Catalog

The rise of trade in parts and components in
machinery sectors

Trade in intermediate products has become very important for East and Southeast Asian trade in electrical machinery, transportation equipment, and nonelectrical machinery. This phenomenon may be observed by looking at more detailed SITC 4-digit products within these sectors. For example, in electrical machinery the number one 4-digit product group traded is SITC 7649 (parts of apparatus of division 76-electrical machinery) in the imports and exports of Japan, PRC, NIEs, and ASEAN-5 taken individually and as a whole. Whereas trade in intermediates accounts for one half of world trade in electrical machinery in 2004, it accounts for 56% of imports and 60% of exports of East and Southeast Asia (including Japan). Growth of trade in SITC 7649 in East and Southeast Asia has exceeded 14% a year between 1995 and 2004 compared with 12% globally.

Growth of exports has been even more dynamic-if one excludes Japan, the growth rate of exports is nearly 18% in East and Southeast Asia. Thus, the share of trade in parts and components in this one 4-digit category in East and Southeast Asia rose from 50% of imports of electrical machinery and 45% of exports of electrical machinery to 57% and 61% of such imports and exports, respectively. In global trade the shares increased from 38% to 50% over the same time period indicating that East and Southeast Asia trade even more intensively in these intermediate goods than does the rest of the world. These figures actually understate the importance of trade in intermediate goods as certain other 4-digit SITC groups (i.e., SITC 7757 and SITC 7783 are aggregates of parts and final goods that cannot be broken down further in the data).

In transportation equipment, SITC 7849 (other parts and accessories of motor vehicles) is the leading 4-digit product group in the imports of transport equipment in PRC, NIEs, and ASEAN-5 individually and is the second largest category in Japan. SITC 7849 is the second largest category within transportation equipment exports in Japan and the NIEs and is the largest category in both the PRC and ASEAN-5. The share of SITC 7849 in total imports of transportation machinery in East and Southeast Asia rose to 43% in 2004 from 28% in 1995 (excluding Japan the increase was from 33% to 46%). In terms of exports, the share of SITC 7849 was constant over the period at 23%, but if Japan is excluded the increase was from 17% in 1995 to 27% in 2004. In global trade the share of SITC 7849 actually fell from 27% to 26%. Growth in exports of SITC 7849 in East and Southeast Asia excluding Japan was 20% per year over 1995-2004 compared with global growth of 7% per year.

It is more difficult to disaggregate trade in intermediate products in the other machinery sectors. However, within nonelectrical machinery, SITC categories 7414, 7492, 7591, 7499, and 7139 consist wholly or partially of parts and components and accounted for 17% of exports of East and Southeast Asia (excluding Japan) in 2004 compared with 15% in 1995. Growth in exports of these 4-digit product groups from East and Southeast Asia excluding Japan exceeded world growth in each category.

The PRC is a real source of growth of intraregional trade and is known as the assembly point of final goods for export to third markets outside the region. The growth in intraregional trade in electrical machinery parts and components (SITC 7649) has been most rapid with the PRC (Table 1.6.8). The value of this trade in terms of PRC imports increased fourfold between 1995 and 2004 (from $5.1 billion to $25.4 billion-see Table 1.6.9). The share of the region in the total amount of East and Southeast Asian trade in electrical machinery parts and components rose from 84% to 86% over this period and from 63% to 72% if Japan is excluded (Table 1.6.10). The integration of the region in parts and components trade is driven however, by final demand outside the region. This can be seen in the aggregate data for HS 85 with exports to the world rising from $307.5 billion in 1995 to $688.5 billion in 2004 compared with imports rising from $215.5 billion in 1995 to $490.0 billion in 2004.

At the individual product level, dependence on final demand outside the region also appears to loom large in electrical machinery. For example, SITC 774 (electrical apparatus for medical purposes) is a fast rising export sector with exports from East and Southeast Asia to the world rising from $0.7 billion in 1995 to $1.8 billion in 2004 but intraregional share actually fell from 26% in 1995 to 22% in 2004, implying extraregional demand was critical for export expansion in this type of final good.

In transportation equipment, growth in intraregional trade in automotive and vehicular parts and components (SITC 7849) has also been most rapid in the PRC (Table 1.6.11). Intra-Asian trade in vehicular components doubled in value between 1995 and 2004 (rising from $7.0 billion in 1995 to $14.9 billion in 2004-Table 1.6.12).

Intraregional trade in East and Southeast Asia as a share of East and Southeast Asia's global trade in SITC 7649 rose from 59% in 1995 to 65% in 2004 (Table 1.6.13). The most significant final demand product in the transportation machinery sector at the SITC 4-digit level is passenger motor cars for transport of passengers and goods (SITC 7810). The amount of trade in passenger cars by country in the region grew by 9% per year over 1995-2004 (Table 1.6.14), or by 18% if Japan is excluded. The value of trade more than doubled from $3.9 to $8.8 billion (Table 1.6.15). However, intraregional trade in passenger cars accounted for only 21% of the total in 1995 and rose to around 41% in 2004, implying that the greatest share of final demand for motor cars produced in the region still lay outside the region (Table 1.6.16) even though growth in final demand within the region was strong in this case.

It is particularly clear that final demand in the PRC has been a motive force for expansion in intraregional trade in motor cars with PRC accounting for $3.2 billion in 2004-a tenfold increase over the value of trade in 1995 (Table 1.6.15). Auto exports from Japan and the NIEs to the PRC made huge gains between 1995 and 2004. By way of contrast, exports from the PRC of final passenger cars to East and Southeast Asia were just $12 million in 1995 and grew to $49 million in 2004 and these accounted for 37% of all cars exported by the PRC in 1995 but just 13% in 2004-again indicating that final demand outside the region was predominant. This indicates that the PRC plays a role as both an assembler and exporter of final demand goods in some sectors but serves as a major source of final demand in others.

In considering the role of the PRC in the region's trade and industrialization, it is important to keep in mind the rise in intra-industry trade (based largely upon intrafirm trade of multinational enterprises and their affiliates in the region and beyond) and to understand the PRC's own industrial transition toward more sophisticated manufactures despite its apparent dominance in labor-intensive industries. The PRC imports capital equipment and components in machinery (HS 84-85) from within the region that are greater than its own intraregional exports of these items. However, its global exports in these sectors exceed its global imports indicating that it is reliant on external demand as an assembly point for final goods within the production chain of the multinationals. Thus, one can make the case that the PRC, far from being responsible for "de-industrialization" is providing a complementary role to the rest of the region. These issues are examined in the following section.