China’s Economic Progress and its Role in Strengthening Cooperation between East and South Asia

Zhang Yunling
JEL codes: 
Institute of Asia-Pacific Studies Working Paper

China has achieved great success in its economic development since it has conducted economy-wide reforms and opened itself to the outside world. Within less than three decades, China has now become a leading economy in the world, the second largest in FDI inflow, the third largest in foreign trade, the fourth largest in GDP, and an important engine for the global economic growth. One of the key factors for Chinas success is its integration into the world economic system, enabling it to utilize the global market resources (market, capital and technology). The WTO accession has made the Chinese economy more open, more transparent and more integrated into the world economic system. Chinas new regional strategy, i.e. forming FTAs with its partners, as well as its foreign investment strategy, have deepened and will continue to further intensify its economic integration and cooperation with its partners.
In a regional perspective, the Asia-pacific is the major region from which China receives the most FDI inflows, as well as the principal destination of its exports, with the US and Japan being the two largest markets. East Asia accounts for half of Chinas foreign trade and more than 70% of FDI inflow. Chinas trade with South Asia is still small in volume, but high in growth rate. With the emergence of the Indian economy, trade and services between China and India have increased very rapidly in the recent years.
Economic relations between East Asia and South Asia used to be very weak. But this now seems to change with Indian economic dynamism and its active Eastward strategy. Considering its geographical location and its further economic expansion, China can play an important and special role in bridging East and South Asian regions through trade, investment, service, technology, as well as broad economic cooperation activities.