Lenovo Chairman Liu Chuanzhi (front L) shakes hands with IBM Vice President John Joyce (front R) after signing an agreement in Beijing, Dec. 08, 2004. According to the agreement, Lenovo acquired IBM's entire global desktop and laptop computer R&D and marketing business at the price of $1.25 billion. The transaction enabled the Lenovo Group to become the third largest PC maker worldwide with an annual revenue exceeding $10 billion, (Xinhua photo/Yuan Man)

After almost a decade of huge growth in its electronics sector, China has overtaken the United States as the world's biggest supplier of information technology goods, according to a report by the Organization for Economic Cooperation and Development.

The New York Times says that the report, to be published on Monday, show that China's exports of information and communication technology - including laptop computers, mobile phones and digital cameras - increased by more than 46 percent to $180 billion in 2004 from a year earlier, easily outstripping for the first time United States exports of $149 billion, which grew 12 percent from 2003.

The figures compiled by the Organization for Economic Cooperation and Development (OECD), also reveal that China has come close to matching the United States in the overall value of its trade in information and communications technology products. The value of China's combined exports and imports of such goods soared to $329 billion in 2004 from $35 billion in 1996. Over the same period, the value of American information technology trade expanded at a slower rate, to $375 billion from $230 billion.

The report will be more evidence that China has made progress in its long-term plan to upgrade the capacity of its manufacturing as it strives to become a major economic power.

Last May,  the Chinese computer maker Lenovo, paid $1.75 billion to buy IBM's personal computer unit.

The newspaper says that China's efforts to impose its own technology standards across a range of consumer products, including mobile phones, digital photography and wireless networks, are widely interpreted as a strategy to dominate the global market for information technology goods.

Some analysts say they believe that Chinese technology exports would have overtaken the United States much earlier without restrictions applied by Western countries to China on the transfer of so-called dual-use technologies - which can be used for both civilian and military ends - to China after the 1989 Tiananmen crackdown.

The New York Times says that the OECD report could also heighten fears among some critics that China's drive to build a powerful information technology and consumer electronics sector could have far-reaching military consequences for the United States.

China's military industry works closely with information technology companies and the government's research and development sector in what some analysts have described as a "digital triangle" that supports the country's rapid military modernization.

"The People's Liberation Army is moving very quickly to adopt practically every information-related aspect of military technology that the U.S. is pursuing at this time," said Rick Fisher, vice president of the International Assessment and Strategy Center in Washington, is quoted as saying.

Foreign firms in China, are driving much of the growth, with heavy investment from global giants like Intel, Nokia, Motorola, Microsoft and Cisco Systems.

Figures from the Chinese Ministry of Commerce show that companies that had received overseas investment accounted for almost 90 percent of 2004 exports of high technology products.

Foreign companies are also increasing their research and development in China in a bid to generate real innovation.

The newspaper says that leading integrated circuit manufacturers, however, have avoided setting up fabrication facilities in China in order to protect their chip designs and manufacturing technology. This means that China is still heavily dependent on imports of advanced chips it needs to assemble electronic products.

OECD Report: China number one exporter of ICT goods in 2004

• As of 2004, China has become the biggest exporter of ICT goods (USD 180 billion), surpassing Japan and the European Union in 2003 and taking the lead over the United States in 2004 (USD 149 billion in 2004, see Figure 1).

Figure 1. Imports and exports of ICT goods, billions of USD in current prices (Current USD billions)
Link to the graph and the underlying data

•  China’s share of the world’s total trade (exports plus imports) in ICT goods has grown rapidly. Worth less than USD 35 billion in 1996, China’s ICT goods trade reached almost USD 329 billion in 2004, growing at almost 38% a year since 1996*. 

• While Chinese ICT imports (totalling USD 149 billion in 2004), over the last few years export growth of ICT goods has passed imports and exports reached USD 180 billion in 2004. This strong export growth is reflected in the Chinese trade surplus in ICT goods which grew from USD 3 billion in 2002 – the first year where China had a slight ICT trade surplus – to USD 32 billion in 2004.

• The year-on-year export growth has undergone a relative slowdown in growth from 2000 to 2001 (to 18% year-on-year growth, down from 44% in the previous year). But this export growth slowdown was only very temporary. In 2002 Chinese ICT export growth already exceeded the high IT trade growth rates of the years of the IT boom in 1999/2000 again. Chinese ICT exports grew by 55% from 2002 to 2003 and by 46% from 2003 to 2004 (in current USD).

