Fear of China

We examine the impact of China on the exports and FDI receipts of other countries and ask whether there are grounds for "fear of China.'' We find that China's emergence is having very different effects on different groups of countries. While low-wage exporters of labor-intensive consumer goods have reason to fear Chinese competition, technologically advanced producers of capital goods are likely to experience positive effects, especially when China's own demand for their exports is taken into account. While OECD countries appear to be vulnerable to FDI diversion toward China, as Japanese manufacturing firms position themselves in what has the potential to grow into the world's single largest consumer market, FDI flows toward other Asian countries seem to be stimulated rather than depressed by FDI flows into China, since these countries are producers of inputs for Chinese manufacturing. (C) 2006 Elsevier Inc. All rights reserved.