies

  2. East Asian high economic growth led by China • Strongest growth in the last 10 years after crisis: 8.1% • Developing countries: 9.5% • China: 10.7% has led the continued strong growth of the East Asian region Source: World Bank [2007] “East Asia & Pacific Update”

  3. East Asian Region richer as its per capita GDP continues to rise • Per capita income has continued to increase relative to incomes in OECD countries increasing from 14% in 1996 to 20% in 2006 • After the 1997-98 Asian financial crisis, the East Asian region is far richer Source: World Bank [2007] “East Asia & Pacific Update”

  4. High per capita GDP growth largely due to China • OECD average per capita income growth was 1.8% • Indonesia 3.5%, Malaysia 3.5%, Philippines 2.9%, & Thailand 4.6% • China: 8.9% has contributed substantially to strong performance of the East Asian region Source: World Bank [2007] “East Asia & Pacific Update”

  5. Growing trade integration between the region & the rest of the world • Export to GDP ratios increased in all major economies between 1995 & 2005 • Average exports increased from 34% of GDP in 1995 to 42% in 2005 • East Asian economies have continued to become more exposed to international trade over the last decade Source: World Bank [2007] “East Asia & Pacific Update”

  6. Rising East Asian exports as % of world exports • East Asia’s average share of world exports rose from 15.5% in 1995 to 17.9% in 2005 • A very large portion of the increase came from China & Hong Kong: 4.5% to 7.7% • World trade shares of Taiwan, Singapore, Thailand, Malaysia & Indonesia fell; Korea & Philippines increased slightly over the last decade Source: World Bank [2007] “East Asia & Pacific Update”

  7. Export shares of East Asia to the US computers, peripherals & semiconductors (CPS) market • The CPS is the largest sector of the US-East Asian trade • NIEs lost their market shares • ASEAN4 rose till 2001 but fell in 2001-2005 • China’s market share increased especially in 2001-2005 • Post crisis period 2001-2005: competitive pressure from China rose sharply Source: World Bank [2007] “East Asia & Pacific Update”

  8. China’s rapid growth provided a locomotive for trade in the region • In 2004, China’s imports from Korea & Philippines increased by more than 40% • Imports from Taiwan & Thailand increased by slightly more than 30% & 25% in Indonesia • Positive changes in China’s imports from these countries continued in 2005 & 2006 Source: World Bank [2007] “East Asia & Pacific Update”

  9. Rising intra-regional trade between China & HK and the major East Asian economies • The share of the major East Asian economies exports to China & HK increased from 13.3% in 1995 to 21.3% in 2005 • This surge reflects the rising intra-regional trade of China & HK & rest of East Asia • Exports of components & other inputs Source: World Bank [2007] “East Asia & Pacific Update”

  10. FDI & regional production networks • This intra-industry trade has been closely associated with FDI flows & the establishment of regional production networks • Both FDI flows & production networks are at the heart of the rapid increase in intra-regional trade in the region over the last decade since the crisis

  11. FDI trends • The East Asian countries continue to receive strong FDI inflows • FDI outflows also continue to grow quickly in the last 2-3 years as East Asian corporations implement their own cross-border investment & production strategies • These trends should alleviate concerns that the large volumes of FDI inflows to China would preclude significant flows to other parts of East Asia Source: Central Bank of the Philippines

  12. Philippine Electronics Exports: growing importance of China & Hong Kong Source: National Statistics Office

  13. Balance of Trade: Philippines Source: Central Bank of the Philippines

  14. Net FDI Inflows to Philippines (million US$) Source: Central Bank of the Philippines

  15. Broad Conclusions • emergence of China as an international trading power • expansion and structural changes in international trade → China as a major competitor → China as a new & dynamic market for these economies • New division of labor with production networks: China as a final integrator of products for exports & rapid rise in intra-regional trade in production inputs • FDI flows are closely associated with intraregional trade & production networks • The growing FDI flows from China & Asian NIEs offer an additional avenue for countries to link up to global markets & production systems • Intraregional flows can help increase market access, natural resources, foreign capital, & technology that are essential for increasing competitiveness esp. SMEs • Investment cooperation is crucial in order to maximize intraregional investment flows

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