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UWA Business School
After experiencing three decades of rapid growth, China has overtaken Japan to become the second largest economy in the world. Alongside this, the value of China's international trade has grown at an even faster rate, bringing both opportunities and challenges for economies around the world.

As part of a new research project, Winthrop Professor Peter Robertson, from The University of Western Australia Business School, and Jessica Xu, Professor Robertson's former PhD student, have created an historical simulation to measure these opportunities and challenges.

The simulation indicates that the impacts of China's growth on its Asian neighbours are both positive and substantial. A decade of China's growth has raised GDP per capita in the developed Asian economies (Japan and Newly Industrialised Economies such as South Korea, Taiwan, Singapore and Hong Kong) by around 16%, and in the ASEAN-4 economies (Malaysia, Indonesia, Thailand and Philippines) by about 7%.

The main source of these gains, found the researchers, is the lower cost of durable goods imports, which encourages the accumulation of machinery and equipment capital by business.

The results also suggest that protectionist policies, or policies put in place by other Asian countries to protect local industries - for example, placing tariffs on Chinese imports - will limit the potential long-term benefits from China's growth.

‘Previous studies have shown mixed conclusions as to whether China's growth is a threat or an opportunity to its Asian neighbours,' said Professor Robertson. ‘Standard trade models suggest that the impacts of China's growth on other economies could be positive or negative depending on the similarity of their trade patterns.'

‘Our research aims to fill a large gap in the research by examining how China's growth impacts on important economic outcomes such as wages, incomes and inequality.'

‘We found that wages and GDP in Asian countries has increased steadily, in large part due to investment in new capital. The growth in the ASEAN-4 countries was lower than that in the developed Asian economies due to the ASEAN-4's emphasis on labour-intensive and low-tech industries. However, the GDP per capita growth rates (about 7%) in these countries are still large. In fact, the growth rates of these countries over the last several decades would have been substantially smaller in the absence of China's growth.'

The research used a quantitative assessment of the broad stylised facts about China's growth and trade bias focusing on their impacts on the developed Asian economies and the ASEAN-4 economies. The model incorporated inter-temporal optimisation regarding physical and human capital accumulation and consumption decisions, as well as multiple traded and non-traded sectors.

Media references

Heather Merritt
Director, External Relations
UWA Business School
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M: 0419 950 027
E: [email protected]

Verity Chia
Communications Officer
UWA Business School
T: +618 6488 1346
E: [email protected]