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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% ( ) 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

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 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, (%) 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,

16 The Impact of Chinese Competition on Production 16

17 Loss of Market Share to China, Chenery Decomposition Total gain by China (R. mn.) Gain from Domestic Producers (R mn.) 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, 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,

20 With Remarkably Similar Estimates of Output Loss 1992 (R bill) 2000 (R bill) 2009 (R bill) Change (R bill) Annual log growth Actual % Counterfactual % difference % Note: Based on output elasticity of

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 jobs lost between And lost in post 2000 period – decline in Clothing – decline in Textiles – But to increase in chemicals and machinery 22

23 Coinciding Increased Import Penetration in Economy 23

24 Changes in Employment, and Loss of employment to Chinese imports Loss of employment to all imports Productivity growth Change in employment Gain from exports to China Note: Based on Chenery Decomposition 24

25 Estimated Job Losses as a Result of Increased Import Penetration from China, Employment Loss Total decline in employment (%) Clothing % General purpose machinery % Special purpose machinery % Knitted and crocheted fabrics % Other textiles % Spinning and weaving % Footwear % TV, radio and other electronic equipment % Other chemicals % Other electrical equipment2 0595% Other fabricated metal products % Furniture % 25

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

27 Regression Results for Employment Models, VARIABLES Empl: static within Empl: instrume nt Empl: dynamic within Empl: gmm diff Employment t **0.668** Real Wage **-0.169* Output **0.102**0.230** Tariff **0.144*0.23 Import penetration, other Import penetration, China-2.084**-1.444**-0.289* Export orientation0.633**0.535** Constant1.964**1.553** Long-run effect Import penetration, China Observations R-squared

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 New Pneumatic Tyres, Buses or LorriesItem Cotton T-shirtsItem Men's or Boys' Trousers, CottonItem Women's or Girls' Trousers, CottonItem Other Footwear, Rubber /PlasticsPair Other Printing MachineryItem Digital Automatic Data Processing MachinesItem Telephonic Switching ApparatusItem Transmission Apparatus Incorporating Reception Apparatus Item Colour Television ReceiversItem

32 Econometric Estimates: Impact of Chinese Import Penetration on Producer Prices Annual log growth, Annual log growth, 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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