• A significant share of Chinese ICT exports is transhipped through Hong Kong, China, China before being delivered to its final destination. Chinese exports to Hong Kong, China, China were up from USD 11 billion in 2000 to USD 41 billion in 2004, a little less than a quarter of all Chinese ICT goods exports. This contributes to making Hong Kong, China, China one of the largest ICT exporters.

Chinese imports are largely electronic components and Chinese exports computer & related equipment.

• China continues to mainly import electronic components (65% of imports in 2004) while mainly exporting computer & related equipment (46% of total exports in 2004), see Figure 2 and 3. With OECD countries imports are mainly electronic components and exports are computer & related equipment (2004: imports of USD 42 billion of electronic components from OECD countries while exporting USD 57 billion of computer & related equipment and USD 22 billion of audio & video equipment to OECD countries). In addition to satisfying local market demand, electronic components are used to assemble computer & related, audio & video and telecommunications equipment (80% of total exports in 2004) and also consumer electronics, as for example, MP3 players.

Figure 2. China’s imports of ICT goods, 1996-2004 (Current USD billion)
Link to the graph and the underlying data   

Figure 3. China’s exports of ICT goods, 1996-2004
Link to the graph and the underlying data

• According to Figure 4, China has significant trade deficits in electronic components (see Table 1 with top imports and exports) with a USD 50 billion deficit in integrated circuits (HS 8542), importing USD 62 billion and exporting USD 11 billion, a USD 7 billion deficit in semiconductors (HS8541), importing USD 10 billion and exporting USD 3 billion; and smaller deficits in products such as TV tubes. China has also large trade deficits in the “Other ICT goods” category - in measuring or checking instruments (HS 9031+9032).

Figure 4. China’s trade balance by ICT goods categories, 1996-2004 (Current USD billions)
Link to the graph and the underlying data   

• Accordting to Table 1, items for which China has the biggest trade surplus in ICT goods are in computer & related equipment, with a USD 45 billion trade surplus in data processing machines (HS 8471, including laptops but excluding PC accessories), including a very significant increase of laptop exports since 2002, and substantial large surpluses in video cameras and recorders, TV receivers and telephones. Bilateral trade data between China and the United States, for instance, show large Chinese surpluses in computer & related equipment and less important deficits in electronic components.

Table 1. Top 10 Chinese ICT import and export items by 4-digit HS code (in billion USD), 2004

Main Imports			Main Exports
8542 Integrated circuits	61.7		8471 automatic data process machines,      magnetic reader, etc. computer hardware)	59.9
8471 automatic data process machines, magnetic reader, etc. computer hardware)	14.5		8473 parts etc for typewriters & other office machines computer accessories	24.0
8473 parts etc for typewriters & other office machines computer accessories	14.4		8525 transmission apparatus for radio telephony/telegraphy/broadcasting, television	21.8
8529 parts for television, radio and radar apparatus	12.4		8529 parts for television, radio and radar apparatus	2.0
8541 Semiconductor devices	9.8		8542 Integrated circuits	11.2
8534Printed circuits	5.1		8517 Electric apparatus for line telephony or telegraphy telephone sets, teleprinters, modems, facsimile machines	7.7
8525 Transmission apparatus for radio telephony/telegraphy/broadcasting, television	4.0		8521 Video recording or reproducing apparatus	7.4
8532 Electrical capacitors, fixed, variable or adjustable : parts thereof	3.8		8528 Television receivers video monitors, video projection television receivers	5.5
8517 Electric apparatus for line telephony or telegraphy telephone sets, teleprinters, modems, facsimile machines	3.5		8522 Parts & accessories of sound/video recording or reproducing equipment of 8519-8521	4.2
8522 Parts & accessories of sound/video recording or reproducing equipment of 8519-8521	3.0		8534 Printed circuits	3.8
Source: OECD, ITS database

• China’s trade deficit in electronic components with Japan and other Asian economies (Korea, Malaysia, Japan, etc.) is however significant. China’s trade structure is depending more heavily on trade within East Asia, with trade in intermediate goods growing particularly strongly. Imports of China have shifted increasingly to Asian countries, especially in the field of electronic components (particularly from Chinese Taipei, but also with Malaysia, etc).

