China: its impact on the developing Asian economies

Rapid Chinese centred growth in East Asia has led to the emergence of regional production systems. Those systems, however, do not affect all countries in the region equally: more advanced Asian economies are supplying parts and components to export-oriented assembly plants in China while the poorer countries of the Greater Mekong Sub-region (GMS) mostly sell raw materials and resource-based products. GMS countries are only minor trading partners for China while China is an important source of imported products for them.

China's impacts also differs from sector to sector:

• large imports of energy push oil prices up which has distributional consequences among and within Asian countries. Oil-based products account notably for a high percentage of the poor's spending
• GMS countries have considerable (hydro)energy potential, but run the risk ofcommitting to projects that harm their long term development
• China's need for East Asian timber has led to a rise in illegal exports. Over exploitation of forests and deforestation undermine the earning opportunities in the exporting countries
• as Chinese firms move up the value chain to compete with producers of parts and components in other Asian countries, producers from GMS countries might take their place
• there is no direct competition between Chinese final products and those from other Asian countries
• the massive inflows of FDI into China have not led to declines in FDI in other parts of Asia

• enhance connectivity to the regional production system through better infrastructure and better trade links
• enhance the sustainability and diversify away from resource-based export growth