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US Federal Reserve: ifdp904

US Federal Reserve: ifdp904

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Published by: The Fed on Jan 23, 2008
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Board of Governors of the Federal Reserve SystemInternational Finance Discussion PapersNumber 904September 2007
The Role of China in Asia: Engine, Conduit, or Steamroller?
Jane T. Haltmaier, Shaghil Ahmed, Brahima Coulibaly, Ross KnippenbergSylvain Leduc, Mario Marazzi, and Beth Anne Wilson
NOTE: International Finance Discussion Papers are preliminary materials circulated to stimulatediscussion and critical comment. References in publications to International Finance Discussion Papers(other than an acknowledgment that the writer has had access to unpublished material) should be clearedwith the author or authors. Recent IFDPs are available on the Web atwww.federalreserve.gov/pubs/ifdp/ .This paper can be downloaded without charge from Social Science Research Network electronic library athttp://www.ssrn.com/.
 
The Role of China in Asia: Engine, Conduit, or Steamroller?
Jane T. Haltmaier, Shaghil Ahmed, Brahima Coulibaly, Ross KnippenbergSylvain Leduc, Mario Marazzi, and Beth Anne Wilson
*
 September 2007
Abstract:
This paper assesses China's role in Asia as an independent engine of growth, as a conduit of demand from the industrial countries, and as a competitor for export markets. We provide bothmacroeconomic and microeconomic evidence. The macroeconomic analysis focuses on theimpact of U.S. and Chinese demand on the output of the Asian economies by estimating growthcomovements and VARs. The results suggest an increasing role of China as an independentsource of growth. The microeconomic analysis decomposes trade into basic products, parts andcomponents, and finished goods. We find a large role for parts and components trade consistentwith China playing an important and increasing role as a conduit. We also estimate someregressions that show that China's increasing presence in export markets has had a negativeeffect on exports of some products for some other Asian economies, but not for other products,including those of the important electronic high-technology industry.
Keywords
: China, engine, conduit, trade, integration, production fragmentation, displacement.
JEL classifications
: E32, F10, F40___________________________
*
Ahmed, Coulibaly, Haltmaier, Leduc, Marazzi, and Wilson are economists in the Division of International Finance of the Federal Reserve System. Knippenberg is a research assistant in the Divisionof International Finance. Mailing address: Division of International Finance, Board of Governors, FederalReserve System, Mail Stop 24, Washington D.C. 20551, USA; email: jane.t.haltmaier@frb.gov. Tel.:(202)-452-2374; fax: (202)-736-5638. An earlier version of this paper was presented in April 2007 at anIMF conference on the Global Implications of China's Trade, Investment, and Growth. The authorswould like to thank Matthew Bellfy and Scott Weaver for excellent research assistance and Jahangir Aziz,Caroline Freund, Karen Johnson, Michael Leahy, John Schindler, and participants of the IMF workshopfor helpful comments. The views expressed in the paper are those of the authors and do not necessarilyreflect those of the Board of Governors or the Federal Reserve System.
 
Contents
1 Introduction 12 China as an Engine of Growth: Does the Rest of Asia Still Need an ExternalEngine? Is it China? 4
2.1 Some Background....................................................................................................42.1.1 China Compared with Other Asian Economies..........................................42.1.2 Patterns of Trade in Asia.............................................................................52.2 Growth Accounting..................................................................................................62.3 Aggregate Cross-Country Linkages.........................................................................72.3.1 Growth Comovements................................................................................72.3.2 Vector Autoregressions (VARs).................................................................8
3 China as a Conduit of Growth: Is China the Endpoint of a Giant Asian AssemblyLine? 12
3.1 Trade Fragmentation................................................................................................123.2 The Composition of Trade Balances........................................................................15
4 China as a Steamroller: How Is the Rest of Asia Adjusting to China’s GrowingPresence? 17
4.1 Index of Technological Sophistication.....................................................................184.2 Revealed Comparative Advantage...........................................................................204.3 Displacement of Exports..........................................................................................22
5 Conclusion 24
 
Boxes
 
1 Regional Growth in Service Exports...........................................................................282 The Tourism Strategy..................................................................................................303 The Philippines Electronics Sector..............................................................................324 The Big 3 Asian Automotive Exporters......................................................................365 Foreign Direct Investment by Other Asian Economies in China................................39

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