# **The trade in machinery is at the heart of production sharing in East Asia**

Machinery has become an important trade commodity for countries in East Asia.<sup>11</sup> Innovative machinery products have played a significant role in the success of Japan and the NIEs in global trade. In recent years, this commodity group has also become an important driver of trade among countries in developing East Asia. In 2000–04, machinery products accounted for half of the total imports of these economies. During the same period, the share of machinery in the total exports of these economies, excluding China, reached 51 percent, from 38 percent in 1990–94, superseding the share of any other commodity groups. The most remarkable performance was that of China, where the share of machinery in total exports leaped to 41 percent in 2000–04, from 18 percent in 1990–94.

As the trade in machinery in developing East Asia increased, its nature evolved. Products made in China are shifting to more sophisticated machinery and away from mass-manufactured, low-technology goods. For example, China now exports more personal computers and related accessories than metalworking tools. China is also exporting more cellular phones, personal digital assistants, and flat-screen televisions instead of transistor radios. While much of this production involves the assembly of high-technology products using low-skill workers, there has been true improvement in China’s technological production capacity (see below). As part of the regional production network in machinery, China has emerged as the most important final assembly hub, while Japan and the NIEs are, by far, the most important sources of innovative inputs into processing. But the traditional production network is changing. It is no longer the simple model whereby Japan and the NIEs supply high-quality components and capital goods to emerging East Asia, including China, which assembles them for final markets in the European Union and the United States. Another sort of production network involving the transshipment of components is also appearing in the region. In this more sophisticated and complex network, Japan and the NIEs provide high-quality materials, including design, to their FDI affiliates in developing East Asia, which uses them to produce components. The components are then sent back to the originators for further processing. The originators perform quality control, organize the components, and send them back to developing East Asia as kits for final assembly.<sup>12</sup> There are also even more complex models (see figure 12).

China’s increase in machinery exports is exceptional. Between 1993–94 and 2003–04, the world market share of China in office, data, and telecommunications equipment rose from 2.8 percent to 15.7 percent (see table 4). China’s world market share doubled in power generating equipment, tripled in industrial machinery, and quadrupled in electrical machinery. China also now accounts for a large share of the world market in machinery imports, reflecting its rapid industrialization. Other important players in the global trade in machinery include Malaysia and the Philippines, especially in office, data, and telecommunications equipment, and electrical machinery.

**Table 4 The Share of Exports of Selected East Asian Countries in World Markets** _<u>percent</u>_

|_Country_|_Power g_<br>_equi_<br>_1993–94_|_enerating_<br>_pment_<br>_2003–04_|_Industrial_<br>_1993–94_|_machinery_<br>_2003–04_|_Office, d_<br>_telecomm_<br>_1993–94_|_ata, and_<br>_unications_<br>_2003–04_|_Electrical_<br>_1993–94_|_machinery_<br>_2003–04_|_Road tran_<br>_1993–94_|_sportation_<br>_2003–04_|
|---|---|---|---|---|---|---|---|---|---|---|
|China|1.3|2.4|1.0|3.3|2.8|15.7|2.4|8.2|0.5|1.6|
|China (imports)|3.8|4.5|7.9|8.6|2.6|5.5|2.8|9.4|1.5|1.9|
|Indonesia|0.1|0.4|0.1|0.1|0.6|0.7|0.4|0.6|0.2|0.1|
|Malaysia|0.8|0.3|0.6|0.5|4.3|3.6|4.8|3.0|0.1|0.1|
|Philippines|0.0|0.1|0.0|0.1|0.4|1.1|1.5|2.7|0.1|0.2|
|Thailand|0.6|0.8|0.6|0.6|2.0|1.7|1.4|1.6|0.3|0.5|

_Source:_ UNCOMTRADE.

_Note:_ Lightly (dark) shaded figures indicate products with increasing (decreasing) market shares.

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