China and Emerging Asia: Comrades or Competitors?

Alan G. Ahearne ; John G. Fernald ; Prakash Loungani ; John W. Schindler

Senior Economist, Division of International Finance, Federal Reserve Board, Washington DC, USA, Tel: +1-202-452-3733
Senior Economist and Economic Advisor, Federal Reserve Bank of Chicago, USA, Tel: +1-312-322-2116
International Moretary Fund, Washington DC, USA, Tel: +1-202-623-7000
Economist, Federal Reserve Board, Washington DC, USA, Tel: +1-202-452-3889

JEL Classification: F10, F31, O53

Abstract

Do increases in China's exports reduce exports of other emerging Asian economies? We find that correlations between Chinese export growth and that of other emerging Asian economies are actually positive (though usually not significant), even after controlling for trading-partner income growth and real effective exchange rates. We also present results from a VAR estimation of aggregate trade equations on the relative importance of foreign income and exchange rates in determining Asian export growth. Although exchange rates do matter for export performance, the income growth of trading partners matters even more. In addition, we examine specific products and find evidence that a considerable shifting of trade patterns is taking place, consistent with a 'flying geese' pattern in which China and ASEAN-4 move into the product space vacated by the NIEs. Overall, our results suggest that China and emerging Asia are both comrades (overall) and competitors (in specific products).

Keywords:

Exports, Trade links, Exchange rate, Trade equation, Flying geese

Acknowledgments

The views expressed here are those of the authors and should not be attributed to the Federal Reserve Board, the Federal Reserve Bank of Chicago, or the International Monetary Fund. This paper updates and extends the work contained in Fernald, Edison, and Loungani (1999), Loungani (2000), and Ahearne, Fernald, and Loungani (2001). We thank Clair Null, Amy Meek and Shanthi Ramnath for helpful research assistance and Steve Kamin, Jeremy Mark, Eswar Prasad, Thomas Rumbaugh, Vasuki Shastry, Nathan Sheets, and Xiaozu Wang for comments.

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