Aplicación del procedimiento para el diseño de la estructura de procesos

Since China’s economic rise in the 1990s, East Asian RPNs have become gradually oriented towards the Chinese market, and this phenomenon has led to the redistribution of RPNs after 2000. There is much evidence to support this argument. Table 3.3.3 shows that there was a nearly three-fold increase in China’s share of intra-regional parts and components trade between 1995 and 2014. If Hong Kong is taken into account, the Chinese economy shared 57.13% of regional component trade in 2014. This figure supports the argument that China has played a central role in East Asian RPNs since the 2000s.

108 _{UN, “UN Comtrade Database”.}

Table 3.3.6 East Asian Economies’ Share of Japan’s Intra-regional Trade in Electronic Components (HS85+HS90) Year _{1990 1995 2000 2005 2010 2014} Brunei 0.02% 0.03% 0.00% 0.00% 0.01% 0.01% Cambodia 0.00% 0.02% 0.01% 0.01% 0.01% 0.04% China 8.07% 12.83% 21.16% 38.31% 50.11% 55.45% Hong Kong 20.23% 15.85% 13.94% 13.31% 9.98% 8.10% Indonesia 2.40% 2.79% 3.48% 2.34% 2.30% 2.16% Laos 0.01% 0.00% 0.00% 0.00% 0.00% 0.00% Malaysia 9.25% 14.35% 12.65% 6.99% 6.81% 5.35% Myanmar 0.07% 0.02% 0.04% 0.01% 0.01% 0.04% Philippines 3.14% 4.91% 8.33% 6.06% 3.97% 4.25% South Korea 25.93% 20.99% 19.01% 17.32% 11.68% 10.74% Singapore 22.07% 19.10% 13.08% 6.77% 5.37% 4.05% Thailand 8.62% 8.96% 7.60% 7.70% 7.52% 6.43% Vietnam 0.20% 0.17% 0.70% 1.18% 2.22% 3.36% Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Source: Calculated by the author based on data compiled from the UN Comtrade Database109

Furthermore, with respect to East Asian ICT supply chains; China has already integrated both the US-driven BDCCs and Japan oriented RPNs into its economy. Tables 3.3.4 and 3.3.5 demonstrate that China has played a central role in the US-driven BDCCs, and superseded Japan as the largest regional trading partner of both Taiwan and South Korea in electronic parts and components trade in 2005. Meanwhile, with the exception of Singapore, ASEAN developing economies’ share of both Taiwan and South Korean intra-regional electronic component trade had fallen to less than 3% by 2014. By the same token, Table 3.3.6 shows that China’s share of Japan’s intra-regional electronic parts and components trade has reached 50% since 2010, whereas Southeast Asian economies, such as Singapore and Malaysia, have fallen from double digits to 5% on average since 2010. So far, South Korea is the only East Asian economy that can sustain 10% of Japan’s electronic

109 _Ibid.

component trade.

In addition, it is noteworthy that this trend actually emerged after 1995, as Hong Kong captured a double-digit share of Taiwan, Japan and South Korea’s intra-regional electronic component trade in the 1990s (see Tables 3.3.4, 3.3.5 and 3.3.6). The main reason for this is that Hong Kong serves as an important gateway for both Taiwanese and South Korean ICT industries to connect their production lines in China with global customers, especially in Taiwan’s case.110 _Generally speaking, these statistics likely reflect the redistribution of ICT regional supply chains following China’s economic rise. Notably, it has further resulted in asymmetric economic interdependence between China and those economies focusing on the development of ICT industries.

