Current Trends in Intra-Asian Trade and Investment

That Involves China

With a Focus on Hong Kong, Taiwan and Southeast Asia

 

Dr. Michael F. Martin

Senior Economist

American Road & Transportation Builders Association

 

1010 Massachusetts Ave., NW

Washington DC, 20001, USA

1-202-289-4434 ext. 106

mmartin@artba.org

 

(Not for citation)

 

Introduction

 

Two great changes struck Asia in 1997. One was a political event; the other was an economic event. The former was long anticipated by much of the world – including many people in Asia – with serious apprehension. The latter was completely unanticipated and, at first, not afforded the attention it deserved. While at first, neither event appeared to have a significant impact on Asia, as more time passed, evidence mounted that both events would cause major repercussions on the region.

 

The two events are Hong Kong’s Handover on July 1, 1997 and the Asian Financial Crisis that began on May 14, 1997.

 

This paper examines how these two events altered trends in the development of trade and investment relations between China and its neighbors to the east (Taiwan) and to the south (Hong Kong and Southeast Asia). It concludes that while the Asian Financial Crisis precipitated an extended period of economic, trade and investment decline, the ensuing recovery resumes patterns seen prior to the crisis – indicating that its long-term impact may be minimal.

 

By contrast, Hong Kong’s return to Chinese sovereignty had no apparent initial effect on intra-Asian trade and investment. However, with the passage of time, gradual changes in Hong Kong – combined with new developments in international business practices – are leading to an interesting restructuring on intra-Asian trade and investment patterns.

 

The paper is divided into four parts. The first section examines the status of China’s trade and investment relations with Hong Kong, Taiwan and Southeast Asia prior to the events of 1997. The second section reviews how the Asian Financial Crisis impacted trade and investment flows within the region during 1997 and 1998. The third section looks at the gradual changes that have taken place in Hong Kong following the Handover. The final section summarizes the latest data in trade and investment flows between China and its closest neighbors and argues that the minor changes are more attributable to Hong Kong’s Handover than the Asian Financial Crisis. The paper then concludes by posing two possible scenarios for the future development of trade and investment flows in the region, plus an brief epilogue on the possible impact of China’s membership in the World Trade Organization (WTO).

 

Section 1: Trade and Investment Flows before 1997

 

The early 90s were a period of rapid growth in intra-Asian trade and investment flows. Throughout the region, there was a marked expansion of cross-trade relations and two-way foreign direct investment. Regardless of which nation’s figures one examines, a picture of growing economic integration in Asia emerges.

 

In China, the basic pattern of the early 90s was fast growth in exports to Asia, but even faster growth in imports from Asia. China’s official trade statistics for the 90s indicate that between 1990 and 1996, its exports to Hong Kong increased by 23.5%, its exports to Singapore increased by 89.8%, its exports to Thailand increased by 52.4% and its exports to Taiwan increased by 776.4%. (see table below) By contrast, its total exports grew by 143.3%. Over that same time period, China’s imports from Singapore, Thailand and Taiwan rose by 319.9%, 409.5% and 617.5% respectively, while total imports increased by 160.2%.

 

China’s Trade Flows with Selected Asian Partners

(US$ million)

 

