Post on 30-Jul-2020
transcript
China and the transformation of value chains
Alicia Garcia Herrero
Senior Fellow, Bruegel
November, 2019
Key issues
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1. The world is more linked to China while China becomes more vertically
integrated
2. China’s vertical integration leads to China’s reduced dependence on Asian
regional value chain
3. Europe’s value chain increasingly dependent on China at the expense of its
own regional integration
4. How do EU countries differ from Asian ones in their integration to China’s
value chain?
5. US rising dependency on Chinese intermediates while declining export of
intermediates not just to China but the world
6. North Asia reshuffling supply chain to Southeast Asia in response to China’s
vertical integration
3
Related research:
Supply chain transformation : The world is more linked to China while China
becomes more vertically integrated
1. Supply chain transformation : The world is more linked to China while China becomes more vertically integrated
China is now the center of the global value chain as 19% of global manufacturing exports are produced in China
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China’s global market share of manufacturing exports (%)
Source: Natixis, UNCTAD
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9
15
63
Share in world total exports (%,2017)
China US EU Rest of world
Source: Natixis, WTO
Analyzing exports through a value chain (VC) approach
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13%
32%
13%
87%
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100
1 2
Breakdown of China's value added of gross exports (2018,%)
Gross:
2.2tr $
DVA
FVA
GVC:
45%
FVA
DVX
Source: UNCTAD-Eora database forecast, Natixis
Global value chain (GVC) integration has been declining since the global financial crisis
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World GVC Participation (%)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
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China’s market share of global exports (%)
Source: Natixis, UNCTAD
The drop in participation is driven by the decrease in usage of foreign inputs for exports, with China having the sharpest reduction in foreign dependency
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-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
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30
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60
70
Germany US China Global
GVC Participation (%)
2014 2018 Chg in level (rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
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Germany Global US China
Domestic value added in export (%)
DVA 2018 Change in level (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Change in level (2018-2014,rhs)
China has not only increased its vertical integration by reducing its reliance on imports of intermediates but also sharply increased its exports of intermediate goods
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-3.5
-2.5
-1.5
-0.5
0.5
1.5
2.5
3.5
-45
-35
-25
-15
-5
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Germany Global US China
Foreign value added in export (%)
FVA 2018 Change in level (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Change in level (2018-2014,rhs)
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-40
-30
-20
-10
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Germany US Global China
Domestic value added in third country's export or DVX (%)
DVX 2018 Change in level (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Change in level (2018-2014,rhs)
9
Related research:
China’s vertical integration leads to less dependence on Asian regional value chain
2. China’s vertical integration leads to less dependence on Asian regional value chain
Global and regional: a regional value chain approach
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32%
55%
13%
87%
7%
6%
12%
19%
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90
100
Breakdown of China's value added of gross exports (%,2018)
Gross:
2.2tr $
DVA
FVA
GVC:
0.99tr $
FVA
DVX
Source: UNCTAD-Eora database forecast, Natixis
DVA-DVX
RVC: 0.40tr $DVX Within Asia
FVA Within Asia
DVX Outside Asia
FVA Outside Asia
Value chains declining globally and at the regional level too for Asian economies
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0
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20
30
40
50
60
70
80
GVC breakdown by region (%,2018)
GVC within Asia (RVC) GVC Outside of Asia
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
-8
-6
-4
-2
0
2
4
-8
-6
-4
-2
0
2
4
RVC participation within Asia (%)
Change in GVC (2018-2014) Change in RVC (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
Integration at the sub-regional level is rising in ASEAN and to a lesser extent North Asia, while the decline of regional integration is driven by China and to a lesser extent South Asia
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25
30
35
40
Share in global manufacturing exports (%)
China India ASEAN North Asia
Source: UNCTAD, Natixis
-0.5
0.0
0.5
1.0
-15
-10
-5
0
5
