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Leveraging Chinas Emergence for Viet Nam Economic Growth: - - PowerPoint PPT Presentation

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Leveraging Chinas Emergence for Viet Nam Economic Growth: Opportunities for Agriculture David Roland-Holst UC Berkeley MARD Workshop on GLOBALIZATION AND AGRICULTURAL DEVELOPMENT IN VIETNAM 13-14 December 2005 Nha Trang Viet Nam

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Leveraging China’s Emergence for Viet Nam Economic Growth: Opportunities for Agriculture

David Roland-Holst UC Berkeley

MARD Workshop on GLOBALIZATION AND AGRICULTURAL DEVELOPMENT IN VIETNAM 13-14 December 2005 Nha Trang – Viet Nam

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Contents

  • Overview
  • China’s Emergence and the Asian Trade

Triangle

  • Vietnam’s Regional Competitiveness
  • Scenarios for Trade Expansion
  • Conclusions
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Overview 1

  • China’s rapid and sustained economic

emergence is a watershed event, for the global economy generally and for East Asia in particular.

  • Initial reactions of regional partners, who

perceive China as a strong export competitor and magnet for FDI, have been somewhat defensive.

  • Closer examination reveals a more complex

picture, one that presents as many opportunities as threats to East Asian policy makers.

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Overview 2

Because of its size and stage of development, China will play two roles in the region with unusual prominence.

  • 1. It will stiffen export competition in a broad

spectrum of products, particularly in markets

  • utside the region.
  • 2. The growth of China’s economy will make it the

region’s largest importer, and this absorption will create unprecedented opportunities for regional exporters.

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Overview 3

  • Although it is a large economy, China is

relatively poor in natural resources, both in per capita and per hectare terms.

  • As this economy grows and incomes

rise, China’s import dependence will grow dramatically, particular in resource- intensive products.

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Overview 4

  • For Vietnam, the most important component of

this emergent import dependence is food.

  • In both absolute and relative terms, trade with

China can be to agriculture what trade with the US and EU are to manufacturing.

  • Unlike OECD countries, China does not

significantly protect its domestic agricultural producers, and its external needs will grow dramatically over the next two decades.

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China’s Emergence and the Asian Trade Triangle

  • The economic emergence of China has

fundamentally changed world trade patterns.

  • Using a global forecasting model, we

predict that China will become the region’s largest exporter, but also its largest importer.

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The Asian Trade Triangle

  • Our forecasts indicate the emergence of a

systematic pattern of triangular trade between China, the Rest of East and Southeast Asia, and the Rest of the World

  • This Trade Triangle reveals that China’s export

expansion offers significant growth leverage to its neighbors.

  • Chinese absorption will emerge to dominate

regional demand. Provided Asian economies do not isolate themselves from this process, the net effect of China’s growth can be hugely positive.

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Trade Triangle 2000

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Trade Triangle 2020

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China and East Asia 1

  • Head-to-head export global competition with

China will continue to be difficult.

  • More attention should be given to leveraging
  • pportunities presented by East Asia’s

fastest growing internal market.

  • In these areas, the best strategy for East and

Southeast Asia is to pursue globalism through more comprehensive regionalism.

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China and East Asia 2

  • This is particularly true in sectors like agriculture,

where Chinese competitiveness is limited or China is a net importer.

  • Rising incomes in China are increasing the

resource-intensity of food consumption (meat, etc.).

  • Even if population remained constant over the next

20 years, China would have to double agricultural capacity to meet its changing food requirements.

  • More likely will be a massive increase in agricultural

imports.

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China and Agricultural Trade

  • Import barriers to agricultural products

are falling on average, but can differ significantly by variety and region.

  • Overall, demand forces will dominate to

create many opportunities, but they my be identified selectively.

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China and Agricultural Trade

  • 20

20 40 60 80 100

78-79 80-84 85-89 90-94 95-97 98-99 00-01

Rice Wheat Maize Soybean

Nominal Protection Rates Nominal Protection Rates

Source: Huang 2001 Source: Huang 2001

Falling on average with reform and WTO accession. Falling on average with reform and WTO accession.

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China and Agricultural Trade

Nominal Protection Rates for Rice, 2001 Nominal Protection Rates for Rice, 2001

Source: Huang 2001 Source: Huang 2001

  • 15
  • 10
  • 5

5 10 15 20 Thai Jasmine Japonica (high) Indica (low)

Significant variation still persists, however. Significant variation still persists, however.

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Cereals and Feed: Domestic Demand and Net

Imports per Capita (1997, China = 1.0)

  • 20

20 40 60 80 100 120 Vnm Phl Id Chn Tha Mys Kor Jpn Demand Net Imports

Source: Author Source: Author’ ’s estimates from GTAP V. s estimates from GTAP V.

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Other Crops: Domestic Demand and Net Imports

per Capita (1997, China = 1.0)

  • 10
  • 5

5 10 15 20 25 30 35 Vnm Phl Id Chn Tha Mys Kor Jpn Demand Net Imports

Source: Author Source: Author’ ’s estimates from GTAP V. s estimates from GTAP V.

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Meat: Domestic Demand and Net Imports

per Capita (1997, China = 1.0)

  • 20
  • 10

10 20 30 40 50 60 70 80 Vnm Phl Id Chn Tha Mys Kor Jpn Demand Net Imports

Source: Author Source: Author’ ’s estimates from GTAP V. s estimates from GTAP V.

