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China and Emerging Asia: Comrades
or Competitors?
Alan G. Ahear~ne, John G. Fernald,
P~akash Loungani and John W. Schindler

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WP 2003-27

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China and Emerging Asia: Comrades or Competitors?

Alan G. Ahearne
Board of Governors ofthe Federal Reserve System
John G. Fernald
Federal Reserve Bank of Chicago
Prakash Loungani
International Monetary Fund
and
John W. Schindler
Board of Governors of the Federal Reserve System
December 16, 2003
Abstract
Do increases in China's exports reduce exports of other emerging Asian economies? We find that
correlations between Chinese export growth and that of other emerging Asian economies are
actually positive (though usually not significant), even after controlling for trading-partner
income growth and real effective exchange rates. We also present results from a VAR estimation
of aggregate trade equations on the relative importance offoreign income and exchange rates in
determining Asian export growth. Although exchange rates do matter for export performance,
the income growth oftrading partners matters even more. In addition, we examine specific
products and find evidence that a considerable shifting oftrade patterns is taking place,
consistent with a 'flying geese' pattern in which China and ASEAN-4 move into the product
space vacated by the NIEs. Overall, our results suggest that China and emerging Asia are both
comrades(overall) and competitors (in specific products).

Disclaimer: The views expressed here are those ofthe authors and should not be attributed to
the Federal Reserve Board, the Federal Reserve Bank of Chicago, or the International Monetary
Fund.
Acknowledgements: This paper updates and extends the work contained in Fernald, Edison and
Loungani(1999), Loungani(2000), and Ahearne, Fernald and Loungani(2001).We thank Clair
Null, Amy Meek and Shanthi Ramnath for helpful research assistance and Steve Kamin, Jeremy
Mark, Eswar Prasad, Thomas Rumbaugh, Vasuki Shastry, Nathan Sheets, and Xiaozu Wang for
comments.

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Two men sought a Buddhist monk's help to resolve their dispute. Thefirst man told his side of
the story, and the monk said.• "You're right!" The second gave his side, and the monk said:
"You're right!"A thirdperson who was listening to all this protested to the monk: "These men
have opposing views. How can you say you say they're both right?"The monk thoughtfor a bit
and told him: "You're right too."

Introduction
Discussions oftrade flows in Asia highlight two opposing views on the nature of the

trade links between China and emerging Asia.1 Under the first view, China and other Asian
economies are comrades. They share mutual benefits from the increased incomes of Chinese
consumers and from the potential of greater integration of product lines across the region, both
of which are reflected in the expanding infra-regional trade in Asia. The other view sees China
and emerging Asia as competitors, specializing in the production of export goods that are
relatively close substitutes and competing for market share in major export markets? Like the
Buddhist monk in the parable above, we think elements of both views are right.3
The first view is right in stressing many of the beneficial effects of China's growth on the
rest of Asia. China's tremendous growth has indeed translated into rising imports from the rest of
Asia. These have skyrocketed in recent years, and particularly since World Trade Organization
(WTO)accession was completed in December 2001. In addition, as China continues its rapid
development, other economies in the region have an incentive to try to move up the value chain

~ Throughout the paper we use the labels "Hong Kong"to refer to "People's Republic of China—Hong Kong
Special Administrative Region" and "Taiwan" to refer to "Taiwan Province of China". We use the term "emerging
Asia" to refer to the economies (other than China itselfl consisting ofthe newly industrialized economies of Hong
Kong,Korea, Singapore, and Taiwan, as well as the so-called ASEAN-4 nations, Indonesia, Malaysia, the
Philippines, and Thailand.
z See Diwan and Hoekman(1999) and Loungani(2000).
3 This paper focuses on the trade links between China and emerging Asia. Another aspect ofthe relationship, which
we do not explore here, relates to inflows offoreign direct investment(FDI). Emerging Asian economies
increasingly use China as an export platform through direct investment in China. On the other hand, China and
emerging Asia compete for inflows ofFDI from other countries. For a discussion of the FDI links between China
and emerging Asia, see Ho,et al (2002).

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as their comparative advantage shifts to higher-value added, less labor-intensive industries.
Taiwan,for example, is attracting more investment in high-tech research facilities as opposed to
pure manufacturing, and Singapore and (to a lesser extent) Malaysia are trying to broaden the
scope oftheir manufacturing sectors to include bio-technology and other emerging technologies.
But the other view is also right in claiming that China's increased integration into the
global economy has meant that sectoral transitions in other Asian economies are likely occurring
at a faster pace than would otherwise have been the case. For example, popular discussions
highlight that manufacturing has been moving from elsewhere in Asia to China, in large part to
take advantage oflow labor costs and a growing domestic market. Asian economies therefore
need to take steps to ease the transition of their labor force into other sectors, including through
the provision of social safety nets to ease the costs of adjustment.
Some proponents of the "competitors" view also claim that China's export performance
has been greatly enhanced by an undervalued exchange rate4 We have less sympathy with this
particular claim than with the general proposition of the prevalence of competition. The evidence
we present suggests that movements in exchange rates, while important, are not the primary
determinant of export performance among the Asian economies.
The paper is organized as follows. In Section 2, we present evidence on the impact of
Chinese export growth on that of other Asian economies, after controlling for the effect of
common factors. We find that correlations between Chinese export growth and that of the 1VIEs
and ASEAN-4 are almost always positive (though often not significantly so), suggesting
complementarity rather than competition. We also present results from a VAR estimation of

4 One of the

most vocal proponents of this view is Bhalla(1998), whose thesis can be surmised from the title of his

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aggregate trade equations on the relative importance offoreign income and exchange rates in the
determination of Asian export growth. An important finding is that, while exchange rates do
matter for export performance, the income growth oftrading partners matters even more. In this
sense, China and emerging Asia are on the same side, with export performance of both still
heavily dependent on income growth in common major trading partners, viz., the U.S., the
European Union and Japan.(Ofcourse, infra-regional trade alone is also becoming more
important.)
In Section 3, we present evidence from industry-level data on the extent of export
competition between China and other Asian economies in the U.S. market, where competition is
likely to have been most intense. We find that China has gained market share in the U.S. market
as a whole and in almost every industry, while the shaxe ofthe NIEs has declined. The ASEAN-4
countries have experienced gains in market shares in slightly over half the industries. These
changes have been occurring in a trend-like fashion over the entire period ofour study-1989 to
2002; an exception to this characterization is the rapid gains made by China in the `computers,
peripherals, and semiconductors' industry since 1998. Changes in the share of ASEAN-4 are far
less dramatic and in many instances China and ASEAN-4 have both gained market share while
that of the NIEs has fallen. Overall, the results are suggestive ofa `flying geese' pattern in which
China and ASEAN-4 move into the product space vacated by the NIEs.
The increased integration of China and other Asian economies does carry its own risks: It
makes the fortunes of each side more dependent on economic developments and policy choices
in the other than was the case in the past. In section 4, we discuss the implications of our results

paper "Chinese Mercantilism: Currency Wars and How the East was Lost." More recently, Williamson(2003)has
argued that "a substantial revaluation [of the renminbi] would be good for both China and the rest ofthe world."

