CHINA: Class 4Integration of China into the

global economy

Prior to the reform period

Self-reliance--AUTARKYonly resort to trade when

necessaryprohibit foreign investmentno participation in World Bank,

IMFavoid dependence on foreign aid,

loans

TITLEIndicator of

magnitude of change

merchandise trade

value &

% of GDP

Value of exports + imports as percent of GDP

0

10

20

30

40

50

1977-78 1992

China

India

Indonesia

Bangladesh

Brazil

Mexico

Japan

USA

USSR

A little misleading???

Value of total exports (Billions $US)

0

20

40

60

80

100

120

140

1980* 1994*

China

Mexico

Brazil

South Korea

Thailand

Malaysia

Value of Exports 1997

0

20

40

60

80

100

120

140

Value 1997 % change 1990-97

China

Korea

Singapore

Taiwan

Malaysia

Thailand

Indonesia

Plus re-exports through Hong Kong (almost doubles?)

Annual % change 1990-

97

Foreign private capital investment to:

Diversify industrial baseaccess to new technologyupgrade managerial and labor

skills

Major source of tension

Trends--cumulative FDI in billions $US

0

5

10

15

20

25

1979-84

1985 1986 1987 1988 1989 1990

Cumulative FDI

Net Private capital Flows (billions $US) 1994

0

10

20

30

40

50

Net private capital flows ($US billions)

China

South Korea

Malaysia

Thailand

Mexico

Brazil

Example of a spatial diffusion process

Some regions were opened up earlier and more fully

result: substantial unevenness of participation

Export share of provincial Gross State Product, 1990

Example of Foreign Trade

Province Share of Total Chinese Exports, 1990

199444%???

Device--Special Economic Zones

Initially set up Guangdong and Fujian provinces--s.e. coastal provinces close to Hong Kong and Taiwan

Think of as Export Processing Zones

various incentives were offered to attract FDI

Concept of bamboo network

Descendents of those forced out of China

Why so important?Dissatisfaction with response of

US, Japan etc.language and cultural linkages

Sources of Chinese FDI, 1987-91 (100 million $US, contracted

value)

0

50

100

150

200

U.S. Japan Hong Kong Taiwan

FDI value

Hong KongInitial role was one of entrepot

for Chinese tradepost-1949. Became major mfg.

center thanks to emigrants from Shanghai (textiles, plastic flowers, rattan furniture--> electronics, precision machinery)

from mid 1980s massive transfer of mfg. capacity to China (Guangdong)

Impacts on Hong Kong economy

Dramatic decline in manufacturingfrom 1,000,000 ---> 386,000 workersfrom 45% ---> 16% of workforce

increasingly specialized in business services--finance, marketing, transport communications services to Chinese industrial economy

Issue: Contribution of foreign investment to

Chinese economic growthPrior to 1990, FDI was less than 1%

of GDPuntil 1991, virtually all of industrial

output of foreign-invested companies was exported--no domestic market presence

conclusion--economic reform was the initial key

A closer look at textile and clothing

exports

Textile exports by developing economies

0

5

10

15

20

25

30

35

40

1970* 1985 1994

China

NIEs

ASEAN

South Asia

Latin America

% of total for developing economies

Developing economies(US$billion)

2.2 16.7 55.3

World (US$billion) 12.1 52.3 126.0

Clothing exports by developing economies

0

10

2030

40

5060

70

80

1970* 1985 1994

China

NIEs

ASEAN

South Asia

Latin America

Developing economies(US$billion)

1.5 24.9 93.1

World (US$billion) 5.7 46.6 150.3

Future trends???

tariffs on textiles and clothing are scheduled for elimination by 2005China should profit especially if

admitted to WTOBUT. Changes in rules of origin for

US market make assemblage country the country of origin.May hurt China

DEMAND SIDE

Impact of trade agreements likeNAFTApreferential trade agreements between

EU and Turkey and Eastern EuropeJapan’s intention to apply

restrictions on exports of Chinese textiles and clothing1994: China accounted for 54% of

Japan’s clothing imports

Supply side factorsSome shortages of labor in

coastal regions will create supply constraints unless Chineserelax constraints on migration out of

areas with surplus unskilled laborimprove infrastructure in inland

areas to promote industrial expansion there