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China will be Asia’s Largest Food Importer

10 20 30 40 50 60 70 80 2005 2010 2015 2020 China Japan Korea, Taiwan ASEAN US

Source: Author Source: Author’ ’s estimates. s estimates.

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China’s Emerging Food Gap

(USD 1997 billions in 2020)

5 10 15 20 25 Rice OthCereal Fruit&Veg Veg Oil and Seed Sugar Plant Fiber OthCrops Meat&Dairy Wool&Silk OthFood Beverage Forestry Fishery

Exports CNWTO Imports CNWTO Imports Base

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  • 30000
  • 20000
  • 10000

10000 20000 30000 1980 1986 1988 1990 1992 1994 1996 1998 2000 Year MTEC

total export total import total consumption total production

Chinese Energy Fuels: Supply and Demand Chinese Energy Fuels: Supply and Demand

Another Strategic Sector with “Import Surprise”

Source: Chinese Ministry of Energy. Source: Chinese Ministry of Energy.

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Vietnam’s Regional Competitiveness

In the ASEAN context, Vietnam is at an emergent intermediate stage of export development. The country has definite comparative advantages, particularly in an East-Asian context. Many of these are also highly scalable, especially in agriculture.

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Vietnam’s Regional Trading Position from a Macro Perspective

Higher import dependence. Higher import dependence. Export competitiveness needs to be improved. Export competitiveness needs to be improved.

Real G DP 3.80 Total E xports 3.09 Total Imports 3.36 E xports to C hina 1.29 Imports from C hina 6.86 Vietnam as a Percent of A SE A N

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Simulation Scenarios

To better understand the implications for Vietnam, we combined the global forecast results with the MARD CGE model:

  • Baseline – Domestic economic reform.
  • WTO – Vietnam implements its current offer.
  • ExDev - Export Development – Vietnam maintains its

existing ASEAN trade share of exports to China, but with accelerated Chinese import demand. Includes WTO.

  • AgProd - ExDev with 2% annual factor productivity growth

in agriculture.

  • MfgProd - ExDev with 2% annual factor productivity growth

in manufacturing

  • AllProd – ExDev with 2% annual factor productivity growth

in both agriculture and manufacturing.

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Trade and Economic Growth: GDP to 2020

100 150 200 250 2005 2010 2015 2020

WTO ExDev AgProd MfgProd AllProd Values are normalized to Baseline2000= 100 Values are normalized to Baseline2000= 100

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Exports of Primary Agricultural Products

200 400 600 800 1000 1200 1400 1600 1800 2000

Rice RawRub CoffBn OthCrp Pig Cattle Poultry OtLvstk WTO ExDev AgProd MfgProd AllProd Values are normalized to Baseline2000= 100 Values are normalized to Baseline2000= 100

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Exports of Processed Food Products

200 400 600 800 1000 1200

Meat Dairy FrtVeg Sugar CoffBv OtBvTob SeaFood Feed OthPrFd

WTO ExDev AgProd MfgProd AllProd Values are normalized to Baseline2000= 100 Values are normalized to Baseline2000= 100

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Output of Primary Agricultural Products

50 100 150 200 250 300

Rice CoffBn Pig Poultry Forest WTO ExDev AgProd MfgProd AllProd Values are normalized to Baseline2000= 100 Values are normalized to Baseline2000= 100

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Output of Processed Food Products

50 100 150 200 250 300

Meat Dairy FrtVeg Sugar CoffBv OtBvTob SeaFood Feed OthPrFd

WTO ExDev AgProd MfgProd AllProd Values are normalized to Baseline2000= 100 Values are normalized to Baseline2000= 100

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Summary of Results

1. Agricultural exports to China have enormous growth potential. 2. This growth would be broad based and pro-poor, reducing regional inequality and poverty. 3. Without productivity growth, this new demand will simply divert trade and domestic resources, creating food inflation and reducing growth elsewhere. 4. Agriculture and industry should not compete for capital, technology, and other productivity

  • resources. Each gains from the other’s

advancement.

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Conclusions 1

1. China is a very effective international competitor, yet it is a resource constrained economy. 2. The growth of China’s economy will therefore

  • ffer historic opportunities to regional exporters.

3. An East Asian Trade Triangle will emerge, where China develops a sustained trade deficit with East Asia and a surplus with Western OECD economies of nearly equal magnitude. 4. In other words, most of China’s trade surplus will ultimately accrue to its regional neighbors. This has profound implications for patterns of both North-South and regional capital accumulation.

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Conclusions 2

  • 5. As Chinese absorption emerges to

dominate regional demand, agriculture will be an increasingly prominent part of this demand.

  • 6. All official and most unofficial estimates

understate the magnitude of this import dependence, yet it is very important for policy makers to anticipate.

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Conclusions 3

  • 7. Vietnam can respond to this opportunity

by a combination of trade negotiation, export promotion, and a wide variety of measures to increase domestic productivity.

  • 8. The last policies are particularly important,

because without them increased Chinese demand will not make its full contribution to sustained growth.

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Conclusions 4

  • 9. Agriculture based growth will more

directly address the needs of the rural poor majority 10.This provides an essential balance to industrial-urban development, reducing social dislocation and regional inequality

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Discussion