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for the outlook for China and the other emerging Asian economies. In this context, we discuss
the state of the financial sector in China, which many think is the greatest economic hurdle
facing the country (see,for example, Lardy 1998a, 1998b).

Trade Linkages between China and other Asian Economies: Aggregate Evidence
Figure 1 shows strikingly that exports by China and by other Asian economies tend to

move together. The figure shows export growth (measured in dollar values) to the world from
China (defined to include Hong Kong)and from the rest of developing Asia, using trading
partner statistics. Fernald, Edison, and Loungani(1999)argue that it makes economic sense to
combine data for China and Hong Kong even in the period preceding formal unification, since
many goods use Chinese labor and Hong Kong management and distribution skills. It makes
statistical sense to use trading-partner statistics, to avoid double-counting Chinese and Hong
Kong exports.
The co-movement in export growth between China and other Asian economies suggests
that common factors—such as growth in advanced economies, movements in the world prices of
key exports such as semiconductors, and movements in the yen-dollar rate—were probably more
important determinants of Asian exports than was competition with China.
In addition, the vertical integration of many product markets in Asia would likely add to
this similarity in growth rates. As an example of how vertical integration might make export
growth rates similar, take the example of a small electronic device like a DVD player. The
manufacturing ofsome components—e.g., motherboards, memory, etc.—might be handled in
one or several ofthe ASEAN economies or the IVIEs. Those components are then exported to,
say, China, where they are assembled into the DVD player. The DVD player is then shipped out
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to its final destination. Several economies in the region might thus provide value-added to a
single device. Hence, as demand for DVD players fluctuates, one would expect export growth to
be positively correlated across countries.
Discussions of China's export performance tend to emphasize factors peculiar to China,
such as economic reform initiatives, rapid investment, tax incentives, or its WTO accession.
More recently, some observers seem to have focused solely on the perceived undervaluation of
the renminbi exchange rate to explain China's export performance. Ofcourse, at times there are,
indeed, China-specific factors that are likely to have a large impact on China's exports (e.g.,
China's WTO accession almost certainly had a larger effect on China than on its trading
partners/competitors). However,these discussions tend to miss the prevalence ofcommon
shocks, which Figure 1, as well as the evidence presented below in Sections 2.1 and 2.2, suggest
are of equal or greater importance.

2.1

Conditional Correlations
It may be that, in contrast to the visual impression given by Figure 1, the correlation

between China's export growth and export growth in other Asian countries is actually negative
once the most important proximate determinants of Asian real export growth have been
controlled for. To investigate this hypothesis, we estimate regressions ofreal export growth in a
particular Asian economy on its proximate determinants, namely, the growth rate offoreign
income and the (percent) change in the economy's trade-weighted real exchange rate. (An
increase in the real exchange rate indicates an appreciation ofthe currency relative to that of its
trading partners.) We add China's real export growth as a regressor to these standard export
equations.

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The data used in the estimation are annual, and extend from 1981 to 2001. To obtain
sufficient degrees offreedom, we pool the data for the four NIEs(we include Hong Kong as a
NIE),for ASEAN-4 members, and also for all eight economies. Country fixed effects are
included in all regressions, but their estimates are not reported. The coefficient estimates are
shown in Table 1; numbers in parentheses are standard errors. The first column presents the
results of a regression of real export growth in the NIEs on(1)country fixed effects,(2)a lagged
dependent variable and (3) China's real export growth. As shown, the coefficient estimate on
the last ofthese variables is positive --0.29--and significantly different from zero (the t-statistic
is about 3.6). In the second column, the growth rate offoreign income and the change in the real
exchange rate are included as regressors. The coefficient estimates of these two variables have
the expected signs and are statistically significantly different from zero. For present purposes,
the key result is that the coefficient on Chinese real export growth now drops to 0.04(and is
indistinguishable from zero). Adding in lags ofthe independent variables, as in column (3), does
not materially affect the conclusion that the coefficient estimate is essentially zero.
A similar set ofregressions for the ASEAN-4 group is presented in columns(4)to (6). In
this case, the conditional correlations are always positive and are relatively large in magnitude.
In column (4), the simplest specification, the coefficient on China's exports is significantly
different from zero. In column (5), the t-statistic falls to 1.8, implying a p-value of about 0.07.
This regression continues to show substantial evidence of complementarity. Adding lags ofthe
independent variables, however, knocks out the statistical significance of the China variable,
although the current and lagged values remain positive—consistent with weak complementarity.
When data for all eight economies are pooled, the conditional correlations are similar.
Without controls for trading partner income and the real exchange rate, there is a strong positive
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correlation between emerging Asian exports and China's exports. Controlling for trading partner
income and the real exchange rate, the positive correlation is substantially weakened, although
the sign ofthe effect remains. In particular, there is now a little bit more evidence even in
column (9), with lagged independent variables, of weak complementarity (the p-value on
China's exports is about 0.09).
Has the degree of complementarity changed in recent years? We investigate this by reestimating the regressions and allowing for a change in the coefficient on China's real export
growth starting in 1995. These regressions are reported in Table 2. As shown in the first column,
the coefficient on the new variable is indeed negative (-0.07). But it is much smaller in
magnitude than the coefficient on China's real export growth itself(0.17), so that the sum of the
two still points in the direction of complementarity. Similar conclusions hold if the break point is
picked to be a year later than 1995, as shown in columns(2)through (6)ofthe table.
In sum, when we look at data from non-China Asian emerging economies, we find that
real exports tend to be positively correlated with China's exports. Even controlling for major
`common' shocks (trading partner income and real exchange rates), we find that conditional
export correlations between China and other economies remain positive (although much smaller
in magnitude and significance). These results, at a macroeconomic level, are inconsistent with
most stories ofsevere, cutthroat competition between China and the rest of Asia.
2.2

