CDRI

Background

China’s development success has attracted a groundswell of avid attention on a global scale. Over the last three decades it has witnessed dramatic economic transformation, rapid development and greater involvement in regional and global economic and political affairs. Such magnificent achievements in so vast a country also evoke global concerns as to whether China’s economic and political expansion may squeeze out small, poorer countries or bolster some other parts of the world. Also due to its greater economic interdependency, China’s phenomenal transition will likely have profound social, political and economic impacts on countries in ASEAN and the GMS in particular.

Countries in the GMS are in close proximity to China and located in the highly dynamic region that has great potential to develop providing that win-win cooperation and partnerships are in place. To countries like Cambodia, Laos and Vietnam, China has become an enormous consumer of certain products, an investor and a donor. Among other things, China’s hunger for resources has seen land provided to China for its agribusiness ventures or exploration of minerals.

China presents multiple facets to countries in the GMS and the net impact is unknown. It offers the GMS a huge demand for certain products and raw resources, a tough competitor as producer, a sizable investor and a lucrative donor. It would be most interesting and important to know how these multiple roles of China play out in small, least developed countries with relatively abundant lands like Cambodia and Laos, and relatively industrialized countries like Thailand and Vietnam. These countries produce agricultural crops such as rubber, maize and cassava that are in high demand by China. Cheap manufactures from China may kill the potential of the GMS countries to develop their competitive edge in manufacturing but may supply cheap inputs or semi-finished products to GMS countries. Cheap consumer products/capital goods that originate from China also have welfare/productivity enhancing characteristics. These may have positive effects on the well-being of households or the productivity of farmers and other producers.

To reduce the negative impact of China, countries within GMS might improve their cooperation and adopt a strategy of increasing activities in areas where China does not have competitive advantage and moving into productive activities where China has excess demand. To promote win-win solutions, the issue of cross-country subcontracting may be examined to determine whether this is an option in the context of GMS-China. Enhancing cooperation between GMS and China will improve general economic performance, which in turn will help the poor in terms of jobs and reduced cost of living because increased efficiency reduces the costs of goods produced, including essentials such as food crops.

Objectives and Research Questions

The study aims to assess the potential impact of China on the GMS countries, namely Cambodia, Vietnam, Laos and Thailand. This includes the impact on the poor. In addition, the research seeks to bring about big opportunities for trade and poverty reduction for the GMS countries in the study.

The overarching question is “What is the overall impact of China on economic growth and poverty reduction within the GMS countries?”

Smaller research questions include:

• What is the recent and potential impact of China, especially on poverty reduction?
• How will ASEAN-China economic relations affect the GMS countries?
• What are the economic impacts of China’s growth on the GMS economies?
• How can China’s engagement in ASEAN be compatible with the GMS programme?
• What is the role of China in bridging the development gap of less developed GMS countries?

To address these questions, the study will focus on three critical components: trade, investment and development assistance. In the impact analysis, the study will look closely into how GMS countries' trade and investmentwith China impacts on their economic growth and poverty reduction. We will also explore ways for the GMS economies to reap greatest benefits from China’s rapid development. Lastly, concerning development assistance - which is very relevant for countries like Cambodia and Laos, the study will examine how significant China’s development assistance is for bridging the development gap in general and maximising benefits from economic cooperation in particular.

Team members