<!-- Start of picture text --> Figure 7 Export Similarity Among East Asian countries<br>a. Average correlation coefficient of export b. Share of machinery in total exports<br>composition<br>Japan Korea<br>2000-04<br>Korea<br>Taiwan 1990-94<br>Taiwan<br>Hong Kong<br>Hong Kong<br>with EA region: 2000-04 Thailand<br>China<br>with EA region: 1990-94<br>Thailand Singapore<br>Singapore Philippines<br>Philippines Malaysia<br>M alaysia Indonesia<br>Indonesia<br>0 10 20 30 40 50 60 70 80<br>0.0 0.2 0.4 0.6 0.8 1.0 share of machinery in total exports, %<br>average correlation coeff icient of export composition<br>Source: UNCOMTRADE<br><!-- End of picture text -->

**_Trade in machinery is largely triangular, and a driving force to the region’s trade performance._** The pattern of intra–East Asia trade in machinery parts differs according to the products and the economies involved. In electrical appliances, approximately 80 percent of East Asia’s exports are accounted for by parts, while the remaining 20 percent are represented by finished products regardless of the export destination. China is an exception, however. For China, the share of finished products in exports of electrical appliances is high, especially among the exports to developed countries. There is a triangular trade in these commodities, whereby East Asia exports a high share of the parts for electrical appliances, and office and telecommunications equipment to China, and China exports the finished products to the European Union and the United States. In road vehicles, all economies in East Asia, including China, export a significant share of parts to Japan; China also exports a large share of parts to the European Union and the United States. In electronics and electrical machinery, developing East Asia is becoming a world factory whereby these economies are assembling the parts and components supplied by developed and developing economies and selling the finished products on the world market. Through this triangular trade, parts produced by Japan and the NIEs are exported to China and the ASEAN countries to be assembled as finished products, which are then exported to Europe and North America. The triangular trade index increased from 1990–94 to 2000–04 for many products, including machinery (see figure 8).<sup>6</sup>

**_Intraindustry trade is expanding and is mainly vertical._** Many East Asian economies have experienced an expansion in intraindustry trade with the rest of the world, as well as with other East Asian economies.<sup>7</sup> Within the region, the share of intraindustry trade rose in notable fashion from 1990 to 2004, while the share of interindustry trade went down (see figure 9). A large part of intraindustry trade in East Asia may be characterized as vertical, which has been driven by two factors.<sup>8</sup> First, the vertical intraindustry trade in intraregional trade in East Asia reflects substantial diversity in the level of economic development among the East Asian economies. In several _final_ products, including footwear, specific types of garments, and electronics, the unit export prices of the products from developed economies such as Japan are significantly higher than those from developing economies such as China. Second, vertical intraindustry trade in intraregional trade in East Asia also reflects the emerging regional production networks through which _parts and components_ of differing quality and characteristics are being actively traded for the production of final products.

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