GEOG 240

Topic 5: Globalization, Trade & Investment in Asia-Pacific

Francis YeeCamosun College

Abbreviations FTA – Free Trade Area WTO – World Trade Organization APEC – Asia Pacific Economic Cooperation GATT – General Agreements on Trade and Tariff ASEAN – Association of Southeast Asian Nations NIE – Newly Industrialized Economies FDI – Foreign Direct Investment TNC – Transnational Corporations NIDL – New international division of labour

OutlineI. Trade and Investment Policies II. Foreign Trade III. Foreign InvestmentIV. Globalizing China

I) Trade and Investment Policies – shifting from import substitution in the early phase to outward looking policy in later phrase

A)  Import Substitution

encourage domestic production,

restrict imports by tariffs, quotas, and licensing;

reduce trade deficits

 

Malaysia has adopted an import substitution program until late 1970s (Photo by F. Yee 2007)

B. Outward Looking Policies Trade and investment

encouraged remove restrictions

on imports & exports Incentives provided to

TNCs (tax holidays, reduced fees on land and utilities)

Reduce government red-tape

Vietnam adopted an outward looking policies by opening up for foreign investment since the late 1980s (photo by F. Yee 2010)

II)  Foreign Trade

A)    Growth PatternB)     Structure of TradeC)    Trading Partners 

C

hina

(1st)

Ja

pan

(4th

)

S. K

orea

(6th

)

S

inga

pore

(1...

Hong

Kong

(13t

h)

Taiw

an (1

9th)

In

dia

(21s

t)

M

alay

sia (2

4th)

T

haila

nd (2

5th)

In

done

sia (2

7th)

-

500

1,000

1,500

2,000

2,500 2,060

768 553 443 436

300 291 228 226 188

Top 10 Exporters of Goods and Services in Asia, 2012

Countries (World ranking in exports)

Tota

l Exp

ort

s (U

S$

billion

s)

Source: UNCTAD 2013

A. Exports: Major global exporters

A. Export Growth: double digital growth in most years and faster than world average

1980 - 1990 1990 - 2000 2001 - 2011

World 5.9825282314 6.7455884129 11.2733381009

E Asia 14.9106894303 9.9772659991 15.672083579

SE Asia 6.1883141336 11.1496263268 12.2273853681

1

3

5

7

9

11

13

15

17

Export Growth in Asia, 1980-2011

Ave

rag

e A

nn

ua

l G

row

th R

ate

(%

)

Source: UNCTAD 2012.

Impact of Global Crisis on Asia’s Exports: drastic drop in late 2008 & early 2009 but rapid rebound in 2010-11. Global exports weakened in 2012.

2007 2008 2009 2010 2011 2012

World

15.6139757964

15.1789393463

-22.24246

88256

21.7344241154

19.8700455819

0.4468685884

E Asia

18.8136172351

13.264673863

-15.37388

73245

29.6064603015

18.3825408637

5.3616544709

SE Asia

12.429074699

14.3803785426

-17.77156

74185

29.003195762

17.8087219316

1.2620973844

-25.0

-15.0

-5.0

5.0

15.0

25.0

35.0

Export Growth of Goods, 2007-2012

An

nu

al G

row

th R

ate

(%

)

Source: UNCTAD 2013.

Asia Pacific Exports: increasing share of world exports from Asia

1980 1990 2000 2010 20120

5

10

15

20

25

30

7

12

19

25 25

Global Share of Exports by E & SE Asia, 1980-2012

Year

% o

f W

rold

Exp

ort

s of

Good

s an

d S

erv

ices

Source: UNCTAD 2013

B. Trade Structure larger share of manufacturing in

Asia than world average

Agricultural Fuels & Mining

Iron and steel

Chemicals office equipment

Automotive Textile & Clothing

Others

World 8.5358991002

22.4615300419999

3.7361034547

10.851150672

9.93453472 7.84861100879999

3.8944871867

30.2763683888

Asia 5.9735266038

12.409908471

4.1546491216

7.47671936410001

20.8996031 6.65999397779998

7.17171559039999

32.8424755011

2.5

7.5

12.5

17.5

22.5

27.5

32.5

Export Structures in Asia and the World, 2008

% o

f Tota

l Export

s

Source: WTO 2010

Asia’s Export Structure most of the merchandise exports from Asia was in the manufacturing sector, particularly the office and telecom equipment sector.