The asymmetric interdependencies between China and those regional economies specializing in ICT industries can be double-checked by exploring the distribution of China’s intra-regional electronic component trade. Table 3.3.7 illustrates China’s major trading partners in electronic components trade in East Asia. South Korea and Japan were China’s major trading partners in intra-regional ICT component trade, as they shared 25.52% and 17.85% of such trade in 2014. In addition to Japan and South Korea, Hong Kong also occupied a large portion of China’s electronic component trade in East Asia as the ratio reached 32.67% in 2014, which may mirror the value of China’s ICT component trade with other East Asian economies. Besides, if one adds Taiwan into the calculation of China’s inter-regional ICT component trade, the share among those East Asian economies specializing in

ICT industries will be more equal. Obviously, in terms of ICT parts and components trade, whilst East Asian economies are relying heavily on the Chinese market (see Table 3.3.4, 3.3.5, and 3.3.6), China’s ratio is equally distributed throughout regional industrialized economies. As such, there has been asymmetric interdependence between China and Taiwan, as well as with South Korea, and even Japan.

Table 3.3.7 East Asian Economies’ Share of China’s Intra-regional Trade in Electronic Components (HS85+HS90) Year Countries 1995 2000 2005 2010 2014 Brunei 0.00% 0.00% 0.00% 0.01% 0.03% Cambodia 0.01% 0.03% 0.01% 0.03% 0.05% Hong Kong 35.25% 27.22% 26.96% 29.55% 32.67% Indonesia 0.71% 1.39% 0.98% 1.39% 1.53% Japan 48.69% 41.14% 27.08% 22.99% 17.85% Laos 0.02% 0.01% 0.01% 0.02% 0.15% Malaysia 1.77% 5.62% 7.85% 9.43% 8.21% Myanmar 0.19% 0.10% 0.04% 0.11% 0.32% Philippines 0.43% 2.40% 5.32% 3.00% 2.53% South Korea 7.07% 13.31% 22.09% 24.16% 25.52% Singapore 4.83% 6.28% 6.64% 4.73% 4.16% Thailand 0.78% 2.39% 2.77% 3.27% 2.91% Vietnam 0.24% 0.09% 0.24% 1.31% 4.07% Subtotal 100.00% 100.00% 100.00% 100.00% 100.00%

Source: Calculated by the author based on data compiled from the UN Comtrade Database111

With regard to China’s role in Japan-centered RPNs of automobile industries, China has also become the largest regional partner in Japan’s automobile component trade in East Asia since 2000. As shown in Table 3.3.8, China’s share has soared from 3.91% in 1990 to 50.84% in 2014, which represents a stunning seventeen-fold increase in the last 25 years. Although this figure suggests that China has integrated

Japan-centered automobile RPNs into its economy in the 2000s, notably, the development of China’s automobile industries may also rely heavily on Japan’s MNCs.

Table 3.3.8 East Asian Economies’ Share of Japan’s Intra-regional Trade in Automobile Components (HS87) Year Country 1990 1995 2000 2005 2010 2014 Brunei 0.89% 0.46% 0.45% 0.47% 0.27% 0.17% Cambodia 0.03% 0.22% 0.20% 0.14% 0.08% 0.18% China 3.91% 8.29% 19.14% 34.63% 50.87% 50.84% Hong Kong 11.60% 13.62% 10.72% 4.99% 2.51% 3.10% Indonesia 13.74% 13.22% 11.92% 9.55% 9.59% 8.58% Laos 0.11% 0.07% 0.12% 0.05% 0.09% 0.26% Malaysia 14.01% 13.22% 12.62% 9.90% 7.16% 6.57% Myanmar 0.53% 0.42% 0.23% 0.15% 0.15% 2.56% The Philippines 7.73% 8.51% 8.16% 4.46% 3.64% 4.32% South Korea 8.13% 6.36% 8.70% 9.43% 6.86% 5.28% Singapore 10.27% 6.14% 10.58% 7.07% 1.40% 2.08% Thailand 28.21% 27.90% 15.48% 17.18% 15.57% 12.82% Vietnam 0.84% 1.55% 1.68% 1.97% 1.79% 3.23% Subotal 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Source: Calculated by the author based on data compiled from the UN Comtrade Database112

As shown in Table 3.3.9, Japan had consistently been China’s largest trading partner in automobile components since its share rose steadily above 50% between 1995 and 2014. In this light, despite the fact that Japan’s automobile supply chains have been directed towards China, economic interdependence between China and Japan in this field is still symmetric. The strong performance of Japanese automobile industries compensates for the impact of its ICT industries’ overdependence on the Chinese market, and it may also imply that Japan is the only economy in East Asia

that can just about maintain symmetric economic interdependence with China. This may partly explain why Japan is still able to rival China in terms of regional leadership in the constructive process of East Asian regionalism.

