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Presentation on theme: "CHINESE COMPETITION AND THE RESTRUCTURING OF SOUTH AFRICAN MANUFACTURING Rhys Jenkins (UEA) Lawrence Edwards (UCT) 1."— Presentation transcript:


2 Growth of China GDP growth of > 9% p.a. for three decades Overtakes Japan as 2 nd largest economy in the world Share of world trade increased from 1% to 8% (1980-2009) Overtakes Germany as world’s largest exporter 2

3 Rising Importance of China as Trade Partner with South Africa In 2009 China becomes South Africa’ s largest export market ahead of the United States – 11% total exports in 2010 And its largest supplier of imports ahead of Germany – 15% total imports in 2010 3

4 Coinciding with Long-run Decline in Share of Manufacturing in South African GDP and Employment 4

5 Key Questions What types of products are being imported from China? Consumer goods Intermediate goods Capital goods Which industries are affected by Chinese competition? Are Chinese imports displacing imports from other countries or domestic production? What is impact of Chinese competition on employment and prices? 5

6 Characteristics of SA trade with China 6

7 Composition of Trade Unbalanced Exports Imports 2000201020002010 Raw materials43%81%3%1% Intermediate goods45%17%21%16% Consumer goods2%0%52%40% Capital goods10%1%24%42% Table: SA Trade with China by Type of Product (%) 7

8 With Increasing Trade Deficit, driven by Manufactures Figure: SA Bilateral Trade Balance with China, US$ bill 8

9 China’s Share in SA’s Imports and Exports of Manufactures, 1996-2010 (%) 9

10 China’s Ranking as a Source of Imports by Sector and Share of Chinese Imports in Total Imports 10

11 Trend in Chinese Imports as Share Domestic Demand 11

12 Chinese Imports Share of Domestic Consumption Industry2010 Footwear46% Knitted and crocheted fabrics42% Television, radio and other electronic equipment32% Electric lamps and lighting equipment31% Clothing28% General purpose machinery23% Household appliances21% Leather and leather products19% Spinning and weaving18% Furniture15% Other textiles13% Special purpose machinery11% Electrical motors, generators and transformers11% 12

13 Measuring the Impact of Chinese Import Competition on Manufacturing Industries 13

14 Increased imports from China Import competing industries Import using industries Falling profit margins Exit of least efficient firms Defensive innovation by survivors Falling production Productivity changes Falling Employment Wages Rising profit margins Increased production Increased employment Increased wages Falling domestic prices 14

15 Methodology for Analysing the Impacts of Imports from China Chenery-type decomposition to estimate impacts on output and employment. Estimate extent to which China displaces other imports and/or domestic production Use of employment coefficients to estimate employment effects Panel data estimation Estimate conditional relationship using structural models Data 44 manufacturing industries, 1992-2009 15

16 The Impact of Chinese Competition on Production 16

17 Loss of Market Share to China, Chenery Decomposition 1992-20012001-2010 Total gain by China (R. mn.) 7 24241 384 Gain from Domestic Producers (R mn.) 7 16130 296 As % of Total Gain98.9%73.2% As % of Domestic Sales in Base Year 1.50%5.00% 17

18 Industries in Which Loss to Chinese Imports Represented More than 10% of 2001 Production, 2001-10 Loss to China Growth in Manufacturing Sales Knitted and crocheted fabrics60.50%-23.50% Footwear45.30%2.40% Clothing31.10%-7.60% General purpose machinery28.50%-19.10% Household appliances26.40%16.90% Television, radio and other electronic equipment21.50%11.00% Special purpose machinery18.70%1.80% Medical appliances, measuring and controlling equip.18.00%17.00% Electric lamps and lighting equipment13.30%0.30% Leather and leather products12.90%30.00% Electrical motors, generators and transformers12.30%-7.30% Other textiles11.10%-19.70% Spinning and weaving10.50%-41.70% 18

19 Supported by Econometric Results: Output Growth Slowest in Sectors With Highest Chinese Import Penetration, 2000-2010 19

20 With Remarkably Similar Estimates of Output Loss 1992 (R bill) 2000 (R bill) 2009 (R bill) Change 1992- 09 (R bill) Annual log growth Actual4845796321481.6% Counterfactual4845846671831.9% difference-6-34 -0.3% Note: Based on output elasticity of -1.19 20