The Role of the Exchange Rate: Evidence from VARs
As noted in the introduction, in recent years commentary has often focused on real

exchange rates as a channel for competition among Asian economies. At the onset ofthe Asian
financial crisis in 1997,for example, many observers suggested that China had undergone a large
depreciation at the beginning of 1994, which ultimately brought pressure to bear on other Asian
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economies to devalue their own currencies. This view was challenged in IMF(1997)and
Fernald, Edison and Loungani(1999) on two grounds. First, there was little effective nominal
depreciation ofthe renminbi at the time' because the apparent devaluation ofthe official rate
simply unified it with the unofficial rate at which most trade transactions already took place.
Second, the moderate real depreciation was rapidly reversed by China's quite high inflation in
1994 and 1995. As a result, China's real exchange rate appreciated rather than depreciated over
the 1993-1997 period. Nevertheless, many Asian economies did have sharp real depreciations
whereas China did not.
If China and emerging Asia were important competitors, such exchange rate movements
should lead to corresponding changes in real export growth. Hence, a particular focus of the
results in this subsection is whether movements in real exchange rates explain a large share of
the variance in exports across Asian economies.
In order to quantify the importance of various shocks on Asian exports, we estimate a
simple model for Asian export growth. As before, the data used in the estimation are annual, and
extend from 1981 to 2001. To obtain sufficient degrees offreedom, we pool the data for all
economies and run a panel vector autoregression(VAR)with three variables:(1)real income
growth among major trading partners,(2)real exchange rate growth, and(3)real export growth;
in estimating the VAR,the variables are ordered as listed, but other orderings ofthe variables do
not affect the results to be described below. Two lags of each variable were included in the
estimation. Country fixed effects are included in all regressions.
Figure 2 presents the estimated impulse responses from the VAR showing the response of
export growth to standard-sized (i.e., one standard deviation) increases in each of the three
sources of shocks. Focusing on the last column, it is evident that the contemporaneous responses
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of exports to foreign income and real exchange rate movements have the expected signs and are
statistically significant.
The impulse responses of interest are reproduced in Figure 3, which shows only the point
estimates going out four years after the shock. An increase in income growth among trading
partners leads to an increase in a "representative" Asian economy's export growth: there is a
strong contemporaneous, and statistically significant, impact. The impact dissipates over the next
few years and, statistically, is not significantly different from zero. A depreciation in the
currencies of major trading partners has the predicted adverse impact on export growth in the
representative economy. Here too it is only the contemporaneous impact that is significantly
different from zero.
Table 3 presents the variance decomposition of real export growth. As shown,income
effects account for a much larger percentage of the variance than relative price effects. For
instance, at the one-year horizon,income growth accounts for 28 percent of the variance,
compared with 10 percent for real exchange rate changes.s Not surprisingly, shocks to exports
themselves show the largest dynamic response (as shown earlier in Figure 2)and also account
for the largest share ofthe variance.
These results suggest that, over the last twenty years, changes in real exchange rates have
not been the primary determinant of export growth for the major Asian exporters. A more
important determinant has been income growth in the major trading partners(which, over the
bulk of our sample period, reflects growth in the industrialized countries, particularly the United

Since China bad a dual exchange rate over part of our sample, we constructed an alternative measure of China's
real exchange rate, viz., a weighted average ofthe official exchange rate and the so-called'swap market' rate. When
this alternate measure is used in the VAR,the importance ofexchange rate movements, relative to those offoreign
income, falls even further. The impulse responses are similar to those reported in Figure 2,though again the nnpact
ofthe exchange rates on exports is somewhat attenuated.
9
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States). Industrial country demand and the effects of structural changes are likely to have
outweighed exchange rate fluctuations as determinants of China's export growth.6
These findings can explain why,for instance, China's export growth remained strong
during the Asian crisis in 1997-98. Overall demand remained high (with strength in the United
States and Europe countering weakness among Asian trading partners). As a result, export
growth remained quite robust despite the drag from the depreciations among many Asian
currencies. Prasad and Rumbaugh (2003) make a similar point about the more recent period.
While acknowledging that "the recent depreciation of the U.S. dollar, to which the renminbi is
linked, has no doubt added temporarily to China's competiteveness," they suggest that it is
unlikelt that exchange rates are the primary determinant of China export growth because
"China's exports continued to grow rapidly virtually across the board even when the U.S. dollar
was appreciating against other major currencies."

Export Competition Among Asian Economies in the U.S. Market
This section describes how the market shares of exports ofthe various Asian economies

have changed over time. We focus on exports to the United States, which is likely to have been
the market where competition has been most intense. In addition to looking at changes in the
overall market share (i.e. exports across all industries combined), we present evidence on
changes in two high-profile industries which were identified in our previous work as being ones

has also been helped by structural reforms ofthe exchange and trade system, as detailed in
Cerra and Dayal-Gulati(1999). Examples include allowing local governments and exporting enterprises to retain a
proportion offoreign exchange•receipts, eliminating mandatory export and import planning, and opening up the
economy to foreign direct investment. Despite occasional reversals, the overall trend has been to reduce the role of
central planning in China's foreign trade.

