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The Integration of China and East European Countries in Global Networks Are European Multinationals Different?

Introduction

The emergence of high growth zones in Asia and to a lesser extent in Central and Eastern Europe tends to increase the mid-term world growth. This trend has nevertheless raised worries both in high-income countries and in some emerging countries because of short-term adjustment issues. This is due to the fact that high growth in emerging zones is partly based on the transfer of production from industrial countries to these emerging zones. Industrial production has thus been growing much faster in China than in high-income countries. As a consequence of this impressive growth of industrial production, China is regularly portrayed as the new “factory of the world”.

China is nevertheless not seen as equally threatening around the world. At the end of the 1990s, as Chinese imports surged and shifted to higher value added products, Japan perceived China as a potential threat. Japanese firms had started to invest in China to manufacture state-of-the-art consumer products such as digital cameras. Hence the return of the fear of hollowing out. The perception of China has nevertheless begun to change around 2002, when Japan began to consider the vast opportunity represented by the development of China. According to some, such a change of attitude has been triggered by the fact that Japanese manufacturers seem to “have avoided head-to-head competition with producers in China and shifted domestic production to higher value added devices and materials” (Munakata 2003). The attitude of the United States vis-à-vis China’s economic performance has on the contrary become increasingly critical as the bilateral deficit has deepened. EU countries have weaker economic links with China, but they fear the combined emergence of new competitors from Asia and Eastern Europe. More generally, China is not the sole source of the rapidly increasing global manufacturing capacity. To the extent that decreasing capacity in high-income countries for the same products does not compensate increasing capacity in emerging zones, global over-capacity builds up.

In order to benefit from dynamic growth in emerging zones, high-income countries need to evolve towards more favorable specialization. Some countries may have a relatively more favorable specialization from the outset. Besides, some countries may prove more mobile. This paper examines the role of multinational companies in this dynamics.

Part one explains the emergence of global production networks and their impact on trade between low- and high-wage countries. Part two examines the differences between multinationals from Japan, the United-States and Europe, focusing on trade with China. It then examines intra-firm trade by companies located in France, comparing trade patterns with China on the one hand and CEECs on the other hand. The conclusion relates intra-firm trade, global production networks and the dynamics of international specialization.

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