CHINA: Class 4 Integration of China into the global economy

Prior to the reform period q Self-reliance--AUTARKY q only resort to trade when necessary q prohibit foreign investment q no participation in World Bank, IMF q avoid dependence on foreign aid, loans

TITLE Indicator of magnitude of change merchandise trade value & % of GDP

Value of exports + imports as percent of GDP A little misleading???

Value of total exports (Billions $US)

Value of Exports 1997 Plus re-exports through Hong Kong (almost doubles?) Annual % change

Foreign private capital investment to: q Diversify industrial base q access to new technology q upgrade managerial and labor skills Major source of tension

Trends--cumulative FDI in billions $US

Net Private capital Flows (billions $US) 1994

Example of a spatial diffusion process q Some regions were opened up earlier and more fully q result: substantial unevenness of participation

Export share of provincial Gross State Product, 1990 Example of Foreign Trade

Province Share of Total Chinese Exports, %???

Device--Special Economic Zones q Initially set up Guangdong and Fujian provinces--s.e. coastal provinces close to Hong Kong and Taiwan q Think of as Export Processing Zones q various incentives were offered to attract FDI

Concept of bamboo network q Descendents of those forced out of China q Why so important? q Dissatisfaction with response of US, Japan etc. q language and cultural linkages

Sources of Chinese FDI, (100 million $US, contracted value)

Hong Kong q Initial role was one of entrepot for Chinese trade q post Became major mfg. center thanks to emigrants from Shanghai (textiles, plastic flowers, rattan furniture--> electronics, precision machinery) q from mid 1980s massive transfer of mfg. capacity to China (Guangdong)

Impacts on Hong Kong economy q Dramatic decline in manufacturing q from 1,000, > 386,000 workers q from 45% ---> 16% of workforce q increasingly specialized in business services--finance, marketing, transport communications services to Chinese industrial economy

Issue: Contribution of foreign investment to Chinese economic growth q Prior to 1990, FDI was less than 1% of GDP q until 1991, virtually all of industrial output of foreign-invested companies was exported--no domestic market presence q conclusion--economic reform was the initial key

A closer look at textile and clothing exports

Textile exports by developing economies % of total for developing economies

Clothing exports by developing economies

Future trends??? q tariffs on textiles and clothing are scheduled for elimination by 2005 q China should profit especially if admitted to WTO q BUT. Changes in rules of origin for US market make assemblage country the country of origin. q May hurt China DEMAND SIDE

q Impact of trade agreements like q NAFTA q preferential trade agreements between EU and Turkey and Eastern Europe q Japan’s intention to apply restrictions on exports of Chinese textiles and clothing q 1994: China accounted for 54% of Japan’s clothing imports

Supply side factors q Some shortages of labor in coastal regions will create supply constraints unless Chinese q relax constraints on migration out of areas with surplus unskilled labor q improve infrastructure in inland areas to promote industrial expansion there