6 Chinese export growth

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that displayed large changes in trade shares and accounted for a sizable fraction of total U.S.
imports from these Asian economies.
By focusing on relative export performance in a single geographic region and for specific
industries, we hope to obtain product-level evidence on "export competition." For these
purposes, we define export competition as "shifts in market share" across the three groups. In
particular, we want to see if China's market share has increased markedly within a particular
industry.
Note that by focusing on shares in particular markets we are strongly stacking the deck in
favor ofthe export-competition view. After all, since shares sum to 100 percent, it is
arithmetically impossible for all shares to move in the same direction. So a country may have its
share in a particular market decline without necessarily experiencing a decline in the level of its
exports to that market. It may be losing market share in one market but gaining it in another.
Moreover,some changes in shares may be deliberate, as in the case of industries that have
shifted to a more vertically integrated approach to manufacturing.
Nevertheless, the changing shares give some sense of how trade patterns are evolving in
the various countries. Also,from the perspective of a producer within a narrow industry, these
figures give some sense of who they are competing against. Thus,the changing trade patterns
discussed here provide indirect evidence on whether China and emerging Asia are truly
comrades or competitors.
For this analysis, the Asian economies we consider have been classified into one of three
groups: China(China and Hong Kong), the NIEs(Korea, Singapore, and Taiwan), and the
ASEAN-4(Indonesia, Malaysia,Philippines and Thailand). While the analysis focuses on the
period 1996 to 2002,some tables also provide data for 1989 and 1993 to provide alonger-term
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perspective on the changes in trade shares. The data are at the three-digit industry level(on an
end-use basis) and are published by the U.S. Department of Commerce's Bureau ofEconomic
Analysis(BEA).
As a preamble to the industry-level analysis, Table 4 shows export shares for the three
groups for the U.S. market as a whole. As shown,in 1989 China and Hong Kong together
accounted for about a quarter of total exports to the United States from the three groups. By
1993, China's share had increased to a third. Mainland China alone nearly doubled its share of
the U.S. market, helped perhaps by the real depreciation of the renminbi over this period. The
ASEAN-4 group also increased its market share, but by a smaller magnitude than the increase in
mainland China's share. Correspondingly, the share ofthe NIEs fell from 59 percent to 44
percent. There is, therefore, some evidence of"competition"—shifts in market share—among
the three groups over the period 1989 to 1993. By contrast, the period between 1993 and 1997 is
far more tranquil. The shares of China and ASEAN-4 inch up over this period at the expense of
the NIEs.
The Asian crisis, and the associated sharp real depreciations in the currencies of many
Asian economies, did not lead to any dramatic changes in market shares: The relative stability
that characterized the period 1993 to 1997 continued through 2000. In the most recent period,
from 2000 to 2002, however, China's share grows from 40 percent to 49 percent, at the expense
of both the NIEs and the ASEAN-4. Thus, only in the most recent period do we see strong signs
of competition.
The picture is much the same when we look at the counhy groups' shares of world
exports to the United States. As can be seen in Figure 4, China's share of world exports to the
United States has risen steadily since 1989, with a sharp increase since 2000. The share ofthe
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ASEAN-4 also rose through much ofthe 1990s, but has fallen a little over the most recent
period. The NIEs have experienced a steady decline in their share.
Another perspective is offered in Figure 5, where we plot the dollar value ofthe country
groups' exports to the United States. Again, we only we see strong signs of competition in the
most recent period,from 2000 to 2002, during which China' exports to the United States have
soared, while exports of the NIEs and the ASEAN-4 have registered declines. During the 1990s,
the dollar value of each groups' exports actually rose, suggesting that the earlier analysis based
simply on shares may have overstated the extent of competition during that period.
Next, we examine industry-level data. Tables Sa and Sb present data for 1989 and 2002
for the three country groups and covering each of the 48 industries that make up the aggregate.
The tables contain a huge amount of data but some salient features do emerge. First, looking at
Table Sa,there is no doubt that China has emerged as a significant exporter across virtually the
entire spectrum ofindustries: its share has increased in 42 industries. In contrast, there are only
five industries in which the NIE share is higher in 2002 than in 1989 and these are all in the
industrial supplies and materials category(1-digit code `1').~ In addition, there is one industry,
300(new and used passenger cars), in which the NIEs have maintained a 100 percent share of
U.S. imports from emerging Asia since 1989, although with foreign direct investment in China's
auto sector growing rapidly, it may not be too long before China starts exporting autos. Second,
increases in the shares of ASEAN-4 are also quite prevalent, increasing in 26 ofthe 48
industries. This means that cases in which the shares of both China and ASEAN-4 have
increased are just as likely as cases in which their shares have moved in the opposite direction.
~ They are 100(petroleum and products), 123(other agricultural products and textile supplies), 140(unmanufactured
steelmaking and fenoalloying materials), 142(crude and semifinished nonferrous metals), and 160(unfinished

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Overall, the message from Table Sa is that China and ASEAN-4 appear to have been
moving into the product space vacated by the NIEs. The evidence is only reinforced if one takes
into account the amount of imports from Asia in each industry, which is shown in the second
column of Table Sb. In each of the five largest industries, the shares of China and ASEAN-4
have moved in the same direction (these are industries 213,400,410,411 and 412). Moreover,
although we can see from the last two columns of Table Sb that Asia's share ofthe largest
industries has generally been rising (industry 400 is an exception), the NIEs share of the U.S.
market has been declining.
We now turn to a more detailed analysis of the two largest industries based on U.S.
imports in 2002, namely,industry 213(computers, peripherals and semi-conductors) and
industry 400(apparel, footwear and household products). First consider the changes in industry
213(Table 6). Here, mainland China's market share rose from essentially zero in 1989 to 7
percent in 1997; however, over half of this increase appears to have come at the expense of Hong
Kong. When the two are combined,their market share increases only slightly over the period.
The share of ASEAN-4 increases somewhat more substantially, with a corresponding fall in the
share of the NIEs. In the period since the onset of the Asian financial crisis, both China and
ASEAN-4 have continued to gain market share at the expense ofthe NIEs.
The story in the case ofindustry 400 is a bit different(Table 7). Here, China does
experience a big increase in market share between 1989 and 1997,from 36 percent to 63 percent,
with the bulk ofthis increase occurring between 1989 and 1993. The share ofthe ASEAN-4 also
increased over the period, with the change being more substantial in the earlier part ofthe period.

nonmetals).

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Since the onset ofthe crisis, there has been virtual constancy in market shares, with the NIEs
losing only a small portion of their shares to China since 2000.
In sum, contrary to some popular perceptions, China's gains in market share have not
come about primarily at the expense ofthe labor-intensive ASEAN-4 economies. Instead, China
displaced the NIEs in industries that these more advanced economies were
relinquishing—apparel, footwear, and household products. This is a healthy development. It
mimics an earlier period, when the NIEs moved into the industries relinquished by a more
advanced Japan.
Even when the period is extended to include 1994 to 2000, there was virtual stability in
export shares of the three Asian groups(China, the NIEs and the ASEAN-4) both at the
aggregate level and in key industries.$ To the extent that there were small gains in China's
export shares in this period, these continued to come largely by displacing the NIEs. The
significant real depreciations ofthe currencies ofthe "Asian crisis" economies did not have the
dramatic impact on market shares that would have been expected if exchange rate movements
were a strong factor behind export growth.
In the most recent period, however,from 2000 to 2002, we see the shares starting to
change once again. In fact, China's share has risen considerably, primarily at the expense ofthe
NIEs, and to a lesser extent at the expense ofthe ASEAN-4. Some ofthis change may be due to
the shifting oflow-value-added production to China, while these economies, particularly the
NIEs,focus on higher-value-added production. In that case, it would represent a healthy change
for both China and the NIEs, as each would be focusing on the area in which it has a

In our previous work we showed that this stability ofexport shares holds in the United States, and appears
to hold
in Japan and many major European markets as well.
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comparative advantage: China in low-value-added, labor-intensive manufacturing, and the 1~IIEs
in high-value-added, capital-intensive manufacturing. Another explanation may be that the role
ofthe exchange rate in determining exports has increased in importance recently.