Rest of world48%

NIEs14%

Japan8%

China12%

India2%

Aus & NZ3%

Other Asia12%

Intra-regional Exports in Asia 2010

Source: UNESCAP 2011

C. Destinations of Asian Exports: intra-regional exports increased 2.5 times between 2000-2009 to more than half of total in 2010

III)   Foreign Direct Investment

A. Objectives of FDIB. Sources of

InvestmentC. Sectoral StructuralD. Geographical

Distribution

A Canadian bank in Kuala Lumpur (Photo by F. Yee, 2007)

A)    Objectives of FDI

1. Resource access Control and ownership of oil,

minerals, and other resources

2. Market oriented Open new market or Increase

market share in host countries

3.Cost efficiency Reduce costs of land, labour,

and other factors of production

A Japanese TNC in Sydney, Australia (Photo by F. Yee 2006)

B. Flows of FDI to Asia: increased by 15 times and doubled its share of global FDI

1990 1995 2000 2005 2010 2012 1990 1995 2000 2005 2010 2012

FDI (US$billions)

22.088

73.69 142.731

160.64

290.38

326

% of world

10.6471282928828

21.4965621253271

10.1911332834954

16.3796856821521

22.1833291189235

24

25

125

225

325

Inflows of FDI to E & SE Asia, 1990-2012

FD

I

Source: UNCTAD 2013, UNESCAP, 2013.

C)     Sources of Investment in Asia

1. Pre-1970s: dominated by USA & Europe

2. 1970s-1980s: Japan became one of the major investors in Asia and invested heavily in N America & Europe in the late 1980s (as a result of currency appreciation and protectionism in core countries)

3. 1990s on : Asian NIEs began to invest in Asia and beyond (large trade surpluses provided the capital for investment)

4. 2000 on: China emerged as a new investor at the global level

Tokyo Stock Exchange is one of the top stock exchanges in the world controlling a large proportion of the capital flow to Asia (Photo by F. Yee, 2010)

Top Foreign Investors: dominated by developed economies but

increasing share by Asian countries

FDI from Asia: increasing investment from developing countries (NIEs)

1980 201202468

101214161820

3

Developing E & SE Asia; 13

4

Developed Asia; 5

Share of Global FDI Stock from Asia, 1980-2012

Year

% o

f G

lob

al FD

I

Sources: UNCTAD 2012

Japan’s FDI: the world’s largest

investor in late 1980s, stagnated since the 1990s and picked up again in the last 5 years (2011 total = US$962 billions)

0.0

2.0

4.0

6.0

8.0

10.0

12.0

3.6

10.4

4.5

Share of Global FDI Stock from Japan, 1980-2011

Year

% o

f G

lob

al FD

I S

tock

Japanese FDI

1970s: Resource oriented to secure energy and raw materials

1980s: reduce cost of production by relocating to LDCs

Mid-1980s – establish branch plants in Europe and N America for market access and address protectionism measures

A Japanese MNC in Singapore’s Science Park (Photo by F. Yee 2007)

TNCs from developing Asia: Total FDI stock from Hong Kong increased from US$12 billion in 1980 to US$1,046 billion in 2012

A privatized bridge built by Hong Kong investor in early 1980s in Fumen, China (Photo by F. Yee, 2005)

A major grocery chain owned by Hong Kong’s Hutchison Whampoa in Guangzhou, China (Photo by F. Yee 2005)

C. Sectoral Structure of FDI: concentrated in both the manufacturing and the service activities – several Asian countries have recently opened their service sector for FDI and provide a higher rate of return than the manufacturing sector.

Primary1%

Manufac-turing49%

Services50%

FDI in E & SE Asia 2012(M&As and Greenfield Projects)

Source: UNCTAD 2013

Location of FDI by Sector: Resource FDI concentrated in Indonesia (oil); Manufacturing FDI SE Asia, China; and Services FDI in Japan and NIEs

A Japanese industrial TNC in Guangzhou, China (Photo by F. Yee, 2005)

A French retail TNC in Singapore (Photo by F. Yee 2007)

D)    Geographical Distribution The destinations of FDI flow in Asia changed during

the last three decades. 1970s: most of the FDI split between NIEs

(Taiwan, Hong Kong, Singapore & S. Korea) [mainly for cost-efficiency] & ASEAN-4 (Philippines, Thailand, Malaysia, and Indonesia) [primarily resource oriented or for market access]

1980s: equally shared by NIEs, ASEAN-4, and China (open door policy and low labour costs)

1990s on: China became the leading recipient and received the lion’s share of FDI in the region [for both cost efficiency & market access]

Manufacturing Relocation China: Relocation from coastal to inland regions of China

(FDI to inland increased from 12% in 2008 to 18% in 2012) Labour intensive industries: some relocated from China to