Table 3.3.9 East Asian Economies’ Share of China’s Intra-regional Trade in Automobile Components (HS87) Year Countries 1995 2000 2005 2010 2014 Brunei 0.02% 0.00% 0.02% 0.02% 0.07% Cambodia 0.21% 0.11% 0.07% 0.10% 0.29% Hong Kong 9.23% 9.73% 3.13% 1.81% 1.98% Indonesia 2.55% 9.04% 3.97% 2.29% 3.45% Japan 57.79% 56.45% 60.04% 66.81% 55.26% Laos 0.56% 0.18% 0.19% 0.22% 0.43% Malaysia 1.39% 1.38% 2.27% 2.57% 3.87% Myanmar 3.71% 0.52% 0.58% 1.78% 2.65% The Philippines 1.69% 0.70% 1.62% 1.26% 2.61% South Korea 12.33% 5.59% 23.45% 18.20% 19.59% Singapore 5.02% 1.65% 1.01% 0.80% 0.99% Thailand 3.41% 0.54% 1.66% 1.78% 3.35% Vietnam 2.10% 14.10% 1.99% 2.37% 5.47% Subtotal 100.00 % 100.00% 100.00% 100.00% 100.00%

Source: Calculated by the author based on data compiled from the UN Comtrade Database113

There are three key factors that help us understand why all of East Asian RPNs converge on China. The first and foremost one is China’s steady and rapid economic growth after the implementation of Deng Xiaoping’s “reform and opening up” policy.114 This factor became more important in the late 1990s, as China was the only economy that could still maintain a stable economic growth rate after the 1997

113 _Ibid.

114 _{Urata, “Exclusion Fears and Competitive Regionalism in East Asia”, 33-43; Staples, “Responses}

Asian financial crisis.115 Table 3.3.10 displays China’s annual GDP growth rates and purchasing power parity (PPP) per capita between 1996 and 2014. The Asian financial crisis had a negative impact on the Chinese economy, but it was quite limited as China’s GDP growth rates merely declined from 9.23% in 1997 to 7.85% in 1998.116

Table 3.3.10 Indicators of China’s Economic Growth between 1996 and 2014

Year Annual Growth Rate

of Real GDP(%)

PPP Per Capita (Unit: Current International Dollar)

PPP Per Capita Annual Growth Rate (%) 1996 9.92 2,052.315 10.75 1997 9.23 2,246.692 9.47 1998 7.85 2,437.493 8.49 1999 7.62 2,641.669 8.38 2000 8.43 2,907.448 10.06 2005 11.35 5,042.251 14.22 2010 10.63 9,215.399 11.42 2014 7.27 13,224.002 8.50

Source: Compiled from the IMF “World Economic Outlook Database” and the ADB Database of “Economic and Financial Indicators”117

Meanwhile, accompanied by the thriving economic development, there was also a rapid growth in China’s PPP per capita reflecting the rise of the Chinese market in the 1990s. Despite the financial crisis in 1997, as shown in Table 3.3.10, China still sustained steadfast annual growth rates in its PPP per capita, which was around 9% in 1997 and 1998. The positive and high growth rates of China’s GDP and PPP per capita imply that the Chinese market remained substantial and steady during the crisis. Henceforth, China became a shelter for commercial enterprises to weather

115 _{John Wong, “Commentary: A China-centric Economic Order in East Asia”, Asia Pacific Business}

Review 19, no. 2 (2013): 286-87.

