China integrates Asia with the world: an empirical study

DOIhttps://doi.org/10.1108/JCEFTS-06-2013-0022
Publication Date27 May 2014
Pages70-89
AuthorSoumyananda Dinda
SubjectEconomics,International economics
China integrates Asia with the
world: an empirical study
Soumyananda Dinda
Department of Economics, Sidho Kanho Birsha University, Purulia, India
Abstract
Purpose – The aim of this paper was to focus on China’s economic integration with Asia region and
the world. It also attempts to nd the long-run relation with short-run dynamics of China’s trade in Asia
and the world.
Design/methodology/approach – The augmented Dickey–Fuller and Phillips–Perron methods are
applied to test the time-series properties of the variables. Co-integration technique is used to detect the
economic integration of China’s export to the USA and its import from Asian nations using monthly
aggregate data from December 2005 to July 2010.
Findings – This study observed that empirically China’s export to the USA depends on exchange rate
and China’s import from Asia depends on China’s export to the USA. China has double role in
international trade – China acts as an attractor of all inputs from Asia, and China exports the nal
products in international market. This study also reveals that the speed of China’s import from Asia is
faster than that of China’s export to the USA.
Research limitations/implications – This study has some limitation in terms of data availability,
and choice of methodology like the Gravity model
Practical implications – The results imply that China’s trade should be treated as an engine of
growth in the Asian developing countries and the trade promotion policies should be encouraged. The
emerging China will create other opportunities through trade integration with Asia and the world.
Social implications – These empirical ndings will help policy-makers formulate their policy and
design the mechanism for application as per their targets.
Originality/value China is economically integrated with the region and the world. The paper
contributes to measure the speed of China’s export and import in short run within Asia and the world.
These empirical ndings will help policy-makers to formulate their policy and design the mechanism
for application as per their targets.
Keywords China, Asia, Co-integration, Double engine of growth, Economic integration,
Long-run equilibrium with export and import, Short-run dynamics, ECM
Paper type Research paper
1. Introduction
China’s foreign trade has increased since the 1980s. Now, no one can deny China in the
global arena. With huge trade surplus, China is making room in the world economy
(Rodrik, 2010). What is the role of China in Asian and global trade? This paper focuses
on China’s economic integration with the Asia region and the world. Feenstra and Wei
(2009) nicely introduced China’s growing role in world trade with connecting regional
levels. China has already started to dominate the world business with huge trade
surplus. This paper focuses on empirical relation of China with Asia and the world. This
The author is grateful to anonymous reviewers for their valuable comments and suggestions on
earlier drafts of this paper.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1754-4408.htm
JCEFTS
7,2
70
Journal of Chinese Economic and
Foreign Trade Studies
Vol. 7 No. 2, 2014
pp. 70-89
© Emerald Group Publishing Limited
1754-4408
DOI 10.1108/JCEFTS-06-2013-0022
study also attempts to nd the long-run relation with short-run dynamics of China’s
trade in Asia region and the world.
Recently, most of Asian emerging economies recover slowly from the global
economic crisis which started in 2008. China plays a crucial role in the post-crisis era in
the international and regional level. China shares the production and production
processes with its neighbours and reorganise the industrial production in Asia
(especially in the East and South East Asia). China acts as a global player in the
supply-driven economy, which is based on production network in Asia. Industrial
production in Asia propelled China to the top of world exporters (Kumar, 2011;Zhou
et al., 2013). China is the most important strategic and decisive player in the “factory
Asia” and in the international market. The question that now arises is: “How does China
integrate Asia region with the global market?”
There is evidence on the level of integration between China and its Asian neighbours
(Robertson and Xu, 2010). China’s main imports from ASEAN-4 (Indonesia, Malaysia,
Thailand and Philippines) is low-tech manufacturing goods, whereas durable goods is
the main import category from the developed Asian region [Japan and newly
industrialised economies (NIEs)]. In 2010, the share of Chinese exports of more
sophisticated manufacture has risen substantially with exports in machinery and
transport equipments (nearly 20 and 18 per cent of the Chinese exports to Asia and the
USA, respectively). In economic activity and trade, China is highly integrated within the
East and South East Asia region. Truly, China is the regional engine of economic
development, which is observed its deep involvements in the international production
networks (IPN), especially for automotive industry. This supply creates a huge input
demand that China imports from the East and South East Asia region.
The changes in the industrialisation strategies of developing Asian countries and
their subsequent adoption of deeper liberalisation of FDI and trade policies[1] have
initiated and developed production networks within the East Asian region (Qiang, 2013;
Kumar, 2011). China becomes the central attractor in the region and pulls up Asian
nations. Asia exports to China to full its input demand. With low-production cost (the
cheap inputs: labour and raw materials) China pushes the comparatively low-price
products in the international market. China plays a double role – it acts as an attractor
for Asian inputs, and it supplies all the products in the international market. Thus,
China is integrated with the world market. In this paper, the USA represents the
international market.
China pushes the products into the world market at relatively cheaper prices, pulling
poor Asian economies (Wei and Chunming, 2012). China is the main engine of driving
growth in South East Asia. This Chinese growth engine pulls the demand for produced
goods from South East Asia, while it pushes these products in a competitive way to the
rest of the world, especially to the most developed countries like the USA and European
Union (EU). China acts as double engine[2] of growth. During the crisis, China adopted
some stimulus package to boost up its internal domestic demand, which helped to raise
the regional trade sharply.
The global economic crisis[3] in 2008 originated in the most developed economies and
automatically they have traded the crisis with the rest of the world. The economic crisis
spread and widely affects the world causing signicant decline in trade, employment
and production. Obviously export markets disintegrate quickly and export-led growth
economies search alternative way out of it. One of their efforts was to generate internal
71
China integrates
Asia with the
world

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