3.2

The Destination of Asian NIE Exports
An interesting fact that emerges from the data is that the NIEs are losing import shares in

the U.S. market in almost all categories of goods at the same time that their overall exports are
growing. This raises an obvious question:"Where are exports from the NIEs going?" In Table 7,
we attempt to answer this using data from the IMF's Direction of Trade Statistics(DOTS).9 The
table shows the average annual growth rate of exports from China, the NIEs, and the ASEAN-4,
as we have defined them in this paper, to the world, the G-3 (defined here as the United States,
Japan, and European Union, which we use as a proxy for industrial countries), China,the NIEs,
and the ASEAN-4.10 The growth rates are broken down into the three time periods we identified
earlier: the first period of China's increasing shares from 1989-1993,the relatively stable shares
period from 1993-2000, and the recent period in which China's shares have risen rapidly from
2000-2002.
In the early period, it is obvious that China's share ofthe G-3 import market was growing
at the expense ofthe NIEs. The average growth in Chinese exports to the G-3 was almost 20
percent during that period, while NIE export growth to the G-3 was just 2 percent. However,

9 The data is augmented with data from the CEIC database as needed. In particular, data for Taiwan are not up to
date in the DOTS database.
10 So,for example, exports from the ASEAN-4 to the ASEAN-4 represent total exports from each ofthe ASEAN-4
countries to the other three countries in the ASEAN-4—in essence, aninfra-subregional trade measure. Similarly,
exports from China to China capture mainland China's exports to Hong Kong and Hong Kong's exports to the
mainland.

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NIE exports to China were growing at almost a 30 percent annual rate at that time. In the stable
share period from 1993-2000, the export growth rates of all three groups were fairly similar. The
NIEs experienced a more rapid period of export growth to the G-3, perhaps due to the U.S. hightech boom, and the NIEs exports to China continued to rise, albeit at a slower rate. In the final
period, however, the differences are striking. In this period ofrapid increases in shares for China
in the U.S. import market, both the NIEs and ASEAN-4 have experienced falling exports to just
about every group except China.'1
We offer two explanations for the rise in NIE exports to China and the relative weakness
of exports to the G-3. First, demand in China remained strong throughout the period we
examined, despite several episodes of global weakness. Most noticeably, during the 2000-2002
period, the U.S. high-tech bubble burst, global demand fell, and yet China continued to grow at a
robust pace. Thus, it is not surprising that exports to China rose significantly in that period.
Second, the shifting of production facilities to China from the NIEs likely has boosted 1~IE
exports ofintermediate products to China for processing and export ofthe finished product.12
The data presented here do not shed light on the relative importance ofthese two explanations,
but it is likely that both are partly responsible.

'~ Prasad and Rumbaugh (2004)present complementary evidence by looking at how important China bas become to
various countries as a destination for their exports. In the case ofsome ofthe Asian NIEs the increase in the
importance of China as an export destination has been quite dramatic. For example, China has gone from accounting
from under 0.1 percent of Korea's exports in 1990 to over 10 percent in 2000 and nearly 15 percent in 2002.
12 For a detailed discussion ofthe rise in intraregional trade in Asia, see Zebregs(2003). He concludes that "the rise
in intraregional trade is lazgely driven by rapidly growing infra-industry trade, which is a reflection of greater
vertical specialization and the dispersion of production processes across borders. This has led to a sharp rise in trade
in intermediate goods ... but the EU,Japan and the United States remain the main export markets for final goods."

confidential

Implications of Regional Integration
We have shown above that China and emerging Asia are competitors at the sectoral level.

However, at an aggregate level their relationship is much more complementary. This
complementarily results in part from growing trade links that tie the fortunes of China and
emerging Asia more closely together. As a result, economies throughout Asia are more
dependent on economic developments and policies in China than they were previously. Closer
integration with China, therefore, represents not only an opportunity for the economies of
emerging Asia, but also a potential source of macroeconomic risk. In this section, we describe
channels through which macroeconomic developments in China are likely to spill over to
elsewhere in Asia, and briefly discuss several aspects ofthe outlook for economic activity in
China and emerging Asia.
Why might greater trade integration in Asia be expected to increase the transmission of
shocks between economies in the region? One obvious reason is that China has become a source
of demand for final goods produced in emerging Asia. From this perspective, the rise of China is
a positive factor for growth in emerging Asia. For example, Korean exports of steel products to
China have surged recently, reflecting robust spending on infrastructure and other construction
projects in China. But, by the same token, a significant downturn in China's economy would be
expected to have a negative impact on the exports of emerging Asian economies.
In addition, greater integration of product lines across the region means that
developments in China increasingly matter for the rest of Asia. As mentioned earlier, a
significant portion of the final assembly of Asian-made products takes place in China. As a
result, disruptions in China could potentially create a bottleneck in the production of a wide
range of goods. An economic crisis in China could cripple numerous product lines, hurting
18

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corporations from emerging Asia that do business in China. Another example would be the
imposition by advanced countries of tariffs on goods imported from China. Demand for
intermediate inputs (possibly produced elsewhere in Asia) used in the production ofthese goods
would likely decline as a result of such tariffs.
More generally, shocks to China's economy are likely to be transmitted to emerging Asia
through confidence effects. By now, China's economy is so large and so integrated with the rest
of Asia that investor sentiment toward emerging Asia depends in part on what happens in China.
We now briefly discuss the outlooks and risks faced by China and the economies of emerging
Asia.
Many observers believe that the health of China's financial system represents the greatest
risk to the country (see,for example, Lardy 1998a, 1998b). For example, concerns have been
raised about Chinese banks' ability to compete with foreign banks, which are being permitted to
enter the Chinese market gradually as part of China's WTO accession.13 If depositors were to
shift large amounts offunds from domestic banks to foreign banks, many domestic banks might
find themselves illiquid. If the government is then forced to rescue these banks, the most
accessible source offunding is the central bank. Then the government may face the undesirable
choice of seeing an increase in inflation, or a substantial slowdown in growth (as banks are
unable to extend new loans and are forced to call in outstanding ones).
Observers have also questioned whether massive capital flight could put pressure on the
currency and balance of payments, given evidence that China's capital controls can be easily

13 The Chinese authorities recently announced that foreign banks are now permitted to conduct local-currency business
with domestic Chinese fums. Under the terms of China's WTO accession agreement,foreign banks are supposed to
be pemutted to conduct local-currency business with retail customers in 2006. For a discussion ofthe unpact of WTO
accession on China's financial system, see Lardy 2002.

