Catalog

Patterns of trade in East and Southeast Asia and the world, 1995-2004

Japan, followed by the NIEs, first adopted export-oriented manufacturing as a growth strategy in the 1960s. Trade growth was rapid as the world economy expanded with recovery in Western Europe and strong growth in the United States (US).

Japan itself recorded double-digit real rates of growth from 1960 up until the first oil shock of 1973. During this period of rapid growth, industrial structure also changed as exports shifted away from labor-intensive to more sophisticated products. Japan's movement into higher technology exports opened the way for the NIEs to themselves adopt an export-oriented manufacturing growth strategy. These economies were able to expand production and exports in labor-intensive industries such as apparel and footwear in the 1960s and then to develop more capital-intensive industries following Japan in the 1970s and 1980s.

A third wave of trade-led industrial growth then began to take hold as Southeast Asian economies adopted export-oriented policies in the mid-1970s and early 1980s, with rapid growth in exports of labor-intensive manufactures. By the mid-1980s, the ASEAN countries started exporting electrical and nonelectrical machinery and other more sophisticated products. Finally, the PRC and Viet Nam emerged as fast-growing exporters of labor-intensive manufactures in the late 1980s and early 1990s. International trade provided an environment conducive to rapid industrial growth and transformation of the predominantly agricultural economies of East and Southeast Asia into modern industrial economies in a remarkably short period of time by historical standards. Openness to trade is still a catalyst for further industrial growth in East and Southeast Asia today as the following sections will demonstrate.

World trade shares of East and Southeast Asia are presented by Harmonized System (HS) chapter categories for 1995 and 2004 (the latest year that data are available) in Appendix Table A1.6.1.²

The major HS chapter categories are given in Table 1.6.1. These categories' shares in total world trade for 1995 and 2004 are shown in Table 1.6.2.³ The most striking changes in shares in the current dollar value of global trade over the decade are in HS 27 (mineral fuels) with a huge jump from under 7% to over 10% and in HS 28-38 (chemicals and allied products) with an increase to nearly 11% from 9.5%. Other than minerals (HS 25-26), the only categories to show increases are in machinery sectors: HS 85 (electrical machinery), HS 86-89 (transportation machinery), and HS 90-91 (precision instruments). It should be kept in mind that the declining shares of HS 50-60 (textiles) and HS 61-63 (apparel) are likely to be artificial as most of these products remained under global quotas during the period in question, despite integration of about half the tariff lines under the Agreement on Textiles and Clothing (GATT 1994) over the period in question.⁴ Machinery sectors (HS 84, HS 85, and HS 86-89) were by far the most important in terms of world trade shares with 38% in 1995 and 39% in 2004.

The East and Southeast Asian region shows a remarkable concentration in these machinery sectors over 1995-2004. The share of East and Southeast Asia in world exports rose from 31% to 35% in HS 84; from 48% to 54% in HS 85 and from 21% to 22% in HS 86-89. East and Southeast Asia also managed to increase the share of exports in three of the other main expanding sectors: HS 25-26 from 10% to 11%; HS 28-38 from 16% to 17%; and HS 90-91 from 33% to 36%. Hence, it can be seen that aside from HS 27 (mineral fuels), East and Southeast Asia have concentrated their exports on the fastest growing segments of global trade over the most recent decade. Export shares of East and Southeast Asia in world trade have also increased in HS 50-63 (from 38% to 39% for textiles and from 42% to 43% in apparel). Figure 1.6.1 shows that East and Southeast Asia have lifted their share of world exports over the decade from 25% to almost 28% when Japan is included and from 17% to 21% when Japan is excluded. The increase in the PRC exports relative to world trade has been particularly impressive over 1995-2004.

Import shares of East and Southeast Asia are shown in Figure 1.6.2 and are roughly constant when Japan is included but rise from about 17% to 18% when Japan is excluded. The PRC share in world imports nearly doubled over 1995-2004, from 3% to 6%. The share of East and Southeast Asia in world imports of electrical machinery (HS 85) increased sharply over 1995-2004 from 34% to 39%. There was also a sharp jump in the share of the region in world imports of precision instruments from 26% to 34%. The world import share of the region in nonelectrical machinery (HS 84) also increased modestly from 23% to 24%. In contrast, the share of the region in world imports of transportation goods fell very sharply from 12% to 8% (9% to 6% excluding Japan) reflecting the relatively slow growth of imports in the region (Table 1.6.3) of around 2% annually. Only the PRC experienced high import growth in transport equipment during 1995-2004 within the region. Still the period has seen the emergence of the region as a supplier of markets outside the region of transportation equipment.

