China as an economic powerhouse: Implications on its neighbors

The rise of China as an economic powerhouse has caused concerns in its neighbors. Prevailing in the region is the fear that China is becoming a gigantic "regional factory" that will "hollow out" neighboring economies' industries. In this paper, we emphasize the economic benefits that a rising Chinese economy can bring into the region. A discussion on the country's growth strategy suggests that China has recently started shifting from an export-oriented economy to a more domestic-demand-driven one. Such a shift, in the backdrop of China's entry into the World Trade Organization, is opening up the country's huge domestic market for imports, thus providing great opportunities for the regional economies. A custom-made structural VAR analysis based on tradelinks in the region provides empirical evidence that China had quickly emerged as a growth engine in the region even before China joined the WTO and made a full transformation of its growth model. (C) 2003 Elsevier Inc. All rights reserved.