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evaded. Capital flight is currently not an issue, however, as errors and omissions in the balance
of payments(sometimes used as a measure of capital flight)turned from large outflows over the
period 1995 to 2001, averaging about $14 billion, to a large inflow of about $8 billion in 2002.
The recent change has been driven by speculation about a change in the exchange rate regime
that would permit the renminbi to appreciate against the dollar, thus raising the value of renminbi
assets. In the long term, however, the fear is that capital outflows, for example caused by a
sudden loss of confidence in the banking system or by an opening of capital controls, could lead
to capital flight. Given the size and continued growth of international reserves, though, China
may be better situated to handle this situation than other countries.
Despite all of these potential pitfalls, the consensus is that China will continue to grow at
a robust pace in the medium- to long-term, boosted by the continued reforms and improvements
in productivity. This would be positive for emerging Asia, the outlook for which we now briefly
discuss.
Economies in emerging Asia rebounded sharply from the Asian crisis, before being
battered in 2001 by the falloff in U.S. growth, weakness in Japan, and the plunge in global
demand for high-tech products. The region suffered another blow in 2003 when it was hard-hit
by SARS. However, recent signs have been more encouraging and most analysts expect a return
to robust growth as the region benefits from stronger demand among leading trading partners and
the global recovery in demand for high-tech products.
Two downside risks, however, are worthy of mention. First, in many countries, the
financial restructuring that began after the Asian crisis is still incomplete. To the extent that such
reforms remain incomplete, inefficient financial sectors may weigh on performance and
exacerbate vulnerabilities over the medium term. Second, our results suggest that competition
20

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from China for export-market share is growing. Emerging Asia will need new strategies to move
up the value chain and develop economies that are more knowledge-based. Greater levels of
foreign direct inveshnent may play a role in achieving these objectives. It is important to
reiterate that, notwithstanding increased competition, China's rapid growth represents a
significant opportunity for emerging Asia. China's imports have grown in lock step with its
exports, and China is thus an important source of demand for goods from emerging Asian. Thus
it is not far fetched to say that, at present, China and emerging Asia are both comrades and
competitors.

5. Conclusions
We find little evidence overall that increases in China's exports reduce exports of other
emerging Asian economies. Indeed, it appears that China's exports and exports of the other
economies are positively correlated. The correlation appears largely driven by common shocks—
such as trading partner income—but even after controlling for the major sources ofcommon
shocks, the correlation remains weak but positive.
Nevertheless, when one looks at specific products, there is clearly considerable shifting of
trade patterns taking place. It seems likely that these shifts require actual shifts in resource
allocations, which can often be painful for those who lose out. From this perspective, China and
emerging Asia are competitors. However,to the extent that China is displacing other economies
in industries that the more advanced economies are moving out of, it is a healthy development
with positive implications for the region. Moreover,the appropriate policy response would be to
take steps to smooth the flow of resources across sectors.

confidential

References
Abeysinghe, Tilak and Ding Lu (2003)."China as an Economic Powerhouse: Implications on its
Neighbors," China Economic Review, 164-85.
Ahearne, Alan, John Fernald and Prakash Loungani(2001)."Countering Contagion: Does
China's Experience Offer a Blueprint," Economic Perspectives, Federal Reserve Bank of
Chicago, 38-52.
Bhalla, Surjit(1998)."Chinese Mercantilism: Currency Wars and How the East was Lost,"
ICRIER Paper No. 45, July(New Delhi: Indian Council for Research on International
Economic Relations).
Bhaskaran, Manu(2003)."China as Potential Superpower: Regional Responses," Deutsche Bank
Research Report, January 15.
Bonin, John P. and Yiping Huang (2001)."Dealing with the Bad Loans of the Chinese Banks,"
Journal ofAsian Economics, 12: 197-214.
Carolan, Terrie, Nirvikar Singh and Cyrus Talati (1998)."The Composition of U.S.-East Asia
Trade and Changing Comparative Advantage," Journal ofDevelopment Economics, vol.
57, 361-89.
Cerra, Valerie and Anuradha Dayal-Gulati(1999). "China's Trade Flows--Changing Price
Sensitivities and the Reform Process," IMF Working Paper 99/1.
Diwan,Ishac and Bernard Hoekman (1999). "Competition, Complementarity and Contagion in
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Consequences, ed. by Pierre-Richard Agenor, Marcus Miller, David Vines, and Axel
Weber(New York: Cambridge University Press).
Fernald, John G., Hali Edison, and Prakash Loungani(1999). "Was China the First Domino?
Assessing Links Between China and the Rest of Emerging Asia," Journal of
International Money and Finance, Vol. 18, 515-35.
21St
Gochoco-Bautista, Maria Socorro (1995)."ASEAN-China Economic Relations into the
Century," Philippine Review of Economics and Business, vol. X~~XII, No. 2, December.
Ho,Daryl, Simon Wong, Stephen Wan,and Dai Lu(2002)"The Impact of China's Accession to
the WTO on Asia," HKMA Quarterly Bulletin, November.
IMF(1997). World Economic Outlook, December.
IMF(1998). "The Asian Crisis: Causes and Cures," Finance and Development, June, 35:2.
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Johnston, R. Barry (1998). "Sequencing Capital Account Liberalization," Finance and
Development, December 35:4.
Lardy, Nicholas (1998a)."China and the Asian Crisis," Foreign Affairs.
Lardy, Nicholas(1998b). China's Unfinished Economic Revolution. Brookings Institution,
Washington,DC.
Lardy, Nicholas(2002). Integrating China into the Global Economy. Brookings Institution,
Washington,DC.
Loungani, Prakash (2000). "Comrades or Competitors?: Trade Links Between China and Other
East Asian Economies." Finance &Development, June, 37:2.
Prasad, Eswar and Thomas Rumbaugh (2003)."Beyond the Great Wall," Finance &
Development, December.
Tseng, Wanda and Markus Rodlauer, eds.(2003)."China: Competing in the Global Economy,"
IMF,Feb, 2003.
Voon,Jan P.(1998)."Export Competitiveness of China and ASEAN in the U.S. Market,"
ASEAN Economic Bulletin Vol. 14, no. 3.
Williamson, John (2003)."The Renminbi Exchange Rate and the Global Monetary System,"
Lecture at the Central University of Finance and Economics, Beijing, October 29.
Zebregs, Harm (2003),"Intraregional Trade in Asia," IMF Policy Discussion Paper,
forthcoming.

confidential

Table 1
Conditional Correlations between China's Real Export Growth and Real Export Growth in other Asian
Economies

Inde endent Variable
China's Real Exports

(1)

(2)

All eight countries(NIEs
plus ASEAN-4)

(3)

ASEAN-4 (Indonesia,
Malaysia, Philippines,
Thailand
(6)
(4)
(5)

(7)

(8)

(9)

022

0.11

0.38

0.11

0.13

(0.13)

(0.07)

(0.08)

(0.09)

NIEs(Korea, Singapore,
Taiwan, Hong Kong)

0.29

0.03

0.08

0.48

(0.08)

(0.10)

(0.11)

0.09
(o.> >)

0.22
(0.17)

Lag 1

0.09
(o.~4)
-0.03

0.17

-0.01

Lag 2

(0.13)

(0.19)

(0.13)

Foreign Demand

3.16

3.87

2.97

5.22

3.13

4.13

(0.63)

(0.93) ~

(0.69)

