China's transformational effect on the world
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China's phenomenal growth over the past few decades has had a transformational effect on the world. To gain an appreciation of what this means, we need only look at countries such as Australia and Brazil, which have been enjoying an economic boom over the
The major driver of Brazil’s booming economy has been exports of commodities to China. Brazil is now the leading world exporter of iron, coffee, soybeans, orange juice, sugar and beef and China is Brazil’s largest trading partner, overtaking the United States in 2010. Brazil’s share of global GDP has risen from 1.3 percent in 2003 to 3.7 percent in 2010 and Brazil is now the 6th biggest economy in the world.
China has fuelled a similar economic phenomenon in Australia, with the key driver of growth a vast China-led mining investment boom. China’s FDI in Australia grew from $550 million at the end of 2006 to $12.82 billion in 2010, while for the same year China absorbed one-quarter of Australia’s exports and supplied one-fifth of its imports. This has contributed greatly to Australia’s growth rate averaging about 3% a year, outperforming most of the rest of the developed world. Australia is now the 13th largest economy in the world and one of the few countries that still enjoys a AAA credit rating.
In Southeast Asia, China is also a major investor and trading partner but there are some important differences between the countries of our region and commodity producers such as Australia and Brazil. China is facing rising costs and wages as well as resource constraints such as water and electricity so is looking to diversify its production base and Southeast Asia, with its abundance of resources, geographic proximity and large population, is a logical choice.
Foreign direct investment from China to ASEAN has increased more than a hundred-fold over the past seven years and this trend has accelerated since the ASEAN-China free trade agreement came into force in 2010.
A major focus of Chinese investment in Southeast Asia has been infrastructure such as airports, ports and waterways, gas pipelines, power stations and telecommunications. This will enable efficient supply chains to support fledgling manufacturing industries in countries such as Myanmar, Vietnam and Indonesia. Meanwhile, better infrastructure will help the region’s economies to prosper, thus ensuring a healthy and growing market for China’s products.
Just as the booming Chinese economy has contributed to rapid economic growth in many countries across the world, China’s current economic slowdown is also making itself felt. Approximately 12 percent of Thailand’s exports go to China and, in the first five months of this year, Thailand’s exports to China declined 2 percent, dragging down Thailand’s overall exports. The slowdown in China is particularly affecting commodities such as rubber that feed China’s manufacturing sector along with manufacturing products that are part of China’s supply chain. However, Thai exports that target the Chinese consumer market, such as food, should be more resilient.
With the global economy going through a difficult adjustment period, it is helpful that Thailand and China have established cooperative agreements to deepen economic ties. As both countries seek to rebalance their economies to strengthen domestic consumption, while diversifying their production bases, China and Thailand are on parallel tracks and I am sure there are many mutual benefits that can be achieved by working together.
