|China's shift to import raw materials, intermediate goods and convert them into finished products for exports is deepening economic ties within the region and creating more opportunities for Asia markets [Getty]
In response to growing labour costs, China is increasingly turning to its neighbours to supply what it once produced locally - raw materials and intermediate goods, such as machine components and parts - to retain its international reputation as the 'factory to the world'.
"With no strong growth in demand from the developed markets, the prescription for Asia is to stoke its own consumption," Simon Tay, chairman of the Singapore Institute of International Affairs said. "China will be a huge part of that, with its growth, both overall and in the consumer market."
Expanding demand, fuelled by Beijing's strategic shift to reduce a costly component in its production line, offers other Asian countries a route to tap into China's growing dominance in global trade, say international trade and economic experts.
The mutual benefits from such expanding intraregional trade has not been lost on regional commentators taking stock of the continent's impact on the global economy as 2010 drew to a close.
"Economically, China is the hub for the region's future growth," wrote Tay in Thailand's ‘The Nation’ newspaper. Tay, who is also the author of ‘Asia Alone: The Dangerous Post-Crisis Divide From America’, says: "It is to Asia's credit that through the financial crisis and 2010, the region has continued to rise."
Pivotal to these deepening economic ties within the region in 2010 was China's economic engine shifting gears to import raw materials and intermediate goods and convert them into finished products for exports, says the Economic and Social Commission for Asia and the Pacific (ESCAP), a Bangkok - based UN body. "[It has helped] developing economies in the region [to post] double - digit growth for both exports and imports in 2010."
In 2010, developing countries in the region posted growth rates for exports and imports at 19.3 per cent and 20.2 per cent respectively, states ‘The Asia- Pacific Trade and Investment Report 2010’, an end-of-the-year annual review of the region's trade patterns by ESCAP.
ESCAP is quick to credit China's role in helping countries find new export markets at a time when export-driven economies in Asia were faced with less demand from traditional export markets in the US and Europe in the wake of the 2008 global financial crisis.
"The strong performance of exports and trade in general is the result of a vibrant China, which imports intermediate goods from the rest of Asia and exports finished goods to the rest of the world," the report notes. "Intraregional trade has increased but remains largely focused on intermediate goods."
ESCAP researchers point to China as being the major driver of intraregional trade that also involves Hong Kong, Taiwan, South Korea, Malaysia, Indonesia, Singapore, Thailand and the Philippines. They say that 82 per cent of intraregional exports "goes into further production and 17.5 per cent into final demand."
"The intermediate goods market in China is the shining star for 2010," Ravi Ratnayake, director of trade and investment at ESCAP said. "It has opened up new markets for Asian countries to export products and to diversify from only shipping finished goods to the US and European markets."
China's move toward importing and away from being the principle supplier of raw materials and intermediate goods to its factories in the electronics and textile sectors is rooted in the troubles that have been sweeping through the labour market in the country's industrial south-eastern coastal belt since 2009.
Some Chinese commentators have welcomed the rise in the labour costs and the government's decision to introduce a national minimum wage. "In the long term, the rise in labour costs will help China's economic and industrial structure reduce the economy's over dependence on low-value-added export products," wrote Shi Jianxun for the ‘People’s Daily’ in September in the wake of labour strikes and demand for better wages.
Rising costs have also seen more factories moving inland, away from the Pearl River Delta, where Shenzhen, the vibrant symbol of modern, rapidly industrialising China, is located. Shenzhen, which borders Hong Kong, began its ascent as a boomtown after it was declared a special economic zone in 1979.
China's shifting production model reflects a commitment to "move up in the industry value chain," says Ganeshan Wignaraja, principal economist at the Office of Regional Economic Integration at the Asian Development Bank (ADB). "China is becoming the giant of all types of industry."
The country has also gone from being the "centre for the parts and components trade in the 1990s to doing everything - parts and components, raw material and finished products - since the financial crisis," Wignaraja said during a telephone interview from Manila, where the ADB is based.
China's industrial sectors - ranging from steel, petroleum, metals, and foodstuffs to electric items and textiles - have helped boost its trade figures three decades after reformist leader Deng Xiaoping opened the communist state's economy in 1979.
In 1978, China's value of goods exported was $10 bn, or 0.6 per cent of world trade, a number dwarfed by the current value - $1.7 tn, or 8.5 per cent of world trade, according to ADB.
The country's high tech industries accounted for 11 per cent of the $1.7 tn export figure, while medium tech industries accounted for 15 per cent. Automobile components rank among the top exports among the high tech industries, accounting for 28 per cent, while plastic products account for 37 per cent of the medium tech products.
In 1985, by contrast, the total high and medium tech exports totalled 17 per cent, according to the regional financial institution.
A version of this article first appeared on the Inter Press Service News Agency.