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1. China ’ s High Economic Growth

1. China ’ s High Economic Growth. China’s economy grows 9.9% in 2005 China’s economy is growing at the average rate of 10% since 2003 The growth of China’s economy outpaces other East Asian countries. Annual GDP Growth Rates(%). 2. China ’ s Increase in U.S. Market Shares.

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1. China ’ s High Economic Growth

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  1. 1. China’s High Economic Growth • China’s economy grows 9.9% in 2005 • China’s economy is growing at the average rate of 10% since 2003 • The growth of China’s economy outpaces other East Asian countries Annual GDP Growth Rates(%)

  2. 2. China’s Increase in U.S. Market Shares • China emerged as the 3rd highest exporting country • China’s export stood at US $762 billion in 2005 • Major exporting goods have changed from fabrics, clothing and shoes to high-tech products such as electronics • China increased its shares in the U.S. market rapidly -Market share increased from 3.1% in 1990, 8.2% in 2000, and to 14.6% in 2005 - China’s increase in market shares caused a “crowding out effect” of other Asian countries US market shares by East Asian Countries

  3. 3. Sluggish investment of East Asia • Due to the lack of competitiveness in exports, investment of East Asian countries has stagnated • Investment rates of East Asia countries have drastically fallen in the wake of the financial crisis • Before 1995, investment rates stayed around 40% in Thailand and Malaysia • Due to restructuring, investment rates have sharply fallen since the financial crisis Investment Rates of East Asian Countries

  4. 4. Increase of foreign exchange reserves • Current account surplus of East Asian countries - Due to sluggish investments, East Asian countries have recently recorded current account surpluses • East Asian countries have accumulated huge foreign exchange reserves • As of late 2005, foreign exchange reserves increased to US$821 billion in China and US$70 billion in Malaysia • With ample sovereign liquidity, East Asian countries’ need for foreign direct investment has been mitigated except for the purpose of technology transfer

  5. 5. Rising India and diversion of Investment • India is gaining worldwide attention on its rapid growth since 2003 • Growth rate rose from 4-5% to over 8% • GDP growth: 8.5%(2003) → 7.5%(2004) → 8.4%(2005) • Increasingly shifting focus toward East Asia from the traditionally favored Western countries - EU and the US were India’s core target markets • Strengthened relations with Southeast Asian countries, China, Japan, and Korea since 2000 • India’s economic growth could cause investments to move away from other East Asian countries and into India. - It presents a new challenge for investment cooperation among East Asian countries.

  6. 6. Changes in China’s Investment Environment • China’s change in foreign direct investment environment • Higher production costs in existing industrial areas • Expected to impose a stricter policy against FDI by the Chinese government • Abolish corporate tax benefits • Establish anti-monopoly law, strengthen workers’ rights - Increase in Chinese nationalism • Korea and Japan want to adjust to the changing investment environment • Concerns over anti-Japanese sentiment in China triggers Japan to act cautious toward investments into China. • Korea is wary towards investments into China • Sixty percent of Korean manufacturers’ foreign investments are directed towards China Korean Manufacturers’ Investment in China

  7. 7. East Asian FTA and Change in Cooperation for Investment • Change in corporate strategy amid a growing trend of FTAs in East Asia • Change in the multinationals’ stance on AFTA • Companies also likely to prepare for China-ASEAN • FTA • Some multinational companies expand production in ASEAN to cope with India-Thailand, India-Singapore FTAs - Sony suspends TV production in India, and instead exports the volume produced in Thailand to India FTA Network in Asia Joint study China Korea Japan Suspended Under Negotiation Effective from July 2005 Under Negotiation ASEAN10 Under Negotiation (to be effective In 2007) Joint study Joint study started Negotiation for CEPA India Sony’s Strategy over India-Thailand FTA export export Singapore (cathode ray tube) Thailand (TV assembly) India (Market)

  8. 8. Japan seeking China+1 • Japanese companies are looking towards alternative countries to cope with the risk China brings - Increases investment in ASEAN • Investment to Vietnam surges Japanese investment into Vietnam Japanese investment into ASEAN-4(US$ million)

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