Exports

Hong Kong

Singapore

Thailand

Taiwan

TOTAL

1990

26,650.1

1,974.7

823.5

319.7

62,093

1991

32,137.2

2,014.2

847.8

594.8

71,842

1992

37,512.2

2,030.9

894.8

693.5

84,940

1993

22,049.7

2,245.3

750.5

1,461.8

91,763

1994

32,361.0

2,558.1

1,159.3

2,242.2

121,038

1995

35,983.4

3,500.6

1,751.8

3,098.1

148,770

1996

32,906.3

3,748.8

1,254.8

2,801.8

151,066

1997

43,782.9

4,323.3

1,501.1

3,396.7

182,700

1998

38,753.2

3,930.0

1,148.1

3,869.6

182,697

1999

36,890.6

4,502.2

1,435.7

3,950.1

194,925
Imports

Hong Kong

Singapore

Thailand

Taiwan

TOTAL

1990

14,254.4

857.5

371.0

2,255.0

53,350

1991

17,463.0

1,062.5

421.7

3,639.0

63,791

1992

20,533.6

1,235.9

424.5

5,866.0

80,585

1993

10,446.5

2,645.8

601.5

12,931.2

103,95

1994

9,441.7

2,491.7

864.4

14,085.6

115,693

1995

8,590.7

3,397.8

1,610.8

14,783.9

132,078

1996

7,826.9

3,600.9

1,890.4

16,180.1

138,838

1997

6,990.3

4,464.7

2,013.9

16,441.2

142,400

1998

6,658.4

4,224.3

2,412.8

16,629.6

142,361

1999

6,892.4

4,061.2

2,780.5

19,538.5

165,768

 

The marked decline in China’s imports from Hong Kong reflect three separate phenomena during the early 90s – one statistical, one economic and the other political. The statistical phenomena is the common problem of differing valuations of goods and differing country of origin attribution. The economic phenomena was the continuing the decline in what the Hong Kong government refers to as “domestic exports.” As more and more Hong Kong manufacturers relocated their factories into China or Southeast Asia, fewer goods of Hong Kong origin were being produced and exported. (see table below) However, at the same time, China’s relations with Taiwan were improving, thereby allowing more Taiwanese goods to be recorded as coming from Taiwan, rather than being listed as imports from other places, such as Hong Kong.

 

Hong Kong’s Trade Flows

(US$ billion)

 

Exports

Total Exports

Domestic Exports

Re-Exports

Imports

1990

82.035

28.958

53.077

164.411

1991

98.190

29.621

68.569

99.869

1992

118.584

30.016

88.568

122.474

1993

134.135

28.593

105.542

137.512

1994

150.001

28.473

121.528

160.347

1995

172.324

29.700

142.624

191.169

1996

179.220

27.200

152.020

196.869

1997

186.660

27.104

159.556

207.063

1998

172.776

24.161

148.615

183.217

1999

172.949

21.872

151.077

178.554

 

An examination of Taiwan’s official trade statistics reveals a similar pattern to that of China. (see table below) During the early 90s, Taiwan’s trade flows within Asia grew rapidly. Between 1992 and 1996, Taiwan’s exports to Hong Kong, Singapore and Thailand grew by 73.8%, 82.6% and 54.1% respectively, while total exports rose by only 42.3%. Over the same four years, while total imports expanded by 42.2%, imports from Singapore and Thailand increased by 64.5% and 102.7% respectively, while imports from Hong Kong declined by 4.3%.

 

Taiwan’s Trade Flows with Selected Asian Partners

(US$ billion)

 

Exports

Hong Kong

Singapore

Thailand

TOTAL

1992

15.415

2.505

1.810

81.470

1993

18.453

2.890

2.019

85.091

1994

21.262

3.366

2.440

93.049

1995

26.106

4.405

3.072

111.659

1996

26.788

4.573

2.790

115.942

1997

28.688

4.895

2.562

122.081

1998

24.820

3.256

1.926

110.582

1999

26.028

3.820

2.106

121.637

Imports

Hong Kong

Singapore

Thailand

TOTAL

1992

1.781

1.695

0.825

72.007

1993

1.729

1.866

0.973

77.061

1994

1.533

2.412

1.109

85.349

1995

1.843

2.958

1.485

103.550

1996

1.705

2.789

1.672

102.370

1997

1.996

3.150

1.927

114.425

1998

1.952

2.697

1.968

104.665

1999

2.093

3.312

2.383

110.698

 

Not surprisingly, foreign direct investment followed the growing trade ties in Asia. In China, overseas companies poured nearly $160 billion in investments into China between 1990 and 1996. (see table below) While over half of the total came from Hong Kong, the city’s share of the utilized foreign direct investment in China declined from year to year. Meanwhile, the value of utilized foreign direct investment from other Asian sources – including Japan, Singapore, Taiwan, Indonesia, Thailand and Malaysia – jumped significantly.

 

China’s Utilized Foreign Direct Investment from Selected Asian Partners

(US$ billion)