Staff Papers
Published Date: 01 December 2005

China's Rise as a Manufacturing Powerhouse: Implications for Asia.

MAS Staff Paper No. 42, December 2005 - By Kit Wei Zheng, Ong Jia Wern, Kevin Kwan Tai You


China's ascendancy in manufacturing has altered the regional production landscape.  China has become a major competitor to the East Asian 7 (EA-7) economies of Korea, Taiwan, Singapore, Malaysia, Indonesia, the Philippines and Thailand, both for inward FDI to the region and exports to the G3.  China has become a major competitor in not just exports of consumer goods, but increasingly in low and mid-range capital and intermediate goods as well. Dynamic shift-share analysis shows that for exports to the G3, the EA-7 economies have lost ground to China in varying degrees.  However, China has imported an increasing amount of higher end inputs and raw materials from the EA-7 to feed its own production of goods for exports, thus driving intra-East Asian trade.  Using a counterfactual calculation, we attempt to assess the net effect on the EA-7's exports due to China's rising demand for production inputs on one hand, and the competition China poses in exports to the G3 on the other hand.  Moreover, we find that there are reasons to believe that the EA-7 economies will continue to draw in FDI, notwithstanding China's attraction as an investment destination.