10
15
20
25
30
Asia Asia ExChina
North Asia South Asia ASEAN
Regional and sub-regional value chain participation (%)
2014 2018 Chg (2018-2014,rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Asian countries’ value chain participation with China has declined, except for Bangladesh, Singapore and Vietnam, which is driven by China’s vertical integration
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GVC RVC Sub-region With China
South Korea -1 -1 -1 -1
Taiwan 1 1 1 -1
Japan -1 -1 -1 -1
China -1 -1 -1 N/A
Singapore -1 1 1 1
Malaysia -1 1 1 -1
Philippines -1 -1 -1 -1
Viet Nam -1 -1 -1 1
Indonesia -1 1 1 -1
Thailand -1 1 1 -1
Nepal 1 1 1 -1
Pakistan 1 1 1 -1
India -1 -1 -1 -1
Sri Lanka -1 -1 -1 -1
Bangladesh -1 -1 -1 1
Table 1
Change in value chain participation (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
-20
-15
-10
-5
0
5
10
15
20
RVC DVX FVA
China's value chain integration within Asia (%)
2018 Change 2018-2014 (rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
14
Related research:
Europe’s value chain increasingly dependent on China at the expense of its own
regional integration
3. Europe’s value chain increasingly dependent on China at the expense of its own regional integration
The European Union is experiencing a sharp reduction in global value chain participation
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China US EU Asia Ex China
GVC Participation (%)
2018 Chg(2018-2014,rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
EU’s GVC includes individual EU economy’s integration within EU
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Share in global manufacturing exports (%)
China EU28
Source: UNCTAD, Natixis
And it is not because of shortening of the supply chain as EU’s regionalization of its value chain decreases
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-2.0
-1.0
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-80
-60
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GVC RVC GVC with rest ofthe world
EU's value chain participation (%)
RVC GVC with RoW Chg (2018-2014, rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
0102030405060708090
GVC breakdown by region (%,2018)
RVC (GVC within EU) GVC Outside of EU
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
RVC has dropped across all European Union economies. Correspondingly, share of intra-EU in EU’s gross exports also declined
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RVC participation within EU28 (%)
Chg of RVC (2018-2014) Chg of GVC with ROW (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
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Share of intra-EU in EU's global exports (%)
Source: Natixis, UNCTAD
EU’s weaker regional integration coincides with increasing linkages with China’s value chain
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China-EU28Value Chain
DVX FVA
China's value chain integration with EU28 (%)
2018 Change (2018-2014,rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
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China US EU Asia Ex China
Domestic value added in third country's export or DVX (%)
2018 Chg(2018-2014,rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
EU’s GVC includes individual EU economy’s integration within EU
But such linkages are increasingly asymmetric in China’s favor
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Country GVC RVC W/CN
Belgium -1 -1 1
Croatia -1 -1 1
Cyprus -1 -1 1
Czech Republic -1 -1 1
Estonia -1 -1 1
Greece 1 -1 1
Hungary -1 -1 1
Ireland -1 -1 1
Italy -1 -1 1
Lithuania -1 -1 1
Luxembourg -1 -1 1
Malta -1 -1 1
Netherlands -1 -1 1
Poland -1 -1 1
Portugal -1 -1 1
Romania -1 -1 1
Slovakia -1 -1 1
Slovenia -1 -1 1
Spain -1 -1 1
Austria -1 -1 -1
Bulgaria -1 -1 -1
Denmark -1 -1 -1
Finland -1 -1 -1
France -1 -1 -1
Germany -1 -1 -1
Latvia -1 -1 -1
Sweden -1 -1 -1
UK -1 -1 -1
Table 1
Change in value chain particiaption (2018-2014)
Source: UNCTAD-Eora database, Nat ixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
20
Related research:
How do EU countries differ from Asian ones in their integration to China’s value
chain?
4. How do EU countries differ from Asian ones in their integration to China’s value chain?
Level of integration in China’s value chain about the same but trends are different
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-1.5
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China-EU28Value Chain
DVX FVA
China's value chain integration with EU28 (%)
2018 Change (2018-2014,rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
-1.5
-1.0
-0.5
0.0
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RVC DVX FVA
China's value chain integration within Asia (%)
2018 Change 2018-2014 (rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
European economies is increasing its dependence on China
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VC with China FVA from ChinaDVX to China Overall
Austria -1 1 -1
Belgium 1 1 -1
Bulgaria -1 1 -1
Croatia 1 1 -1
Cyprus 1 1 -1
Czech Republic 1 1 -1
Denmark -1 1 -1
Estonia 1 1 -1
Finland -1 1 -1
France -1 1 -1
Germany -1 -1 -1
Greece 1 1 -1
Hungary 1 1 -1
Ireland 1 1 -1
