This paper investigates China's trade interactions with the United States, Japan and South Korea from the period of the first quarter of 1993 to the fourth quarter of 2005. It finds substantial Foreign Direct Investment (FDI)-induced indirect trade from Japan and Korea to the US through China, and between Japan and Korea through China. These indirect trade flows have led to increases in China's trade deficit with Japan and Korea as well as China's trade surplus with the US. The indirect trade flows through China also indicate the importance of China's role as a trade bridge. From the viewpoint of world trade growth, as a trade bridge, China contributes to the stable growth of the regional and world economies. However, playing this role as a trade bridge may negatively affect China's long-term economic growth.
China's Role as a Trade Bridge for Expanding Regional and World Trade
Working Paper #41