These data on world export and import market shares of East and Southeast Asia indicate that the region has a huge surplus on the trade account in the balance of payments and this surplus has built up following the recovery from the Asian financial crisis of 1997-1998. The ASEAN-5 countries' decline in world import share is mirrored by their increase in world export share and move from deficit to surplus in 2004 compared with 1995. The PRC shows a similar pattern of shift from trade deficit to surplus. The NIEs increase the surplus of export shares over import shares in global trade. These surpluses help explain the large increase in foreign exchange reserve holdings of East and Southeast Asia.

The PRC has become a dominant force in global trade in labor-intensive manufactures (HS 50-60 [textiles], HS 61-63 [apparel], HS 64-67 [footwear, headgear and umbrellas]) but has also become a player in HS 84 (nonelectrical machinery) and HS 85 (electrical machinery) (especially in office and computing equipment) and HS 90-91 (precision instruments). Japan remains a dominant player in HS 86-89 (transportation equipment).

Growth in world trade by HS chapter categories and growth in East and Southeast Asia (1995-2004), measured as compound annual growth rates are shown in Table 1.6.3. Setting aside mineral fuels, growth over the period is fastest in manufacturing sectors: (1) HS 28-38 (chemicals); (2) HS 85 (electrical machinery); (3) HS 90-91 (precision instruments); and (4) HS 86-89 (transport equipment). The PRC has double-digit growth across the machinery sectors with imports growing alongside exports suggesting trade in parts and components may be expanding rapidly. Growth rates of some machinery exports of the NIEs and ASEAN-5 are double digits as well suggesting complementary growth with PRC exports in these sectors. Export growth of East and Southeast Asia in these categories thus surpassed growth in world trade (Figure 1.6.3).

It is important to ascertain the relative importance and roles of intermediate and components trade versus final demand growth in this dynamic Asian trade (see below). Growth rates of exports of labor-intensive manufactures from East and Southeast Asia (excluding Japan) also exceeded world trade growth in these sectors, indicating that East and Southeast Asia continued to gain market share in these segments (Figure 1.6.4). This performance was related to the entry of the PRC into WTO in late 2001 and to Viet Nam's emergence at the same time. Viet Nam concluded a bilateral trade agreement (BTA) with the United States in late 2001 that facilitated entry of its clothing exports into the large US market.

National import and export baskets of East and Southeast Asia are shown in detail in HS categories in Appendix Table A.1.6.2 (% share of total imports and exports for each country/customs territory). Shares of electrical and nonelectrical machinery in imports and exports are rising in most East and Southeast Asian countries. Korea shows dynamic gains in export share of transport equipment as does Japan. Despite PRC dominance in world exports of textiles and clothing, these sectors have become less important in the PRC's national export basket indicating that the PRC is evolving in line with the previously observed pattern of industrial development of Japan, the NIEs, and ASEAN by moving into higher skill and technology exports. This again reinforces the view that international trade is facilitating industrialization and structural change in the region. Asia is well-positioned given the rapid global growth in the machinery sectors and the recent freeing up of trade in textiles and apparel.⁵

The parallel rise in imports and exports in electrical machinery (HS 85) and nonelectrical machinery (HS 84) in East and Southeast Asia underscores the rising importance of intraregional trade in intermediate parts and components. The Philippines; Malaysia; Singapore; Hong Kong, China; and Taipei,China all have very high import and export shares in HS 84 and HS 85, with the Philippines having more than three quarters of total exports in just these two sectors. In contrast, Viet Nam has a low but fast growing share of exports in HS 84 and HS 85 (1% in 1995 up to close to 7% in 2004) but has even higher import shares of HS 84 and HS 85. Indonesia, like Viet Nam, has fairly low shares of electrical and nonelectrical machinery in its export basket, but the shares have grown rapidly and the combined sectors' share rose from 7% to 16% of total exports between 1995 and 2004.

Viet Nam has high and rising shares of exports in HS 61-63 (apparel) and HS 64-67 (footwear, headgear and umbrellas), reflecting the importance of labor-intensive manufactures in its export basket. Viet Nam also has a relatively high share of HS 50-60 (textiles) in its import basket (9% in both years) reflecting its reliance on imported yarns and fabrics to support its export of apparel. Viet Nam also has among the highest share of mineral fuels (HS 27) in its export basket in the region (with about 20% in 1995 and 21% in 2004). In contrast to Viet Nam, Indonesia had a drop in its share of mineral fuels in exports from over 25% in 1995 to under 18% in 2004. Viet Nam also had the largest share of unprocessed agricultural exports in its export basket but these shares (over 31% for HS 01-10 in 1995) were down very sharply in 2004, reflecting the rapid growth of manufacturing there.