Italy 1 1 -1
Latvia -1 1 -1
Lithuania 1 1 -1
Luxembourg 1 1 -1
Malta 1 1 -1
Netherlands 1 1 -1
Poland 1 1 -1
Portugal 1 1 -1
Romania 1 1 -1
Slovakia 1 1 -1
Slovenia 1 1 -1
Spain 1 1 -1
Sweden -1 1 -1
UK -1 1 -1
stands for low er FVA from China and higher DVX to China
stands for higher FVA from China but low er DVX to China
stands for higher FVA from China and higher DVX to China
stands for low er FVA from China and low er DVX to China
Table.2
Change in value chain particiaption (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Belt & Road member economies are shaded in grey
But Asian economies are reducing it
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13.0
11.1
9.7
6.6
1.8
57.8
Total foreign value added in China's exports ( % , 2018 )
Japan South Korea US
Germany Singapore Rest of the world
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
VC with China FVA from China DVX to China Overall
Bangladesh 1 1 -1
India -1 -1 -1
Indonesia -1 -1 -1
Japan -1 1 -1
Malaysia -1 1 -1
Nepal -1 -1 -1
Pakistan -1 -1 1
Philippines -1 -1 -1
South Korea -1 1 -1
Singapore 1 1 -1
Sri Lanka -1 1 -1
Taiwan -1 1 -1
Thailand -1 1 -1
Viet Nam 1 1 -1
stands for low er FVA from China and higher DVX to China
stands for higher FVA from China but low er DVX to China
stands for higher FVA from China and higher DVX to China
stands for low er FVA from China and low er DVX to China
Table.1
Change in value chain particiaption (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Belt & Road member economies are shaded in grey
5. US-China value chain relationship increasingly asymmetric in China’s favor
24
Related research:
US-China value chain relationship increasingly asymmetric in China’s favor
The US participation has declined, mirroring its reduction in global manufacturing share
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02468
101214161820
Share in global manufacturing exports (%)
China US
Source: UNCTAD, Natixis
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
-80
-60
-40
-20
0
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GVC DVX FVA
US global value chain participation (%)
DVX FVA Chg (2018-2014,rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
The US sees declining export of intermediates but rise of import of Chinese intermediates for exports
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1,000
2,000
3,000
EX IM
US' trade in goods with the world( by stage of production, USD bn)
Consumption goods Intermediate goods
Capital goods Unclassified
Source: Natixis, UNCTAD
N.B.: Product classified under the Broad Economic Categories (BEC). Unclassified product consists mainly of food
& live animals
0
5
10
15
20
25
0
5
10
15
20
25
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01
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14
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20
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20
18
Share of China in US total imports (%)
Total Intermediate
Source: Natixis, UNCTAD
N.B.: Product classified under the Broad Economic Categories (BEC). Unclassified product consists mainly
of food & live animals
The US is losing grounds to China in terms of bilateral value chain relationship
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-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
-3
-2
-1
0
1
2
3
Value Chain withChina
DVX FVA
US value chain integration with China (%)
2018 Change 2018-2014
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
0
5
10
15
20
25
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15
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14
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16
20
17
20
18
Share of China in US total imports (%)
Total Intermediate
Source: Natixis, UNCTAD
N.B.: Product classified under the Broad Economic Categories (BEC). Unclassified product consists
mainly of food & live animals
The US is also reducing its participation with neighboring Latin America, Asia ex China and Europe
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Region US China
Asia Ex CN -1 -1
CN 1 N/A
EU28 -1 1
LATAM -1 1
Table 1
Value chain integration with key regions
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Note that most bilateral value chains between the US and China are for final consumption so the BVC is small
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0
200
400
600
800
1,000
1,200
US CN
Bilateral VC for US and China (USD bn, as of 2018)
W/China or US W/RoW
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
The trade-war zeros in on this bilateral intermediate relationship
30
- 200 400 600
US Import from CN
US Export to CN
US trade with China (USD bn)
Intermediate goods Capital goods Consumption goods Unclassified
Source: Natixis, UNCTAD
Tariffed Untariffed
Tariffed
6. North Asia reshuffling supply chain to Southeast Asia in response to China’s vertical integration
31
Related research:
North Asia reshuffling supply chain to Southeast Asia in response to China’s vertical
integration
The Asia Pacific region has become less integrated with China via the value chain while still importing more Chinese intermediates for exports.