(1.23)

(0.47)

(0.83)

Lag 1

-1.60
(0.73)

-0.04
(0.12)

-1.06
(o.6z)

Lag 2

1.16
(0.54)

0.03
(o.s])

Real Exchange Rate

-0.38

-0.37

-032

-0.29

-033

0.58
(o.ss)
-0.37

(0.13)

(0.10)

(0.12)

(0.06)

(0.10)

(0.08)

Lag 2
Lagged Dependent

0.12

0.14

-037
(o.~ 2)
-0.09
(o.t4)
0.14

-0.08

-0.05

0.30
(o.os)
0.11
(0.08)
-0.02

-0.01

0.02

0.15
(o.~ o)
-0.05
(0.07)
0.12

Variable

(0.11)

(0.10)

(0.09)

(0.13)

(0.08)

(0.07)

(0.09)

Ad'usted RZ

0.07

0.34

0.44

0.19

0.41

0.49

0.14

0.39

Lag 1

Note: Standard errors are in parenthesis. Regression estimated as a panel from 1981 - 2001. All
regressions include country fixed effects(not shown). Data are from IFS and National Income
accounts data from country sources.

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Table 2
Regressions with Break in Coefficient on China's Exports

China's Real Exports

Change in China's Expo
Coefficient Beginning in Year:
1995

(1)

(2)

(3)

(4)

(5)

(6)

0.17
(0.10)

0.21
(0.11)

0.14
(0.10)

0.12
(0.09)

0.11
(0.09)

0.09
(0.09)

-0.07
(0.07)

1996

-0.12
(0.07)

1997

-0.05
(0.08)

1998

-0.03
(0.08)

1999

0.00
(0.08)

2000

0.06
(0.07)

Foreign Demand

2.97
(0.48)

2.85
(0.49)

3.05
(0.49)

3.09
(0.48)

3.13
(0.48)

3.19
(0.49)

Real Exchange Rate

-0.32
(0.10)

-0.32
(0.09)

-0.33
(0.10)

Lagged Dependent Variable

Adj. R2

0.01

0.00

0.01

(0.07)

(0.08)

(0.07)

0.02
(0.07)

0.39

0.38

Note: Standard errors are in parenthesis. Regression estimated as a panel from 1981 -2001
with
all eight economies(NIEs and ASEAN-4). All regressions include country fixed effects
(not
shown). Coefficient on China's exports is allowed to change in the year shown in the table.
Hence, before the year the coefficient changes, the coefficient on China's exports is shown on
line 1; for the year the coefficient changes and after, the coefficient on China's exports is the
sum of the coefficient on China's exports (line 1)and the change in the coefficient.

confidential

Table 3
Variance Decomposition of Asian Export Growth

Step

Income

Exchange
Rate

Exports

1
2
3
4

28
27
28
28

10
12
13
13

62
61
59
59

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Table 4: Export Shares of Selected Asian Economies in the U.S. Market

~~)

~2)

C3)

~4)

LS)

C6)

~~)

L8)

~9)

1989

1993

1996

1997

1998

1999

2000

2001

2002

China

NIEs

Korea

Singapore

Taiwan

ASEAN-4

Indonesia

Malaysia

Philippines

Thailand

Total

100

l00

100

Memo:
Total ,
US $(billions)

126

180

199

211

235

278

254

276

Economy
China

Source: Bureau ofEconomic Analysis.

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Table Sa: Shares in U.S. Imports from Asia
2002

1989
End Use
Code
000
001
002
010
100
101
103
104
I10
111
120
121
123
125
130
131
140
141
142
150
151
152
160
161
200
210
211
212
213
214
215
216
220
221
222
223
300
301
302
400
401
410
411
412
413
420
421
500

China
0
22
2
22
21
7]
98
0
24
19
13
29
16
22
2
8
68
1
52
10
l2
18
63
23
22
4
16
11
7
21
28
20
10
16
11
0
0
0
11
36
46
24
38
19
48
16
34
27

NIES
3
17
4
29
9
1
0
0
75
76
5
56
37
70
28
75
5
96
14
80
86
78
19
67
70
75
82
86
72
66
66
49
86
83
83
100
100
99
75
52
46
66
57
64
23
40
38
58

ASEAN
96
62
93
49
70
29
2
0
1
5
82
]6
46
9
70
17
27
3
33
]0
3
4
18
10
8
21
2
4
21
13
6
31
4
2
6
0
0
0
13
12
8
10
5
18
29
45
28
IS

/:
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China
1
34
20
30
18
72
100
0
35
26
25
28
8
44
58
62
79
17
60
33
36
56
65
48
55
36
50
52
24
39
72
37
22
73
37
14
0
70
34
69
64
67
84
53
67
34
71
34

NIEs
2
14
4
8
42
0
0
0
0
58
5
55
84
39
6
12
14
71
30
55
61
36
30
44
31
54
44
45
42
30
14
31
72
26
55
22
100
28
43
12
30
22
I1
17
5
39
10
47

ASEAN
98
52
76
62
40
28
0
0
65
16
69
17
8
17
36
27
7
12
11
11
3
8
6
9
14
10
6
3
34
31
14
32
6
1
8
64
0
2
23
20
5
11
6
30
28
27
19
19

confidential

Table 5b: U.S. Imports from Asia

End Use
Code
000
001
002
010
100
101
103
104
110
111
120
121
123
125
130
131
140
141
142
150
151
152
160
161
200
210
211
212
213
214
215
216
220
221
222
223
300
301
302
400
401
410
411
412
413
420
421
500

Total Imports
from Asia
1989
(US $billions)
0.3
13
0.1
1.5
2.4
0.0
0.0
0.0
0.0
0.1
1.1
1.4
0.0
0.7
0.5
0.5
0.1
0.3
03
0.6
0.8
0.4
0.1
1.2
2.4
03
2.7
0.1
14.8
2.6
0.8
0.4
0.2
0.0
0.0
0.0
1.6
0.0
1.9
23.1
2.0
9.2
6.0
5.3
1.5
0.0
0.6
1.4

