China's Changing Trade and the Implications for the CLMV
Departmental Papers, September 1, 2016
Source details
- Canonical URL
- China's Changing Trade and the Implications for the CLMV
Other formats
Bibliographic details
- Authors: Koshy Mathai, Geoff Gottlieb, Gee Hee Hong, Sung Eun Jung, Jochen M. Schmittmann, Jiangyan Yu
- Published: September 1, 2016
- Series: Departmental Papers
- DOI: https://doi.org/10.5089/9781513544991.087
Overview
- China’s trade patterns are evolving: from light manufacturing and assembly within global supply chains to moving up the value chain, “onshoring” higher-value-added upstream products and moving into more sophisticated downstream products.
- Rising wages in China have led to an exit from some lower-end, more labor-intensive sectors.
- These changes occur within China’s broader rebalancing—away from exports and toward domestic demand, and within the latter, away from investment and toward consumption—which is associated with slowing demand for some commodity imports and slowly rising consumption imports.
Key Findings
- China is both upgrading production (higher-value-added upstream and downstream goods) and exiting low-end, labor-intensive sectors as wages rise.
- China’s rebalancing is shifting the composition of its external demand:
- Some commodity imports are experiencing slowing demand.
- Consumption imports are slowly rising.
- Cambodia, Lao P.D.R., Myanmar, and Vietnam (the CLMV) are open economies highly integrated with China and therefore exposed to China’s trade evolution.
- The CLMV’s low labor costs position them to potentially expand manufacturing assembly for export as China becomes less competitive in low-end labor-intensive production.
- Labor costs alone are insufficient for sustained gains; complementarities matter (infrastructure, education, governance, trade regimes, and sound macro policies).
Implications for the CLMV
- Potential challenges:
- Reduced role for commodity exports from the region if China’s commodity import demand slows.
- Potential opportunities:
- Expansion of manufacturing assembly for export to global supply chains as China shifts up the value chain.
- Rising Chinese consumption imports could create demand for goods produced in the CLMV.
- Conditionality:
- Gains depend on domestic reforms and policy settings in the CLMV to attract and integrate into higher-value supply chains.
Policy Recommendations for the CLMV
- Strengthen infrastructure to support manufacturing and connectivity with regional and global supply chains.
- Improve education to raise labor skills compatible with more sophisticated manufacturing tasks.
- Enhance governance to improve the business environment and investor confidence.
- Reform trade regimes to facilitate integration into regional and global value chains.
- Maintain sound macroeconomic policies to provide a stable environment for investment and trade.
Outlook
- With concerted policy efforts in infrastructure, education, governance, trade regimes, and macroeconomic management, the CLMV could see their trade and integration with global supply chains grow dramatically in the coming years.
By Koshy Mathai, Geoff Gottlieb, Gee Hee Hong, Sung Eun Jung, Jochen M. Schmittmann, and Jiangyan Yu; September 1, 2016.