Asian Leadership in Trade and Associated Risks

by Evalueserve - a Knowledge Partner of the Summit for the Future

World Trade: Emergence of Asia

Asia's journey from the 1997-98 financial crisis to being one of the world's most dynamic regions in terms of trade, development and investment activity, can best be termed as a 'Renaissance'. The world's centre of economic gravity is shifting towards Asia, as it currently accounts for 27 percent of international trade. This growth is mainly driven by the exemplary performance of the emerging Asian countries, including China, India, Hong Kong, Thailand, Malaysia, Singapore and Vietnam. The share of these emerging Asian countries in world trade increased from 13 percent in 1990 to 20 percent in 2004.

The Asian region is gaining significance in merchandise as well as commercial services trade. Asia's share in world merchandise exports and imports stands at 26.8 percent and 24 percent, respectively. The value of Asia's merchandise exports and imports shot up by 25 percent and 27 percent, respectively, in 2004. The growth in exports from the region can be attributed to strong demand from the US, and intra-Asian trade, stoked by a recovery in electronics trade.

Exports of commercial services increased at a fast rate of 27 percent in 2004, while imports were up 25 percent during the same period. Asian countries, such as India, China and the Philippines, are the most preferred destination today for outsourcing of business services, such as transaction processing, customer care centers, medical transcription, IT services and application development, high-end analytical services, R&D services, etc. Other commercial services, such as transportation services were strong in 2004, while travel receipts recovered by 31 percent during the year from exceptionally low levels in 2003 (due to the spread of SARS).

Intra-regional trade as a share of total trade went up sharply to 41 percent in 2004, primarily due to intra-industry trade as a result of greater vertical specialisation and relocation of production processes. This is evident in the electronics sector, where capital intensive processes (like production of microchips) are carried out in high-income economies like Singapore and Korea, and labour intensive processes (like assembly of personal computers) are located in low income countries, such as China. Asia has integrated into a global production chain with some cities like Hong Kong and Singapore becoming the hub of manufacturing and trade.

The dynamics of growth and development in Asia is a perfect illustration of how countries have used trade as a means of achieving greater degree of integration with the international economy. Region-specific factors have provided the stimulus for this growth.

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