Trade Structures and Relations among China, Japan, and Korea *

This paper analyzes trade structures and relations among the three countries in Northeast Asia, China, Japan, and Korea to show that they are very trade dependent on each other with important interindustry and intra-industry trade. Some major features of trade among the countries (such as trade balances and trade in agricultural products) are investigated. China, Japan, and Korea in Northeast Asia have been very tradedependent on each other. Together they form a huge economic unit. In terms of the stages of economic development, Japan has the most advanced economy, and China has the least developed one. Korea, both in terms of geographical location and economic development, is the middle one. It is therefore important to study the features of trade among these economies to analyze the prospect of economic integration. It is first noted that the export structures are becoming similar. Second, as the export structures of these three countries are becoming similar competition in the world market is also becoming more intense. Looking at the trade specialization indices (TSI), the export similarity indices (ESI), and changes in the US market share of these countries from 2000 to 2005, it is found that competition in particular between Korea and China and between China and Japan intensified. Results point out that Korea and Japan is facing considerable pressure from Chinese growth that is catching up to the former. Results show that Korea and Japan face more than rivalry and competition from China. There is much complementarity between the exports of these countries because the three economies are in different stages of development, and many of the industries (especially manufacturing industries) show vertical differentiation. The results indicate high degrees of intra-industry trade, and that the intra-regional trade shares have been steadily rising in the past several years. They also have high intra-industry trade (IIT) indices. The IIT among three countries showed high degree of correlation with each other.