China's increasing economic power is more of an opportunity than a threat to other East Asian economies, according to an Australian government report published on Wednesday.

It says China's demand for farm commodities, and for minerals and energy, will grow by 15 and 14 per cent a year respectively until 2010. However, it adds, despite concerns that this rapid expansion represents a competitive threat to its neighbours, China's industrial rise is a "positive sum game" for the region and all regional economies appear to be gaining, to differing degrees.

Publication of the report by the department of foreign affairs and trade comes less than a week after a visit to Australia by Hu Jintao, the Chinese president, in which the growing trade links between Canberra and Beijing featured strongly.

Australia expects China to become its most important trading partner in the coming decade, partly due to rising exports of iron ore, gas and other resources to feed China's industrialisation.

The report says that during the past 10 years China has become more closely integrated into regional production chains that have stimulated regional trade.

In the more advanced regional economies such as Japan and Singapore, it says, exports of advanced components and capital equipment to China are more than compensating for losses in labour-intensive manufacturing sectors.

In developing regional economies, China is challenging competing industries but, overall, competing sectors are still expanding strongly.

"China's industrial expansion is stimulating restructuring that should help industrial efficiency and growth," the report says.

But the report warns that Thailand faces significant potential challenges because, within East Asia, its export profile is the most similar to China's.

"Provided the Thai economy can restructure flexibly it should gain from this competition. However, if Thai economic reform programmes were to stall, Chinese competition could prove a serious challenge," it says.

The report also predicts that if China's reforms stay on track its economy could match the size of Germany's by 2010 and Japan's by 2030. However, it is unlikely to become a competitive net exporter of high technology or capital-intensive industrial goods for many years.

"China's huge, low-cost but on average low-skill workforce means its relative strength, and hence its trade specialisations, should remain in labour intensive exports for some decades," it says.

(China's Industrial Rise, East Asia's Challenge, Department of Foreign Affairs and Trade, Canberra http://www.dfat.gov.au/ )

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