Although Asean economies should benefit from China's admission into the World Trade Organisation with increased access into the rising economic giant's markets, it nevertheless posed a threat in the short term.

Professor John Wong from the National University of Singapore's East Asian Institute said that China's WTO membership is supposed to bring about both opportunities and challenges.

"In the long run, Asean economies should benefit from increased access to China's market and China can operate as a new engine of economic growth for Asean," he said in his paper entitled 'China's Dynamic Economic Growth and its Implication for Asean'.

"At their present phase of development, however, China and Asean tend to be more competitive than complementary with each other, as far as manufactured exports and foreign direct investments are concerned," he added.

Wong's paper was presented by research officer Sarah Chan at the National Economic Outlook 2002 Conference, organised by the Malaysian Institute of Economic Research in Kuala Lumpur today.

Similar export structures

The paper noted that both China and Asean share a great deal of similarity in their export structures and both are economically oriented towards the industrial countries of the West and Japan.

Both China and many Asean countries produced labour-intensive manufactured goods such as textiles and electronic products for export to these countries.

Although at the macro level, the share of the "Asean Four"- comprising of Malaysia, Indonesia, the Philippines and Thailand - has increased over the years, a detailed analysis into China's dominant export items of textiles, clothing and footwear gave a different picture.

The analysis showed that the China's export in these items experienced a big jump in the US market vis-a-vis Asean's moderate gains, especially after the renminbi devaluation in the early 1990s.

"What made China different from Asean is the fact that China has by far a much larger pool of both skilled as well as non-skilled labour. Furthermore, China has a large domestic market for all sort of products, from high-tech to low-tech, to take advantage of the economies of scale effect," said Wong.

He predicted in the future, Sino-Asean export competition in such non-traditional items such as electrical and electronics products will grow even more intense.

'Dualistic economy'

According to Wong, countries such as Japan and other smaller newly industrialised countries were forced to relocate their labour-intensive manufacturing industries to neighbouring countries with lower costs as they gradually lost their comparative advantage.

However, China which has a "dualistic economy" is different.

"China is a rare continental-sized economy with such great diversity that it can contain the evolution of comparative advantage within its own borders," he said.

Wong explained that the more developed coastal regions of China are transferring their losing comparative advantage in labour-intensive products to Central and Western China, which is currently the focus of China's future development efforts.

"This means that China can continue for years to flood the world market with low-cost manufactured items even when many parts of China have achieved middle-income status," he added.

Over the past two decades, China's exports have increased at an annual rate of 17 per cent from US$13.7 billion in 1979 to US$249.2 billion in 2000.

Although China's export growth stagnated in 1998, growing at a mere 0.5 per cent due to the Asian financial crisis that year, it quickly rebounded in 1999 with a six per cent growth and then shot up to a startling double-digit rate of 28 per cent in 2000.

China is now the world's seventh largest exporting nation.