China’s new growth strategy andChina s new growth strategy and its impact on international tradep
G. Gaulier, F. Lemoine, D. Ünal
CEPIICEPII(Centre d’Etudes Prospectives & d’Informations Internationales, Paris)
1 WIOD - Conference on Industry Level Analysis of Globalisation and its Consequences, Vienna, 26-28 May 2010
The aim of the study and the data used
• What are the implications for the rest of the world of China’s new
The aim of the study and the data used
What are the implications for the rest of the world of China s new growth model, which aims at rebalancing its economy towards the domestic market?
• The analysis focuses on China’s foreign trade which is major channel of interactions between China’s development strategy and its international p gyenvironment .
• An original data base derived from China’s customs statistics (1997-2007) which gives full account of the fragmentation of its foreign trade: the divide between processing and ordinary trade; between Chinese and foreign capital firms. g p
2
I Shifting the centre of gravity of the economy towards the domestic market
II China’s exports sector facing adjustment
III Who will take advantage of China’s rising domestic demand?
3 WIOD - Conference on Industry Level Analysis of Globalisation and its Consequences, Vienna, 26-28 May 2010
I-Shifting the centre of gravity of economy towards the domestic market
• In the 2000s, China’s foreign trade accelerated; trade surplus skyrocketed• External demand became a growth driver
10
Share in world trade(1980-2009)
Share in China’s GDP1980-2008 (current prices)
40
9.3
7.98
9
10China Exports % World Exports
33.0
26 2
30
35
40Exports % GDP
Imports % GDP
Trade Balance % GDP
5
6
7 China Imports % World Imports
26.2
15
20
25
2
3
4
6.9
0
5
10
0
1
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
‐10
‐5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
4
Source: IMF-DOTS database, March 2010 and WDI, authors’ calculations.
Comparing shares in world GDP and share in world exports, for China and India (1980-2008)p , ( )
• Since 2000 China’s economy has become export dependent• India is still a relatively closed economyy y
CHINA INDIA5
8
10
GDP
GDP in PP 2005 international $
4
5
GDP
2000
2008
4
6
are in world G
2
3
are in world G
1980
2000
0
2
Sha
GDP in current $
0
1
Sha
0
0 2 4 6 8 10 Share in world Exports
0
0 1 2 3 4 5 Share in world Exports
5
Source: CEPII, CHELEM-INT-GDP databases, authors’ calculations.
Limits to the export-led growth
• The deterioration of China’s terms of trade: reduces the gains from trade• The shock of the global crisis, the collapse of external demand
Terms of trade (index, 1995=1)1.8 Ratio of exports to GDP (%)
1.4
1.6Import unit value
30
35
Total
1 0
1.2 Export unit value
19
24
15
20
25
Ordinary
0.8
1.0
Terms of
811
10 12
2
5
10 Processing
Oth
Note: Export and import unit values are in US$.
0.6
95 98 01 04 07
trade1
0
97 98 99 00 01 02 03 04 05 06 07 08 09
Others
6
p pSource: China’s Customs Statistics and Statistical Yearbook, authors’ calculations.
The new growth model centred on domestic demand:
-Rebalancing the economy towards household consumption. This means: higher wages, social security net, public spending g g , y , p p gon education and health
-The center of gravity will shift from coastal to inland provinces: spatial integration of the economy
-How China’s export-oriented sectors will adjust to the new international environment (sluggish demand) and domestic ( gg )context (stronger demand and higher labour costs)?
7 WIOD - Conference on Industry Level Analysis of Globalisation and its Consequences, Vienna, 26-28 May 2010
II-China’s exports sector facing adjustment.II China s exports sector facing adjustment. Source of vulnerability: measuring export-dependence
•China exports about
Ratio of foreign trade to GVIO (%)
21 1998
one-fifth of its industrial output
2019
21
16
2003
2007
13
10
35
31
Exports Imports Trade Balance
8
Source: China’s Customs Statistics and Statistical Yearbook, authors’ calculations.
