Imports, Exports, and Prices

The Chinese economy, with its cheap labor and consequent cheap exports, is leaving its mark on world trade. On one hand, the Chinese growth has been met with new attempts at protectionism--as witnessed by the recent crisis in a voluntary quota system that went astray. As the quotas were rapidly met, many Chinese manufactured goods ended up stranded in various ports around the world with retail interests clamoring for release of the goods. That struggle between those attempting to protect their own domestic industries and those wanting to purchase the less expensive Chinese goods continues today.

Prior to that crisis, however, the entire Pacific basin has benefited and, to varying degrees, copied Chinese manufacturing and export success. Those companies and countries which got on the bandwagon early by investing in China benefited from China’s large pool of cheap labor in manufacturing operations. Those profits accrue far and wide to early investors. In particular, South Korea, Taiwan, Hong Kong and Singapore have benefited greatly from the Chinese success. The low cost of Chinese-made products has increased the real income of other countries in the region and improved their standards of living.

"As China has grown, it has brought up the rest of the region with it," said Edmund Harriss, manager of the Guinness Atkinson Asia Focus fund. "Increasing supply from China is keeping inflation lower in Asian economies," said Ben Walker, manager of international equity funds at Gartmore Investment Management.

Turning the argument on its head, some suggest that the rest of the region played a crucial role in China’s phenomenal growth by providing money and manufacturing expertise. "It's the Taiwanese that built most of China's manufacturing, and now the Koreans are there in a big way," Walker said. "The companies that really grasped the opportunities 10 years ago are reaping the benefits."

Chinese workers also enjoy benefits from the boom, such as soaring living standards with rising wages and more employment opportunities. The result is a huge and still-growing new consumer market for other countries to pursue. "Because Chinese G.D.P. is growing at 8 to 10 percent, it provides a huge source of incremental demand for other Asian countries selling to domestic Chinese consumers," said Mr. Walker.

The improvement in Asian living standards has added balance to the region's economies and opened the door to the possibility of more trade through out the world.