Chinas Integration Into Global Economy

Updated: Oct 28 2002, 05:30am hrs
The inexorable rise of China as an economic power has triggered a wave of academic interest in the West since the 1990s, much like the ascendancy of Japan did during the 1980s. The ongoing challenge is to identify the proximate causes for its take-off and future directions of its development. One of Frances most distinguished economists, Dr Francoise Lemoine* of the Centre dEtudes Prospectives et dInformations Internationales based in Paris gave a rivetting lecture in the capital on her work on China.

Having studied the dragon for two decades, Dr Lemoine argued that the countrys rapid rise was made possible through its participation in the international division of labour. Thanks to globalisation, the production processes in manufacturing have become fragmented or segmented. Developing countries like China specialised in segments like assembly operations for its export drive. This was especially evident from the 1990s onwards when it diversified to electrical and electronic manufacturing exports.

The share of electrical and electronic items in Chinas total exports thus rose from 11 per cent in 1980 to 33 per cent in 2000. In the world market as well, the share of such export items grew in relative importance. Electrical equipment thus rose from 2 per cent of world exports in 1980 to 12 per cent in 2000. The share of electronic household goods grew from 4 per cent to 14 per cent of world exports over this period.

According to Dr Lemoine, two factors were responsible for the dragons participation in the global division of labour. It adopted a trade policy that facilitated greater outward-orientation, especially in assembly operations. Intermediate products like components which were imported for re-exports were thus completely exempted from customs duty this preferential treatment extended in fact to half or more of its total exports, with the rest subject to the normal tariff regime a state of affairs that will change with its accession to the World Trade Organisation.

Secondly, Asian countries like Japan, Taiwan, Hong Kong and Singapore increasingly relocated their labour-intensive stages of production to China. In the 1980s, this pertained to textiles which later shifted to electrical and electronic goods. Taiwan is now shifting its semiconductor industry to the mainland. Japan and such countries thus provided China with nearly 70 per cent of its imports geared to exports. Subsidiaries of foreign companies heavily dominate such activities in the country.

The upshot of Chinas rapid progress in foreign trade has been the emergence of a dualistic industrial structure. For starters, the countrys trade policy has discriminated in favour of outward-oriented industries. Domestic industry thus languished while the exporting spearheads became highly competitive with their integration into the international division of labour. Whether this enclave pattern of specialisation had any favourable spillovers in the domestic economy remains an open question.

Naturally in any such academic exercise, questions are bound to arise. An important one is whether this model adequately accounts for the dragons cost leadership across a range of industries. Year after year, manufacturers from the mainland are storming the world and grabbing market share, thanks to their competitive edge on the price front. It is not as if China has resorted to a steady devaluation towards this end, but rivals have always wondered how they can keep on lowering their export prices.

In her work, there is also an implicit assumption that China will remain dependent on foreign technology. But is this likely Researchers are divided on this question as the country seeks to develop its own high technology capabilities.

The current level of research and development expenditures may appear low, but a lot of observers are taking bets that this state of affairs is a-changing. Doesnt this require a different sort of model

*Chinas Integration in the World Economy: An International Comparison, lecture delivered at the India International Centre, New Delhi, October 19, 2002.