China's GVIO by sector and destination of sales: domestic market and exports, 2007domestic market and exports, 2007
ALL FIRMS(% f l GVIO)
•Processing trade (China in the global
(% of total GVIO)
12 Processing
supply chains): half of total exports and 12% of GVIO:
11
gexports
Ordinary & other exports
•Textiles and Electronics are export-dependent sectors (export>50% of output),77
Domestic market
p ),
•Half of processing exports takes place in electronicsin electronics
•Other sectors are domestic-oriented
15 8 4 3
14 12 7 5 3 6 3 2 6
Energy
Food
Textiles
‐Paper
emica
ls
allurgy
chinery
ectrical …
tronics
nspo
rt …
Total
9
Source: China’s Customs Statisticsand Statistical Yearbook,authors’ calculations.
E T
Woo
d
Che
Met
Ma c Ele Elect Tra
Chinese and Foreign-capital firm industrial output, by industry group and destination of salesindustry group and destination of sales
CHINESE FIRMS FOREIGN CAPITAL FIRMS2007, in % of total GVIO
FCF are:
CHINESE FIRMS FOREIGN CAPITAL FIRMS
8
2
Processing Processing FCF are:•More dependent on external demand
exports
Ordinary & other exports
3
10 exports
Ordinary & other exports
demand,
•Highly specialised i i
59
Domestic market
3 Domestic market
in processing exports of electronics (large 1 1
19
6
import content)14 6 3 2
11 11 6 3 3
2 1
nergy
Food
extiles
Woo
d‐…
micals
llurgy
hine
ry
ctrical …
ronics
sport …
Total
1 2 1 1 3
2 2 1 2 3 1 1 1 1
Energy
Food
extiles
Woo
d‐…
micals
allurgy
hine
ry
ctrical …
tron
ics
nspo
rt …
Total
10 Source: China’s Customs Statistics and Statistical Yearbook, authors’ calculations.
En Te W
Chem
Meta
Mach
Elec
Electr
Tran
E Te W
Chem
Meta
Mach
Ele
Elect
Tran
The sources of China’s booming trade surpluses, 2004-2007 (in US$bn)
Trade surplus jumped from 32bn to 262bn, major increases came from: • Fully-foreign firm processing trade
C i i fi i• Chinese private firm ordinary trade
By Type of Firms By Type of Firms & Trade Regimes
110
130
150 Private
130
FFF‐Processing
Private
50
70
90
110
Fully Foreign
JVs
80
Private‐Ordinary
JVs‐Processing
10
10
30
50 JVs
Other Chinese
‐20
30 JVs‐Equipment for FCF
SOEs
‐50
‐30
‐10
97 98 99 00 01 02 03 04 05 06 07
Chinese
SOEs‐70
97 99 01 03 05 07
SOEs‐Ordinary
FFF‐ Equipment for FCF
11
Source: China’s Customs Statistics, authors’ calculations.
97 98 99 00 01 02 03 04 05 06 07 97 99 01 03 05 07 FCF
FCF processing activities dominate China’shigh-technology exports
•FCF responsible for the rise
Exports of high-technology products (%)90 •FCF responsible for the rise
of HT exports
M t HT t f
8178
70
80 Foreign Capital Firms' share in HT exports
• Most HT exports come from processing : high import-content but increasing local 47
40
50
60Processing trade's share in HT exports
content (between 1997 and 2006)
20
30
40
Local content of exports in HT processing trade
10
97 98 99 00 01 02 03 04 05 06 07
processing trade
12
Source: China’s Customs Statistics, authors’ calculations.
Geographic destination of exports: FCF more dependent on developed country markets
• Most China’s exports are directed to developed countries (77%) • But, developing markets have been the most dynamic markets , p g y• Chinese firms more oriented towards developing markets
2007 ( in % of total exports) 1997-2007 Change (points of %)( p ) g (p )
100 Total
Chinese 1612
77
5750
FCF
09
4
12
4
23
43
27
16
50‐9
‐16‐20
167
World Developed countries
Other partners
World Developed countries
Other partners
13
Source: China’s Customs Statistics, authors’ calculations.
p p
Similarity of Chinese firm and FCF exportsby destinationby destination
•Increased similarity
(Finger-Kreinin Index)
60 •Increased similarity (potential competition) of exports to the developing
k t50
55
60
Rich Asia
Developing Asia
economy markets
35
40
45 Europe
NAFTA
Other Top Partners
25
30 Rest of the World
World
20
97 98 99 00 01 02 03 04 05 06 07
14
Source: China’s Customs Statistics, authors’ calculations.