21 The Impact of Chinese Competition on Employment and Wages 21

22 Employment in SA Manufacturing Industry Measurement of employment made difficult by inconsistent data series and surveys Share of manufacturing in total employment declined from 17% in early 1990s to 13% in 2010 With close to 300 000 jobs lost between 1992- 2010 And 113 000 lost in post 2000 period – 55 000 decline in Clothing – 21 000 decline in Textiles – But 12 000 to 20 000 increase in chemicals and machinery 22

23 Coinciding Increased Import Penetration in Economy 23

24 Changes in Employment, 1992- 2001 and 2001-2010 1992-20012001-2010 Loss of employment to Chinese imports-24 117-77 751 Loss of employment to all imports-144 734-110 318 Productivity growth-352 617-226 124 Change in employment-179 457-113 467 Gain from exports to China2 5854 080 Note: Based on Chenery Decomposition 24

25 Estimated Job Losses as a Result of Increased Import Penetration from China, 2001-2010 Employment Loss Total decline in employment (%) Clothing22 640-45% General purpose machinery12 71751% Special purpose machinery7 22415% Knitted and crocheted fabrics3 991-53% Other textiles3 053-22% Spinning and weaving2 851-37% Footwear2 521-55% TV, radio and other electronic equipment2 453-17% Other chemicals2 44230% Other electrical equipment2 0595% Other fabricated metal products1 983-4% Furniture1 895-40% 25

26 Econometric Analysis: Employment Growth Slowest in Sectors With Highest Chinese Import Penetration, 2000-2010 26

27 Regression Results for Employment Models, 1992-2009 VARIABLES Empl: static within Empl: instrume nt Empl: dynamic within Empl: gmm diff Employment t-1 0.819**0.668** Real Wage-0.038-0.065+-0.078**-0.169* Output0.238+0.312**0.102**0.230** Tariff0.3470.396**0.144*0.23 Import penetration, other-0.344-0.185-0.0360.091 Import penetration, China-2.084**-1.444**-0.289*-0.417 Export orientation0.633**0.535**0.120+0.202 Constant1.964**1.553**-0.164 -0.588-0.272-0.158 Long-run effect Import penetration, China -1.55-1.23 Observations792 748704 R-squared0.399 0.829 27

28 Caveats Much of action occurs in firms within industries - need firm data Unexplained productivity effect dominates Positive and negative impacts in downstream/upstream industries not captured Employment growth effect in retail sector missing Productivity impact of cheaper capital and intermediate goods not accounted for 28

29 The Impact of Chinese Competition on Prices 29

30 Chinese Import Prices Substantially Lower than Imports from Other Countries 30

31 Import Prices, Top Imported Chinese Products, US$ HS code and descriptionUnitChina Emergin g High- income 401120 New Pneumatic Tyres, Buses or LorriesItem74.489.3144.4 610910 Cotton T-shirtsItem1.45.55.4 620342 Men's or Boys' Trousers, CottonItem312.722.2 620462 Women's or Girls' Trousers, CottonItem3.49.916.5 640419 Other Footwear, Rubber /PlasticsPair2.311.818 844350 Other Printing MachineryItem343.3339.51009.7 847120 Digital Automatic Data Processing MachinesItem558.6582.3576.1 851730 Telephonic Switching ApparatusItem171.1499.8542.6 852520 Transmission Apparatus Incorporating Reception Apparatus Item64.8151226.3 852810 Colour Television ReceiversItem83.4206.5295.1 31

32 Econometric Estimates: Impact of Chinese Import Penetration on Producer Prices Annual log growth, 1992- 2009 Annual log growth, 2000-2009 Actual6.61%6.48% Counterfactual6.93%6.98% Log difference0.32%0.50% 32 Note: Based on coefficient of 0.75

33 Conclusion Significant impact of Chinese competition on South African manufacturing China’s share of the domestic market increased steadily, but still less than 7% in 2010 Uneven nature of import penetration means that some industries face very significant competition from China. Bulk of increase in Chinese penetration been at expense of local production rather than imports from other countries Been associated with significant job losses in labour- intensive industries such as clothing and footwear. But also lower priced products. 33

34 Implications China poses considerable challenge to growth of manufacturing output and employment – Decline in manufacturing relative to services – Within manufacturing shift to resources What policy response?


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