SE Asia, e.g. Cambodia (labour costs 1/3 of China), Vietnam, and to Bangladesh in S Asia

Vietnam: Nike’s production increased from 25% in 2005 to 41% in 2012

Upgrades in China: Samsung has a joint venture in Suzhou to produce the latest generation of LCDs and a $7 billion facility in Xi’an to produce flash memeory (Samsung’s largest overseas investment)

(UNCTAD 2013)

Destinations of FDI Stock: Hong Kong, China, & Singapore topped the list

Hong Kong36%

China23%

Singapore16%

Indonesia6%

Others19%

Share of FDI Stock in E & SE Asia, 2011 (Total = US$3.1 trillion)

Source: UNCTAD 2012

IV. China’s GlobalizationA. Open Door PolicyB. Special Economic Zones and Economic

Development ZonesC. Foreign Trade and InvestmentD. China in SE Asia and Africa

A. Open Door Policy (1978 on)

promote foreign trade, encourage foreign investment, establish special economic zones, and import foreign technology

A banner in Shenzhen to support open door policy initiated by Deng Xiaoping (photo by F. Yee, 2009)

B. Special Economic Zones established in 1979 in Shenzhen, Zhuhai, Xiamen, and

Shantou (southern China) Encourage foreign investments from Hong Kong, Macau,

and Taiwan Provide tax incentives, lower land use and utility fees,

reduce import and export duties and restrictions, and lower cost labour

Shenzhen’s population exploded to over 10 million in 2010 and a per capita income of US$15,000 (highest in China)

Economic Development Zones: coastal cities and open economic regions 14 coastal cities were opened to foreign

investment since 1984, well established transport and industrial

infrastructures, connections to overseas Chinese communities e.g. Tianjin, Qingdao, Shanghai, Ningbo, Fuzhou,

Guangzhou

Open Economic Regions (1988 on)

attempts to diffuse the economic benefits of the open door policy and the SEZs to other regions

allows greater economic cooperation between the economic zones and cities

3 Open Economic Regions Yangzi (Chang Jiang) Delta

Economic Region (around Shanghai),

the Pearl River (Zhujiang) Delta Economic Region (around Guangzhou), and

the Minnan Delta Economic Region (around Xiamen)

Shanghai’s Pudong district experience a rapid urban and economic growth in the past decade (photo by F. Yee 2012)

C. Foreign trade and investment Largest trading nation in the world and large

trade surplus generated Both EU and US are important export markets for

China (40% of total) Joined WTO in 2001 after 10 years of negotiation

with US Expanding urban population with rising income,

are attractive for foreign corporations for trade and investment

China also has a large pool of labour force which makes it competitive in labour costs

China’s Export Market: led by US & EU

EU20%

U.S.18%

Hong Kong14%

Japan8%

S.Korea4%

Others36%

Export Destinations of China, 2010 (Total =US$1.6 trillion)

Source: WTO 2012

FDI in China Why China was able to increase its share the world’s total FDI inflows from 0.1% to 8% in the past three decades?

0.02.04.06.08.0

10.012.014.0

0.1

8.1

Global Share of FDI Flow by China, 1980-2011 (Total = US$124 billion in 2011)

Year

% o

f Tot

al

Source: UNCTAD 2012

American FDI in China

A retail giant in Kunming, China (Photo by F. Yee, 2002)

Large influx of FDI to China since1980s for both market access and to Reduce production costs. A photo of

Motorola in Beijing by F. Yee, 2007

Sources of China’s FDI: 70% from Asian countries

Hong Kong42%

Japan13%

S. Korea10%

Taiwan7%

Others28%

Sources of China’s FDI, 2010

Foreign Investment Spatial Patterns Concentrated in the South in early phase

but spread to the north when the 14 coastal cities were established

Investments in the interior, including Wuhan and Chongquing, began to emerge

Most FDI originated from Asian countries and directed into places with Chinese family ties in earlier place while increasingly investment pours into large cities, such as Shanghai, Beijing, Tianjin

D. China in SE Asia and Africa 1. SE Asia Economy: model of economic reform for SE Asia Culture - Expanded broadcasting and education exchanges

with SE Asian countries Migration - Increased in migration from Yunnan and other

border provinces to Burma and Laos Resources – rapid industrialization increased

China’s demands for lumber and minerals from SE Asia

2. China in Africa Oil resources – Africa became an increasing important

source of oil supply for China Non-intervention policy – China follows a policy of non-

intervention in other countries’ internal affairs Aid – extractive activities are combined with aid projects in

road construction and dam building Chinese exports – provided low cost products to consumers Conflicts – domination of local markets