The Challenges and Opportunities in China-Philippineeconomic Relationships (original) (raw)

and the Pacific China's opening up to the world since 1978 and its accession to the World Trade Organization (WTO) have raised questions on the trade and investment impact on other Asian developing countries, in particular, the ASEAN. It is conventional thinking that China poses very stiff competition to ASEAN in both areas. However, using a computable general equilibrium (CGE) model, Tongzon (2001) argued that China's entry into the WTO would generate net benefits to ASEAN. The growing regionalization of the world has also accelerated intensification of China-ASEAN relationships with the signing of a China-ASEAN Free Trade Area (CTA) agreement to culminate by 2010. Chiratvhivat (2002) presents evidence based on the same CGE model that, indeed, both China and ASEAN will be net beneficiaries of an FTA as cited in Laurenceson (2003). The popular perception of China as the 'super factory' has stoked considerable concern in both public and academic debate in the Philippines. This paper assesses how China's growing weight in the world markets will affect the Philippine's trading sector. Will China so dominate world export markets as to overshadow Philippine exports? Or, conversely, will China's emergence create opportunities for small countries, such as Philippines? In addition, the paper looks into the implications for the Philippines as a result of the massive inflows of foreign direct investments (FDI) to China. Does China 'crowd out' the Philippines? The analysis uses trade indices, such as the revealed comparative advantage (RCA) indices and draws on the findings of the empirical literature pertaining to the relationship between ASEAN and China. I. CHALLENGES AND OPPORTUNITIES FOR TRADE BETWEEN THE PHILIPPINES AND CHINA This first part of the paper examines how China's entry into the world merchandise markets will impact the Philippines' own trade record and prospects. We consider this issue from two aspects: (1) competition between the two countries in each other's markets and (2) competition between the two countries in third markets including the world in general and the specific major markets of the United States, Japan, and the European Union. Bilateral Trade Between China and the Philippines Prior to this, however, we look into the trade and investment intensity of the ASEAN countries with respect to China for the period 1996-2001 in Table 1 taken from Laurenceson (2003). He defines the "trade intensity ratio" as China's exports plus imports with the ASEAN5, divided by China's GDP (all in U.S. dollars). On the other hand, since FDI from China into the ASEAN5 is deemed small, the "investment intensity ratio" is just the FDI from the ASEAN5 into China divided by total FDI into China.