116 _{Asian Development Bank, “Economic and Financial Indicators Database”, 2015, accessed January}

2016, https://aric.adb.org/macroindicators; IMF, “World Economic outlook Database”, 2015, accessed January 24, 2016, http://www.imf.org/external/pubs/ft/weo/2015/02/weodata/index.aspx.

through the financial crisis.118

In the aftermath of the 1997 Asian financial crisis, China’s economy grew at an unprecedented pace. As shown in Table 3.3.10, China achieved double-digits growth rates in GDP in 2005 and 2010.119 Most significantly, between 2000 and 2014, China had a quadruple growth in amount of its PPP per capita, which was equivalent to US$13,224 in 2014. Given China’s thriving and sustained economic performance, as well as its large population of 1.3 billion people, most MNCs have targeted the Chinese market in attempts to enlarge their economies of scale.120 As will be discussed below, as a result of China’s preferential policies and the low-cost production factors, East Asian manufacturers have decided to relocate their supply chains to the Mainland.

In addition to robust economic performance, China’s preferential policies have further incentivized investment from East Asian manufacturing industries, similar to East Asian developing economies. A good example of this is China’s effort in establishing special economic zones (SEZs) in Guangdong Province and Fujian Province.121 _{In order to attract investment from MNCs, Beijing set relatively low} standards of labor salary within SEZs.122 Furthermore, the Chinese government also provided MNCs with preferential treatments in rents, electricity, and currency exchange rates and so on within the SEZs.123 Most significantly, given China’s

118 _{Wong, “Commentary: A China-centric Economic Order in East Asia”, 286-87.}

119 _{Asian Development Bank, “Economic and Financial Indicators Database”.; IMF, “World}

Economic Outlook Database”.

120 _{Athkorala, “Production Networks and Trade Patterns in East Asia”, 80.}

121 _{Qi Luo and Christopher Howe, “Direct Investment and Economic Integration in the Asia Pacific:}

The Case of Taiwanese Investment in Xiamen”, The China Quarterly 136 (1993): 757-61.

122 _{Ibid., 225.}

geographical proximity to Hong Kong especially the short distance between its EPZs in Guangdong province and Hong Kong MNCs can further utilize Hong Kong’s advantage of intermediary trade to enjoy tariff discounts in exports and imports.124

Finally, as most scholars have noted, the low-cost labor force in the Chinese market also serves as an important incentive that propels East Asian manufacturing industries to relocate production lines in China.125 However, as will be discussed together with Taiwan’s Mainland fever in chapter 4, China’s labor skills has been largely enhanced following the popularization of higher education since the 1990s.126 This has provided manufacturers with further incentives to relocate their production line in the Chinese market.

In summary, China has played a pivotal role in RPNs since the 2000s. While China shared more than 50% of electronic and automobile parts and components trade in East Asia in 2014 (see Tables, 3.3.4, 3.3.5, 3.3.7 and 3.3.8), it proves that China has successfully integrated both of the Japan-centered RPNs and East Asian BDCCs into its economy. Meanwhile, given the disproportionate ratios of bilateral component trade between China and East Asian economies, it is clear that there has also been asymmetric economic interdependence between China and regional economies and Taiwan is no exception. The specific reasons for Taiwan’s “Mainland fever” will be examined with the cases of ASUS and Yageo in chapter 4 so as to

124 _{Ibid., 107-9.}

125 _{Yue-man Yeung et. al., “China’s Special Economic Zones at 30”, Eurasian Geography and}

Economics 50, no. 2 (2009): 224-25.

126 _{William W. Keller and Louis W. Pauly, “Building a Technocracy in China: Semiconductors and}

Security”, in China’s Rise and the Balance of Influence in Asia, ed. William W. Keller and Thomas G. Rawski (Pittsburgh: University of Pittsburgh Press, 2007): 61.

explain its unsuccessful “Go South” strategy that aimed to redirect Taiwan’s industrial distribution from China to ASEAN developing economies in the process of East Asian economic integration. 127 _{Generally speaking, China’s economic} advantages obtained in the process of regionalization provide Beijing with more resources to compete with the US and Japan for regional leadership.128 Most importantly, as will be discussed below, China’s advantageous position in the process of East Asian regionalization has also allowed Beijing to shape East Asian regionalism in its interests since the 1997 Asian financial crisis.