Steven Roach - Asia Musings

Steven back from China - Asia. China becoming the second most important economy in the world - shaky footing?

Steven Roach

The New Asia is all about China. Japan, with a per-capita GDP that is about 40 times that of China, has all but abdicated pan-regional leadership to China. The rest of the region is overwhelmed by the sheer size and scope of the Chinese economy — to say nothing of the rapid transformation from a centrally-planned to a market-based system. China has become a magnet for foreign capital, much to the dismay of other Asian economies; foreign direct investment into China hit a record US$53 billion in 2002, whereas FDI flows elsewhere in the region have remained at relatively depressed levels since the Asian crisis. At the same time, China’s powerful growth dynamic has now been transformed into an engine of pan-regional growth for the rest of Asia. In the first eight months of this year, fully 73% of Japan’s total export growth went to China; for Korea, the share was 40%, and for Taiwan it was 99%. Even for the more diversified and smaller ASEAN economies, exports to China accounted for between 20% and 30% of total export growth in the first eight months of this year. Largely lacking in domestic demand, an externally-driven Asian economy has become increasingly dependent on Chinese trade as a major source of growth; that’s great when China is surging to the upside, but it’s a perilous course when China slows — precisely our concern in the first half of 2004 (see my November 4 dispatch, “China Pull”). ...Article Continued