China’s export sector facing adjustment:
• Two indsutries are exposed to foreign shocks 1) textiles, exported by
p g j
Two indsutries are exposed to foreign shocks 1) textiles, exported by Chinese and FCF 2) electronics exported by FCF. Both are dependent on foreign demand; Textiles is more exposed to exchange rate than electronics which has a large import contentelectronics which has a large import content.
•Adjustment strategies to the new international and domestic context will depend on their specialisation patternsp p p
• FCF are the most vulnerable to the downturn in western demand; they can adjust to rising domestic costs by upgrading products and serve high-end segment of international and domestic demand; or relocate production to lower-cost countries; the role of China as a manufacturing base of cheap goods will progressively shift to other countriesp g p g y
• Chinese firm exports are more diversified: best placed to expand exports to developing economies, and to redirect export capacity to the domestic
k t ( ibl l ti d ti it t i l d i )
15
market (possibly relocating production sites to inland provinces).
III-Who will take advantage of China’s rising domestic d d?demand?
• The rise of ordinary importsChina’s imports in % of GDP (%)30 The rise of ordinary imports
reflects China’s domestic demand•China’s demand has resisted20
25
30
Total•China s demand has resisted better to the crisis than international demandTh di i t d t
15
20
15
20
Ordinary
•The divergence is expected to continue
4
11
7
7
33
5
10Processing
3
0
97 98 99 00 01 02 03 04 05 06 07 08 09
Others
16
Source: China’s Statistical Yearbook and Customs Statistics, authors’ calculations.
Can China drive world demand?
Sh f j t d
•China’s ordinary
Share of major trade powersin percent of world imports (%)
China s ordinary imports: 5% of world imports, cannot (yet) make up for the decline
20
25EU27 (without intrazone)
US make up for the decline of the other large import markets
10
15China total
0
5Japan
China ordinary
Source: CEPII, CHELEM-CIN database and China Customs Statistics,th ’ l l ti
0
92 94 96 98 00 02 04 06 08
17
authors’ calculations.
The concentration of foreign trade in coastal areasWith d ti i t d th th t f it f th• With more domestic-oriented growth, the centre of gravity of the
economy will shift towards inland provinces, less opened to imports.
Sh f th i t O di i t ’Share of the importsin the GDP of the area (%)
Ordinary imports’breakdown
41 Total 100 10041
Coastal area
Inland area
100 100
90 88
2726
1715
4
12
761
5 10 12
Total imports Ordinary imports
42 1
1997 2007 1997 2007
10
1997 2007
18
Source: China’s Statistical Yearbook, authors’ calculations.
Total imports Ordinary imports
China’s comparative advantages and disadvantages in ordinary trade:disadvantages in ordinary trade:
•In ordinary trade, China displays comparative
(Contribution to trade balance, in thousands of total trade)
80 displays comparative disadvantages in Electronics, Chemicals, Transport equipment
60
80 Total ordinary
Textiles
M hi Transport equipment
20
40 Machinery
Wood, paper
Metallurgy
‐20
0 Electrical Machinery
Transport equipment
‐40
97 98 99 00 01 02 03 04 05 06 07
Chemicals
Electronics
19
Source: Customs Statistics, authors’ calculations.
