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    The Asia and Pacific Department

    Copyright © 2016

    International Monetary Fund

    Cataloging-in-Publication Data

    Joint Bank-Fund Library

    Names: Mathai, Koshy. | Gottlieb, Geoff. | Hong, Gee Hee. | Jung, Sung Eun. | Schmittmann, Jochen. | Yu, Jiangyan. | International Monetary Fund. | International Monetary Fund. Asia and Pacific Department.

    Title: China’s Changing Trade and Implications for the CLMV Economies. |Koshy Mathai, Geoff Gottlieb, Gee Hee Hong, Sung Eun Jung, Jochen Schmittmann, and Jiangyan Yu.

    Description: Washington, DC : International Monetary Fund, 2016. | At head of title: The Asia and Pacific Department. | Includes bibliographical references.

    Identifiers: ISBN 978-1-51354-499-1 (paper)

    Subjects: LCSH: Economic development—Middle East. | Economic development—Asia, Pacific. Classification: LCC HC412.A893 2016

    Authorized for distribution by Markus Rodlauer.

    The Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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    Prepared by Koshy Mathai, Geoff Gottlieb, Gee Hee Hong, Sung Eun Jung, Jochen Schmittmann, and Jiangyan Yu. Steven Barnett and John Nelmes provided valuable guidance, and substantial contributions were made by Allan Dizioli, Mari Ishiguro, Dulani Seneviratne, Taesik Yoon, and Yong Zhou. The team gratefully acknowledges input received from other IMF departments and at several seminars, and takes responsibility for all remaining errors. The views expressed represent those of the Asia and Pacific Department and have not been endorsed by the IMF’s Executive Board.

    Executive Summary

    The most remarkable development in global trade during the past two decades has been the emergence of China as an export powerhouse. Rising from a negligible level, Chinese exports now account for 12 percent of the global total. This export performance has driven sustained, rapid growth and helped to bring hundreds of millions of people out of poverty.

    Now, like Japan, Taiwan Province of China, Korea, and the emerging market Association of Southeast Asian Nations (ASEAN) nations before it, China is seeing its trade patterns evolving. While it started in light manufacturing and in the assembly of more sophisticated products as part of global supply chains, China is now moving up the value chain, onshoring the production of higher-value-added upstream products and moving into more sophisticated downstream products as well. At the same time, with its wages rising, it has started to exit some lower-end, more labor-intensive sectors. This exit has been slower than it was in Japan and other forebears—perhaps testament to China’s large scale and the continued presence of cheap labor in rural areas—but the trend has clearly begun. These changes are taking place in the broader context of China’s rebalancing—away from exports and toward domestic demand, and within the latter, away from investment and toward consumption—and as a consequence, demand for some commodity imports is slowing, while consumption imports are slowly rising.

    The evolution of Chinese trade, investment, and consumption patterns offers opportunities and challenges to low-wage low-income countries, including China’s neighbors in the Mekong region. Cambodia, Lao P.D.R., Myanmar, and Vietnam (the CLMV) are heterogeneous, but they are all open economies that are highly integrated with China. Rebalancing in China may mean less of a role for commodity exports from the region, but at the same time, the CLMV’s low labor costs suggest that manufacturing assembly for export could take off as China becomes less competitive, and as China itself demands more consumption items.

    Labor costs, however, are only part of the story. The CLMV will need to strengthen their infrastructure, education, governance, and trade regimes, and also run sound macro policies in order to capitalize fully on the opportunities presented by China’s transformation. With such policy efforts, the CLMV could see their trade and integration with global supply chains grow dramatically in the coming years.

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