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IMF assesses China
HOME > PAST ISSUE > MAGAZINE ARTICLEJune 2004
The International Monetary Fund released its World Economic Outlook survey in April, and took a deservedly detailed look at the effect of China's economic rise on the rest of the world.
In the section entitled "China's emergence and its impact on the global economy," the survey compares China's economic integration to that of other countries, examines the characteristics of countries poised to benefit or suffer from China's growth and inquires how countries can maximize the benefits of China's emergence on their own economies. Some excerpts:
"�Although China's experience so far is broadly in line with previous historical episodes of rapid integration, including the post-World War II experiences of Japan, the Asian newly industrialized economies (NIEs), and ASEAN-4 countries, in the long run China is likely to play a much larger role in the global economy as its per capita income levels catch up with other emerging market economies in the region. While China itself clearly stands to gain the most from its growth, the impact on the rest of the world as a whole will also be beneficial, although likely smaller than the impact of other prospective global changes, such as multilateral trade liberalization, over the next decade or two."
"...advanced economies will benefit from cheaper labor-intensive imports and greater demand for skill-intensive exports, while developing countries will see increased opportunities for exports to China, both of primary commodities and of manufactures for re-processing and re-export. However, countries whose factor endowments are similar to China's, and which compete most closely with it in world markets, will need to undertake sizable adjustments and display flexibility in product and labor markets, in order to avoid significant losses. In general, to maximize the gains from China's emergence, countries will have to increase the flexibility of their economies through structural reforms and speed up their own integration into the global economy. The advanced economies could significantly help any countries affected adversely by removing constraints on world trade, for instance in agricultural products."
"Most regions benefit from increased Chinese demand for their exports, and cheaper labor-intensive imports. However, labor-abundant regions that have limited direct trade with China and supply it with few intermediates, such as South Asia, face more intense Chinese competition and lower prices for their labor-intensive exports, while commodity importers face higher prices owing to greater Chinese demand. Overall, South Asia is the only net loser, while the Middle East and North African region is on average the largest gainer, reflecting its substantial exports of oil and other primary commodities."
The big picture
"�Although China's experience so far is broadly in line with previous historical episodes of rapid integration, including the post-World War II experiences of Japan, the Asian newly industrialized economies (NIEs), and ASEAN-4 countries, in the long run China is likely to play a much larger role in the global economy as its per capita income levels catch up with other emerging market economies in the region. While China itself clearly stands to gain the most from its growth, the impact on the rest of the world as a whole will also be beneficial, although likely smaller than the impact of other prospective global changes, such as multilateral trade liberalization, over the next decade or two."
Winners and losers
"...advanced economies will benefit from cheaper labor-intensive imports and greater demand for skill-intensive exports, while developing countries will see increased opportunities for exports to China, both of primary commodities and of manufactures for re-processing and re-export. However, countries whose factor endowments are similar to China's, and which compete most closely with it in world markets, will need to undertake sizable adjustments and display flexibility in product and labor markets, in order to avoid significant losses. In general, to maximize the gains from China's emergence, countries will have to increase the flexibility of their economies through structural reforms and speed up their own integration into the global economy. The advanced economies could significantly help any countries affected adversely by removing constraints on world trade, for instance in agricultural products."
On growth and integration
"Most regions benefit from increased Chinese demand for their exports, and cheaper labor-intensive imports. However, labor-abundant regions that have limited direct trade with China and supply it with few intermediates, such as South Asia, face more intense Chinese competition and lower prices for their labor-intensive exports, while commodity importers face higher prices owing to greater Chinese demand. Overall, South Asia is the only net loser, while the Middle East and North African region is on average the largest gainer, reflecting its substantial exports of oil and other primary commodities."
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