10 China’s Trade and Investment with the South Pre- and Postcrisis Jing Wang and John Whalley
China has seen a remarkable eightfold increase in real per capita gross domestic product (GDP) since the mid-1970s. That growth has been accompanied by a large increase in trade and, since the early 1990s, inward foreign investment. More recently, it is China’s expanding engagement with the South—Africa, developing Asia, and Latin America— which has been changing rapidly and growing at higher rates than total trade and investment, albeit from a small base. China’s growing engagement with other developing countries is the focus of this chapter, and we summarize data both pre- and postcrisis, as well as making forward projections. To our knowledge, no others have attempted this analysis. We draw heavily on Chinese source material. The picture that emerges is one of rapid change. The share of Southern trade in China’s total trade shows little change in the 1990s but then begins to increase at an accelerating rate. Southern trade is now over 25 percent of China’s total trade—35 percent of imports by value and in the 20s for exports. Trade with developing countries—both imports and exports—relative to trade with developed countries, after some relative slippage in the 1990s, began to pick up speed following China’s entry into the World Trade Organization (WTO), and its share increased consistently though the 2000s until 2007. On the import side, imports of oil and materials, especially from Africa, are key. On the export side, exports to countries elsewhere in Asia show the largest growth. By country, some notable changes occur in China’s trade. Especially prominent is trade between India and China, which increased by a factor of 33 between 1995 and 2007, or at a little less than four times faster than the growth rate of China’s total trade (in this chapter, growth
rates always mean the rate compared with the same period of the previous year). From small levels of trade in 1995, China had become India’s largest export market and India had become China’s fourth-largest market by 2007. Trade with Brazil also showed rapid growth, at a factor of 18 between 1995 and 2007. Given this pace of change, we make some forward projections assuming that average 2005–07 growth rates of trade remain unchanged (which in the current crisis is a strong assumption). Our findings show an even greater acceleration in these trends as the levels of fast-growing Southern trade rise. Our projections indicate that China’s Southern trade will grow to 50 percent of its total trade by 2020 and to 60 percent of its total trade by 2027. The compounding effects of the extremely high growth rates of China’s trade with India and Brazil are such that in a surprisingly short period these bilateral trade flows will come to dominate China’s trade. China, in turn, will even more quickly become the world’s largest trading entity. We then turn to China’s foreign direct investment (FDI) involvement with the South. Data show China’s FDI inflows from the South as small and only slowly changing, with a small dip in the early 2000s and a rise in 2006–07. Shares are steady in the 10 percent range of total FDI inflows. On the FDI outflow side, the picture is different, with sharp growth in recent years. This increase is reflected in even higher growth rates of FDI from China to Africa, Brazil, India, and elsewhere than occurs with trade. FDI flows to India increased by over ninetyfold during the 1995–2007 period. We also discuss how the financial crisis has seemingly affected the rapid growth of China’s involvement with the 119