Trade in Manufactured Parts and Components Helps East Asia Cope with Forex Rise

By . Agence France-Presse

Sept. 18, 2007 -- The growing trade in manufactured parts and components is helping East Asia weather the strengthening of regional currencies while inducing greater economic integration, an Asian Development Bank (ADB) report said Sept. 17. "This burgeoning 'trade in tasks' is less sensitive to real exchange movements than exports of primary commodities or finished manufactured goods," the ADB said in its updated Asian Development Outlook report.

The sub-region's intermediate goods trade burgeoned between 1990 and 2006, with China becoming a significant export destination for neighbors, particularly for machinery and transport equipment parts and components. The shift away from labor-intensive products exports was driven by rising wage costs and attendant real currency appreciation. Although outsourcing components is now a global phenomenon, "it is far more important and is growing more rapidly in East Asia than elsewhere in the world," the ADB said.

"Though exports are now growing quickly in some countries of South Asia, it has not yet latched onto international production networks to the same degree as East Asia," it added. Parts and components production now account for 57.8 % of total manufacturing in the Philippines, 50.4 % in Malaysia, 47.6% in Singapore, 38.7% in Taiwan, 33.2% in South Korea, 31.4% in China, 30.8% in Thailand, 29.7% in Hong Kong and 16.1% in Indonesia.

"It is clear that international product fragmentation taking place in this region has induced more intraregional trade over the past 15 years," it added.