CHINESE COMPETITION AND THE RESTRUCTURING OF SOUTH AFRICAN MANUFACTURING

Rhys Jenkins (UEA)Lawrence Edwards (UCT)

GROWTH OF CHINA

• GDP growth of >9% p.a. for three decades• Overtakes Japan as 2nd largest economy in the

world• Share of world trade increased from 1% to 8%

(1980-2009)• Overtakes Germany as world’s largest

exporter

ANALYTICAL FRAMEWORK

COMPETITIVE COMPLEMENTARYDIRECT Chinese imports

displacing domestic producers

Exports to ChinaImports of parts from China

INDIRECT Loss of market share to China in export markets

Involvement in Global Production Networks with China

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

TWO KEY QUESTIONS

• What types of products are being imported from China?

• Consumer goods• Intermediate goods• Capital goods

• Are Chinese imports displacing imports from other countries or domestic production?

WHICH INDUSTRIES ARE AFFECTED BY CHINESE COMPETITION?

• By technology level – Lall classification• Primary products• Resource-based manufactures• Low technology manufactures• Medium technology manufactures• High technology manufactures

CHINESE IMPORT PENETRATION

• Estimation of China’s share in apparent consumption by industry

• Converting trade data to industrial classification• Level of disaggregation (3 digit ISIC)• Data problems – unregistered trade

METHODOLOGY FOR ANALYSING IMPACTS OF IMPORTS FROM CHINA

• Chenery-type decomposition to estimate impacts on output and employment.• Discrete time periods• Estimate extent to which China displaces other imports

and/or domestic production• Use of employment coefficients to estimate

employment effects

• Panel data estimation• Structural model (fixed effects)• Dynamic model (GMM)

METHODOLOGY FOR ANALYSING IMPACTS OF CHINESE COMPETITION ON EXPORTS

TO THIRD MARKETS• Constant Market Share Analysis (Shift/Share)

∆kH = ΣXtHi*∆mi + ΣMi

t+1*∆kHi (1) where: kH is the share of country H in total imports of the destination marketXH is the total exports of country H to the destination market mi is the share of product i in the total imports of the destination marketMi is the total imports of product i by the destination marketSuperscripts t and t+1 represent the initial and final year of the period.

• Extension by Batista to distribute changes in market shares between competitors.

BATISTA METHOD

• The loss of market share by a country (H) to China (C), in a particular product i is defined as:

∆kHCi = ∆kHi*ktCi - ∆ kCi* kt

Hi (2) Summing over all products gives the aggregate loss of market share to China:

Σ∆kHCi = Σ∆kHi*ktCi - Σ∆ kCi* kt

Hi (3)

BRAZILIAN TRADE IN MANUFACTURES WITH CHINA, 1996-2010 (US$bn.)

CHINA’S SHARE IN BRAZIL’S TOTAL IMPORTS AND EXPORTS OF MANUFACTURES, 1996-2010 (%)

BRAZILIAN IMPORTS FROM CHINA BY END USE (%)

  1996 2001 2006 2009

Food & beverages 3.3 0.9 0.7 1.0

Industrial supplies 22.3 26.2 23.6 26.5

Fuels & lubricants 3.6 9.2 1.7 0.6

Capital goods 12.3 18.1 26.2 24.9

Parts for capital goods 11.9 23.4 28.3 25.3

Transport equipment 0.3 0.0 0.1 0.8

Parts for transport equipment

2.6 2.2 4.6 4.4

Consumption goods 43.6 19.8 14.8 16.5

BRAZILIAN IMPORTS FROM CHINA BY TYPE OF PRODUCT (%)

  1996 2001 2006 2009

Primary Commodities 3.4% 4.3% 1.4% 1.6%

Resource Based Manufactures 10.9% 17.0% 9.5% 10.7%

Low Technology 39.6% 20.6% 16.1% 20.8%

Medium Technology 20.2% 19.2% 26.2% 25.2%

High Technology 25.0% 38.4% 46.5% 41.4%

IMPORTS AS A SHARE OF DOMESTIC DEMAND IN MANUFACTURING, 1996-2007

CHINESE IMPORTS SHARE OF DOMESTIC CONSUMPTION (%)

Industry Share 2007Office equipment 62.9

Optical and photographic equipment 31.2

Travel and other leather goods 18.3

Batteries and accumulators 17.8

Lamps and lighting equipment 15.5

Radio & TV receivers and sound and video recorders 14.6

Miscellaneous manufactures 12.8

Electronic data processing equipment 12.8

Basic electronic materials 12.7

Telephone and radio & TV transmitting equipment 12.5

DISPLACEMENT OF OTHER IMPORTS AND DOMESTIC PRODUCTION BY CHINESE IMPORTS (1996-2007)

  1996-2001 2001-2004 2004-2007

Total gain by China (Reais mn.) 787 3,718 9,016

Gain by China from ROW  (Reais mn.) 197 2,225 5,099

Gain by China from domestic producers (Reais mn.) 590 1,493 3,917

% from RoW 25.0% 59.8% 56.6%

% from domestic producers 75.0% 40.2% 43.4%

OVERALL IMPACT OF CHINESE IMPORTS ON INDUSTRIAL EMPLOYMENT (1996-2007)

  1996-2001 2001-2004 2004-2007

Loss of employment to Chinese imports -6,312 -9,168 -32,726Gain from exports to China 8,121 12,813 -4,870Growth in total industrial employment