China’s ordinary imports by origin and production stage
•Asian countries have successfully taken advantage of China’s expanding demand: have become leading exporters of capital goods•Europe has strengthened its position as exporter of consumer goodsp g p p g
2007 (%) Semi-Finished
Goods
Parts & Components
Consumption Goods
Capital Goods
All stages
GoodsWorld 43 21 9 26 100Developed Asia 19 10 3 12 44Europe 7 8 4 8 27NAFTA 6 2 1 3 12NAFTA 6 2 1 3 12Developing Asia 4 1 1 2 8Other top partners 5 0 0 0 5Rest of the World 2 0 0 0 31997 2007 Ch (% i t)1997-2007 Change (% point)World -10 1 5 4 0Developed Asia 1 3 1 7 12Europe 1 0 3 -2 2NAFTA 4 3 1 3 9NAFTA -4 -3 1 -3 -9 Developing Asia -1 1 0 2 2Other top partners -7 0 0 0 -8 Rest of the World 0 0 0 0 0
20
Source: China’s Customs Statistics, authors’ calculations.
China’s ordinary imports of high-technology products, 1997-2007
1997 2007
•Developed Asia* has become the major supplier of HT
World 100 100Developed Asia 20 50Europe 43 29
Breakdown of HT manufactured ordinary imports (in %)
goods• Europe has lost ground in HT exports
pNAFTA 32 16Developing Asia 1 4Rest of the World 1 1Other top partners 3 0Other top partners 3 0
World 12 10Developed Asia 8 11E 21 10
HT content of ordinary imports from each zone (in %)
*Japan,H ongkong, S.Korea, Singapore Taiwan
Europe 21 10NAFTA 18 12Developing Asia 1 4Rest of the World 6 3
Source: China’s Customs Statistics, authors’ calculations.
Singapore, TaiwanOther top partners 2 1
21
Ordinary imports of high-technology products by type of firms (2007, %)( , )
• The HT content of ordinary imports declined
Breakdown of HT ordinary importsb t f fi
HT content of ordinary importsb t f fiby type of firms by type of firms
66 20All Firms
Chinese Firms
54
4612
Foreign Capital Firms
34
7
1211
10
5
1997 2007
22
Source: China’s Customs Statistics, authors’ calculations.
1997 2007 1997 2007
Sharing China’s domestic market: local production vs ordinary imports, Chinese firms vs FCF
•FCF strong presence in the domestic market in several industries•Local production by FCF is much larger than ordinary imports, in any i dindustry
(2007 b US$)Industrial output for domestic use Ordinary imports
1018Transport Eq.163
136Transport Eq. Foreign Capital Firms
(2007, bn US$)
26
7
25
10
16
8
27
Machinery
Elec. Machin.
Electronics
302
172
51
163
89
73
122
Machinery
Elec. Machin.
Electronics Chinese firms
6
40
67
6
31
20
Wood‐Paper
Chemicals
Metallurgy
133
564
580
47
181
85
Wood‐Paper
Chemicals
Metallurgy
80
8
2
5
5
2
Energy
Food
Textiles
741
295
135
76
107
69
Energy
Food
Textiles
23
Source: China’s Customs Statistics & China’s Statistical Yearbook, authors’ calculations.
Who will take advantage of China’s rising domestic
• China’s imports for domestic use remain small compared to that of US
demand?
China s imports for domestic use remain small compared to that of US and EU; can only partly be a substitute to these markets
•Asian neighbors have a growing role in supplying China’s domestic demand. China is not only the hub of the regional division of labor but also a growing market for Asian final goods. China likely to provide Asia with an engine of autonomous growth (“decoupling”). g g ( p g )
•FCF have an important role in ordinary imports from advanced economies, confirming the link between FDI and access to China’s market.
• Moreover, FCF local production by far exceeds China’s ordinary imports What is thus at stake is not only the competitiveness the partners’imports. What is thus at stake is not only the competitiveness the partners’ exports but the sharing of local production between FCF and Chinese firms to serve the domestic market.
24
ConclusionsConclusions
Adjustment in global trade balances will lead to increasing tradeAdjustment in global trade balances will lead to increasing trade tensions between China’s and its partners if global growth remains sluggish
Chi ’ d l t t t i t t i i t b t th hift tChina’s development strategy is at a turning point but the shift to a domestic consumption-led growth will take time, as it requires domestic restructuring and reforms.
The pace of change will also depend on the stability of its international environment, of the recovery in advanced and emerging economies. g g
25