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GVCVC with
China
FVA from
China
DVX to
China
Overall
with China
China -1 N/A N/A N/A
Japan -1 -1 1 -1
South Korea -1 -1 1 -1
Taiwan 1 -1 1 -1
Indonesia -1 -1 -1 -1
Malaysia -1 -1 1 -1
Philippines -1 -1 -1 -1
Singapore -1 1 1 -1
Thailand -1 -1 1 -1
Viet Nam -1 1 1 -1
Bangladesh -1 1 1 -1
India -1 -1 -1 -1
Nepal 1 -1 -1 -1
Pakistan 1 -1 -1 1
Sri Lanka -1 -1 1 -1
Change in value chain particiaption (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
Belt & Road member economies are shaded in grey
stands for low er FVA from China and higher DVX to China
stands for higher FVA from China but low er DVX to China
stands for higher FVA from China and higher DVX to China
stands for low er FVA from China and low er DVX to China
Table.1
North Asian economies are not standing by idly, with a rise of foreign direct investment into Southeast Asia
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0123456789
10
Foreign direct investment into ASEAN (USD bn)
South Korea Taiwan Japan
Source: Natixis, CEIC
RVC Sub-region
China -1 -1
Japan -1 -1
South Korea -1 -1
Taiwan 1 1
Indonesia 1 1
Malaysia 1 1
Philippines -1 -1
Singapore 1 1
Thailand 1 1
Viet Nam -1 -1
Bangladesh -1 -1
India -1 -1
Nepal 1 1
Pakistan 1 1
Sri Lanka -1 -1
Table.2
Change in value chain particiaption (2018-2014)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2016-2018 are forecasted by UNCTAD-Eora
That process of North Asian economies, and increasingly China too, deploying FDI into Southeast Asia has resulted in a surge of FDI in the region
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(5)
-
5
10
15
20
25
30
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
Change of share in global exports (%, 2018)
Chg of share in global export Mfg FDI growth (rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
If FDI supports regional supply chain, this is good news for investors (North Asia) and recipients (ASEAN)
35
(3.0)
(2.0)
(1.0)
-
1.0
2.0
3.0
4.0
5.0
6.0
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
Change of share in global exports (%, 2018)
Chg of share in global exports (%) Chg of DVX to GDP (rhs)
Source: UNCTAD-Eora database, Natixis
N.B. Results for 2018 are forecasted by UNCTAD-Eora
- 100 200 300
Philippines
Indonesia
VietNam
Malaysia
Thailand
Gross export to the world (USD bn)
2018 2011
Source: Natixis, UNCTAD
Vietnam retains its number 1 in 2019 ranking and Thailand jumped from third to second most attractive relocation in Asia.
36
Related research:
Impact of trade war on emerging Asia: No short-term winner but Vietnam, India and
Thailand to gain in the medium-term
Table 3. A summary of our relocation metrics and ranking
InvestmentWage ( $ per
month)
Electricity ( $ per
liter)
Doing Biz
Ranking
Infrastructure
Ranking Mfg/Total FDI (%)
CN -1 493 1 31 26 30 9 4 4
ID 6 296 1 73 46 35 9 5 5
IN 7 265 1 63 44 61 10 6 2
ML 7 413 1 12 41 30 6 3 6
PH 9 220 1 95 60 14 6 7 7
TH -2 413 1 21 32 37 9 2 3
VN 1 227 1 70 39 36 9 1 1
Country Demographics (%)Input Institution/Infrastructure Overall Rankings
2018
Source: Natixis, UNCTAD, Jetro, UN Population Statistics, World Bank, Global Petrol
Import tariff on Mfg
goods (%)
Overall Rankings
2019
Vietnam tops the table again for labor intensive but is fourth for medium-tech. Thailand tops our relocation index for medium-tech and China retains second place.
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Table 4. Country rank by Manufacturing Group (2019)
Medium-tech capital-intensive Labor-intensive
CN 2 7
ID 6 2
IN 5 4
ML 3 5
PH 7 3
TH 1 6
VN 4 1
Source: Natixis, UNCTAD, Jetro, UN Population Statistics, World Bank, Global Petrol
All in all
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• Global value chains are going through a very rapid transformation, in particular their size is shrinking since the global financial crisis.
• At first sight, one could imagine that the reason is the regionalization of global value chains but this is not what we find in our analysis.
• In the case of Asia, further regionalization of the value chain is happening within ASEAN and, to a lesser extent, North Asia but not in the rest of Asia and, most importantly, not so much with China.
• This is even more the case for the European Union where its regional value chain is losing ground while its linkages with China are growing.
• In any case, both for Asia and the EU, their integration with China’s value chain is becoming more asymmetric in China’s favor. In other words, while the EU and Asia are reducing their exports of intermediate goods for China’s own exports, China is increasing its exports of such intermediate goods.
• The US declining participation in the global value chain is driven by both its reduction in exporting of high-tech intermediates used for inputs in others’ exports and its reliance on foreign inputs for its production. At the same time, the US is increasingly dependent on Chinese intermediates for exports.
• While China has clearly benefited from its vertical integration of the value chain, regional counterparts are not standing by idly, especially North Asian economies by raising foreign direct investment into Southeast Asia.
• In other words, China is less dependent on the rest of the world, as it continues to vertically integrate its production, but the rest of the world is increasingly dependent on China’s exports.
Thanks!
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Appendix:
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The UNCTAD-Eora Global Value Chain (GVC) database offers global coverage (189 countries
and a “Rest of World” region) and a timeseries from 1990 to 2018 of the key GVC indicators:
foreign value added (FVA), domestic value added (DVA) and indirect value added (DVX). Results
from 1990 to 2015 are generated from EORA Multi-Region Input-Output tables (MRIOs). Results
for 2016 -2018 are nowcasted based on the IMF World Economic Outlook.