• The US-China trade relationship is characterised by a significant trade deficit of the United States with China in the area of computer & related equipment and a very small surplus of the United States in electronic components. China is the single largest exporter of ICT goods to the United States, with the share of total US imports going up from 10% in 2000 to 27% in 2004, overtaking Japan as the biggest ICT exporter to the United States. Integrated circuits and semiconductors were the second-largest U.S. manufactured product export to China. The United States also has a trade surplus with China in the area of measuring and checking instruments (HS 9030+9031). Its biggest deficits with China are in portable and standard PCs, related PC equipment and consumer products, for example, video cameras.

• While computer & related equipment continues to be the major export item of China, exports of audio & video and telecommunications equipment have also soared. A striking aspect is the strong Chinese export growth of telecommunications equipment which was negligible in 1996 but grew to USD 26 billion in 2004 (14% of total ICT exports), with the second biggest yearly growth rates from 1996 to 2004 (yearly 34%), a trade surplus in 2000 and exports growing by 76% from 2003 to 2004. Chinese imports of telecommunications equipment from Indonesia, Korea, Malaysia and other Asian regions have been growing at very substantial rates while they have been falling from countries such as the United States.

• It is also notable that electronic components themselves form the second biggest Chinese export item. On the import side, the rapid import growth of electronic components continues, albeit at a somewhat slower path than export growth of computer & related equipment.

Trade surpluses with the United States and the EU but deficits with Asian economies and increased Asian intra-industry trade

• China had a trade deficit in ICT goods with OECD countries in 2000 (- USD 2 billion) but a significant trade surplus in 2004 (USD 46 billion), see Figure 3. In 2004 China had large surpluses with Hong Kong, China (USD 37 billion), the US (USD 34 billion) and the EU-15 (USD 27 billion). To the contrary, China had increasing trade deficits with Asian countries including Thailand, Korea and Chinese Taipei, and the reverse from a surplus to a deficit with Indonesia, with the largest deficits with Chinese Taipei (- USD 20 billion), Korea (- USD 11 billion) and Japan (- USD 6 billion).

Figure 5. China’s trade balance in ICT goods, 2004 (Current USD billions)
Link to the graph and the underlying data

• The main destinations for Chinese ICT exports are the United States (24% of total ICT exports), Hong Kong, China (23%), EU 15 (20%), and Japan (10%) with Hong Kong, China losing its place as the number one export destination. The growing regional shift in total ICT trade with Asia is notable with exports to other Asian countries (Chinese Taipei, Korea, Singapore, Malaysia, Thailand, etc.) also growing. The major sources of China’s ICT imports are Japan (18%), Chinese Taipei (16%), Korea (13%) and Malaysia (8%). The most notable shift is the falling share of imports from the EU-15 and the United States.

•  China overtook Chinese Taipei and the United States as the largest ICT exporter to Japan between 2000 and 2004. The share of Japanese ICT imports from China went from 11% of total ICT imports in 2000 to 30% in 2004. The increased share of imports from China was particularly strong in telecommunication equipment (from 6.3% in 2000 to 39% in 2004) and in computer & related equipment (from 9.5% in 2000 to 43% in 2004). At the same time the share of Japanese ICT imports from the US fell from 25% in 2000 to 15% in 2004, underscoring the new importance of Asian intra-regional ICT trade and the falling share of trade with the United States and the EU-15.

• The share of Japanese ICT exports to China developed less rapidly than imports. The share of Japanese ICT imports from China grew from 5% in 2000 to 13% in 2004. Still, China developed to be the third biggest importer of ICT products from Japan in 2004 overtaking Chinese Taipei, Hong Kong, China, Singapore and Korea. The increased share of Japanese exports to China was mainly in electronic components.

* All growth rates are based on current US Dollars (NB: some growth is due to the changes in exchange rates). Moreover, there can be significant discrepancies in bilateral trade data, essentially the importing trade partner reporting different import figures compared with exports reported by exporting trade partners (mirror statistics of the same bilateral trade flow). In addition, in the case of China a large share of ICT goods is transhipped through Hong Kong, China, effectively understating China’s total exports. In this note when reporting exports and imports for a country the countries’ trade data and not the data for partner countries is used.

OECD Report - Copyright OECD 2005