Description
~
Coffee, cocoa, and sugar
Other agricultural foods
Feedstuff and foodgrains
Nonagricultural foods
Petroleum and products
Fuels, n.e.c. -coal and as
Nuclear fuel materials and fuels
Electric ener
Paper-base stocks -pulpwood and woodpulp
Newsprint and other paper roducts
Agricultural roducts
Texti]e su lies and related materials
Other materials except chemicals
Chemicals, excl. medicinals and food additives
Lumber and other unfinished building materials
Other building materials, except metals
Steelmakin materials - unmanufactured
Iron and steel mill products - unmanufactured
Nonferrous metals -crude and semifunished
Iron and steel roducts, exc t advanced
Iron and steel manufactures-advanced
Finished metal sha es and advanced manufactures
Unfinished nonmetals
Finished nonmetals
Electric generating machinery, electric a azatus
Oil-drilling, mining, and construction machinery
Industrial and service machine ,n.e.c.
A 'cultural machine and equi ment
Com uters, eri herals, and semiconductors
Telecommunications e uipment
Other office and business machines
Scientific, hos ital, and medical e uipment
Civilian aircraft, engines, and arts
Railway transportation equipment
Vessels, exc t military and Leasure craft
Spacecraft, en Ines, and arts, exce t military
Passenger cars, new and used
Trucks, buses, ands ecial-pu se vehicles
Parts, engines, bodies and chassis
Ap arel, footwear, and household oods
Other consumer nondurables
Household and kitchen a liances
Recreational e uipment and materials
Home entertainment equi ment
Coins, gems,jewelry, and collectibles
Consumer nondurables- unmanufactured
Consumer durables- unmanufactured
Exports, n.e.c. and U.S. goods returned

29
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Total Imports
from Asia
2002
(US $billions)
03
2.2
0.2
3.1
1.8
0.1
0.1
0.0
0.0
0.5
1.3
3.0
0.1
3.2
1.5
1.5
0.1
0.9
0.4
0.8
1.8
1.5
0.2
4.4
8.3
0.7
9.9
0.3
67.8
7.8
1.8
2.8
0.5
0.0
0.1
0.0
6.9
0.0
6.5
41.1
6.5
38.8
19.4
17.1
4.0
0.0
1.2
5.9

Asia's Share of
U.S.Imports
1989
(percent)
9
10
13
20
5
0
2
0
0
1
27
26
2
5
11
19
5
5
2
20
34
15
6
21
19
6
9
3
44
27
18
11
2
2
13
0
4
0
6
65
19
50
48
43
22
3
11
10

Asia's Share of
U.S. Imports
2002
(percent)
11
7
10
23
2
1
5
0
0
6
24
28
7
10
12
l5
3
10
2
20
41
21
13
26
25
10
15
7
67
34
41
18
2
3
11
0
6
0
9
47
11
59
61
52
25
3
9
12

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Table 6
Export Shares of Selected Asian Economies in the U.S. Market:
Data for Industry 213(Computers,Peripherals and Semiconductors)

2002

1989

1993

1996

1997

1998

1999

2000

China

NIEs

Korea

Singapore

Taiwan

ASEAN-4

2001

Indonesia

Malaysia

Philippines

Thailand

100

Total

100

Source: Bureau of Economic Analysis.

30
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]

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Table 7
Export Shares of Selected Asian Economies in the U.S. Market:
Data for Industry 400(Apparel, Footwear and Household Products)
1989

1993

1996

1997

1998

1999

2000

China

NIEs

Korea

Taiwan

ASEAN-4

Indonesia

Malaysia

Philippines

Thailand

100

Singapore

Total

Source: Bureau of Economic Analysis

31
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2001

2002

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Table 8
Exports
from Emerging Asia by Region
Annual
Growth
of
Average

China
1989QE's
1993
ASEAN-4
China
1993NIE's
2000
ASEAN-4
China
2000NIE's
2002
ASEAN-4

World
15.8
9.3
15.3
10.3
9.3
10.6
8.0
-4.6
-0.9

China
12.7
27.7
19.8
8.2
11.2
13.7
9.6
7.2
15.7

G-3
18.6
2.4
12.8
11.2
8.7
9.4
5.7
-9.8
-4.0

Source: IMF Direction of Trade Statistics.

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NIE's
17.6
15.7
20.7
12.0
13.9
10.7
7.7
-8.2
-4.4

ASEAN-4
13.2
16.9
17.3
13.6
10.7
18.1
14.0
-5.2
2.7

confidential

Figure 1:
Exports from Greater China and from Developing Asia
40

World Imports from China/HK(net of
internal china/hk trade)

- - - - - - - Workl Mports from Devebping Asia
(excl. China and Hong Kong)

vs
~
s

25
20
15

5
0

•.

-5
-10

Note: The solid line shows recorded imports by all countries in the world from either China or
Hong Kong,excluding China's imports from Hong Kong and Hong Kong's imports from China.
The dashed line shows imports by all countries in the world from developing Asian economies
other than China or Hong Kong. Data source is IMF's Direction of Trade Statistics.

confidential

Figure 2: Impulse Responses of Variables to Each Shock

0.725

o.oa

o.oizs
o.oioo

0.100

ODB

OA075

OA75

ODI

0.050

OA2

OD050

income

exports

xrate_new

income
0.0150

OA025
OD25

o.00

0.000

-OA3

-0.0075

-OD25

-OAO

OA750

0.125

0.08

OA000
-0.0025
0.0050

0.0125
O

On100

o.00~s

0.100

OAB

0.075

o.a
o.oz

ODO50

v xrate new

o.00=5

OA50

OD000

OA25

ODO

~~/~

-o.00zs
DD00

•OAY

-0.0050
-0.0075

-0.045

-OAI

0.0150

0.145

OAB

0.100

ODB

OA125
OD100
0.0075

OD76

ODD

OA50

0.02

ODO50

exports

ODOYS

aflo~
-O.00YS

0.25

o.ao

OD00

-OD2

-OA35

-004

-0.0050
-0.0075

xrate_new

income

exports

Note: The columns show the impulse responses of the indicated variable to each of the shocks.
The shocks are indicated by the row labels. Each of the figures shows the impulse-response
point estimates as well as 2standard-deviation bounds(from 1000 RATS Monte Carlo draws)
from a panel VAR,as described in the text.

confidential

Figure 3: Impulse Responses of Exports to Various Shocks
o.os
o.os
0.04

0.02

-0.02

-0.04
1

Notes: Lines show estimated impulse responses from a panel VAR of Asian emerging economy
exports to shocks to income oftheir trading partners, their trade-weighted real exchange rate, and
exports themselves.

confidential

Figure 4: Asian Exports to the United States

Shares of Worid Exports to the United States
14
12
10

4
2
0
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
China — — NIE - - - ~ ASEAN-4

confidential

Figure 5: Asian Exports to the United States

$ Value of Asian Exports to the United States
160
140
120
~ 100
0

__~—

♦_

-i

...

— ~

_ _ _

40
20
0

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
China — — NIE - - - ~ ASEAN-4

confidential

Working Paper Series
A series of research studies on regional economic issues relating to the Seventh Federal
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confidential

Full text of Working Papers (Federal Reserve Bank of Chicago) : China and Emerging Asia : Comrades or Competitors?, Working Paper 2003-27

FRASER