320,111 867,210 767,703

PANEL DATA RESULTS

Fixed effects GMM (Arellano-Bond)All industries L-intensive

(additional)All industries L-intensive

industries only

Prices -ve*** -ve*** -ve*** 0ProfitsProductivity +ve*** +ve* -ve* +ve**Employment -ve** -ve* 0 -ve***Wages -ve*** 0 -ve*** -ve**

SHARE OF INDUSTRIAL IMPORTS FROM BRAZIL AND CHINA, 1996-2009

ARGENTINA

0.0%5.0%10.0%15.0%20.0%25.0%30.0%35.0%40.0%

1996

19971998

1999

2000

2001

20022003

2004

2005

2006

20072008

2009

Sh

are

of

Ind

us

tria

l Im

po

rts

CHILE

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%

1996

19971998

1999

2000

2001

20022003

2004

2005

2006

20072008

2009

Sh

are

of

Ind

us

tria

l Im

po

rts

MEXICO

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%16.0%18.0%

199619971998199920002001200220032004200520062007200820092010

Sh

are

in In

du

str

ial I

mp

ort

s

VENEZUELA

0.0%2.0%4.0%6.0%8.0%10.0%12.0%14.0%

1996

19971998

1999

2000

2001

20022003

2004

2005

2006

20072008

2009S

ha

re o

f In

du

str

ial I

mp

ort

s

Brazil China

DISPLACEMENT OF BRAZILIAN MANUFACTURED EXPORTS BY CHINA, 1996-2009

  Share of Brazilian exports  1996-2001 2001-2004 2004-2009USA

-0.7% -9.6% -5.3%EU

-2.5% -0.3% -5.9%Argentina 0.1% -0.3% -6.8%Chile -1.2% -1.0% -14.4%Mexico -0.4% -1.2% -6.6%Venezuela -0.8% 0.2% -8.6%

CHINESE TRADE FLOWS WITH SOUTH AFRICA: A CURSORY

OVERVIEW

CHINA’S RISING DOMINANCE AS SOURCE OF SA IMPORTSSouth Africa's Top import partners by trade value

1995 2000 2005 2009

Country Share Country Share Country Share Country Share 1 Germany 17.93 Germany 15.26 Germany 16.24 China (1)  16.40 2 USA 12.77 USA 13.52 China (2)  10.42  Germany 14.50 3 UK 11.61 UK 9.68 USA 8.99 USA 9.43 4 Japan 11.05 Japan 9.24 Japan 7.77 Japan 6.06 5 Italy 4.28 France 4.90 UK 6.23 UK 4.69 6 France 4.24 China (6)  4.31  France 5.07 France 3.83 7 Asia Othr.ns 3.50 Italy 3.80 Italy 3.33 Italy 3.12 8 Switz.Liecht 2.64 Switz.Liecht 2.82 Korea Rep. 3.04 Thailand 2.67 9 Netherlands 2.55 Australia 2.82 Brazil 2.73 India 2.62 10 Belgium-Lux 2.48 Asia Othr.ns 2.63 Australia 2.42 Brazil 2.42 11 China (11)  2.07  Netherlands 2.21 India 2.03 Korea Rep. 2.20

… DRIVEN BY INCREASED IMPORTS OF EXISTING PRODUCTS AND NEW PRODUCTS

… AND ACROSS NUMEROUS INDUSTRIES

1995 2009 1995 2009Meat, fish, fruit, vegetables, oils & fa 20 6 1 5Dairy products 24 15 0 1Beverages 50 26 0 0Knitted and crocheted fabrics 6 1 5 62Clothing 1 1 29 71Footwear 1 1 36 73Sawmilling and planing of wood 41 6 0 5Paper and paper products 30 3 0 7Coke oven and petroleum products 2 2 16 24Basic chemicals 14 1 1 12Non-metallic mineral products 8 1 5 22Basic iron and steel 20 1 1 25Other fabricated metal products 7 1 4 30General purpose machinery 16 1 1 23Household appliances 2 1 14 62Television, radio and other electronic e 12 1 2 32Motor vehicles 26 10 0 1Other transport equipment 12 9 1 3Furniture 8 1 2 42Other manufacturing 1 1 15 48Total Manufacturing 2 18

Country ranking of China as source of imports

Share Chinese imports in total SA imports (%)

… AT SUBSTANTIALLY LOWER PRICESImport unit values of China relative to imports from other countries

(Chinese imports as weights)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

Pchina/P Developing Pchina/P Developed

COMPOSITION OF IMPORTS SHIFTING TO HIGH-TECH

Composition of SA imports from China

Share China in Total SA imports

1995 2009 1995 2009 High-Technology 12.94 27.29 1.33 20.76 Medium-Technology 22.20 27.92 1.06 12.37 Low-Technology 44.65 32.18 8.44 39.77 Resource-Based 8.27 9.23 1.18 11.06 Primary products 11.44 2.76 3.15 6.77 Other 0.50 0.63 0.30 1.32 Total 100 100 2.07 16.39

TREND IN CHINESE IMPORTS AS SHARE DOMESTIC DEMAND DIFFERS FROM BRAZIL

Import share of domestic consumption of manufactured goods

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

From China Rest of world From world

… WITH MUCH VARIATION AT THE INDUSTRY LEVEL