Transcript china:class 4

CHINA: Class 4
Integration of China
into the global
economy
Prior to the reform period
 Self-reliance--AUTARKY
only resort to trade when necessary
prohibit foreign investment
no participation in World Bank, IMF
avoid dependence on foreign aid,
loans
Indicator of
magnitude of
change
merchandise
trade
value &
% of GDP
TITLE
Value of exports + imports as
percent of GDP
China
50
India
40
Indonesia
30
Bangladesh
20
Brazil
Mexico
10
Japan
0
USA
1977-78
A little misleading???
1992
USSR
Value of total exports (Billions $US)
140
120
China
100
Mexico
80
Brazil
60
South Korea
40
Thailand
20
Malaysia
0
1980*
1994*
Value of Exports
Annual %
1997
change 1990-97
140
120
China
100
Korea
80
Singapore
60
Taiwan
40
Malaysia
20
Thailand
0
Indonesia
Value 1997
% change 1990-97
Plus re-exports through Hong Kong (almost doubles?)
Foreign private capital
investment to:
 Diversify industrial base
 access to new technology
 upgrade managerial and labor
skills
Major source of tension
Trends--cumulative FDI in
billions $US
25
20
15
10
Cumulative FDI
5
0
1979- 1985 1986 1987 1988 1989 1990
84
Net Private capital Flows
(billions $US) 1994
50
China
40
South Korea
30
Malaysia
20
Thailand
10
Mexico
Brazil
0
Net private capital flow s ($US billions)
Example of a spatial
diffusion process
 Some regions were opened up
earlier and more fully
 result: substantial unevenness of
participation
Example of Foreign Trade
Export share of provincial
Gross State Product, 1990
1994
44%???
Province Share of Total
Chinese Exports, 1990
Device--Special Economic
Zones
 Initially set up Guangdong and
Fujian provinces--s.e. coastal
provinces close to Hong Kong and
Taiwan
 Think of as Export Processing
Zones
 various incentives were offered to
attract FDI
Concept of bamboo network
 Descendents of those forced out of
China
 Why so important?
Dissatisfaction with response of US,
Japan etc.
language and cultural linkages
Sources of Chinese FDI, 1987-91
(100 million $US, contracted value)
200
150
100
FDI value
50
0
U.S.
Japan
Hong Kong
Taiw an
Hong Kong
 Initial role was one of entrepot for
Chinese trade
 post-1949. Became major mfg.
center thanks to emigrants from
Shanghai (textiles, plastic flowers,
rattan furniture--> electronics,
precision machinery)
 from mid 1980s massive transfer
of mfg. capacity to China
(Guangdong)
Impacts on Hong Kong
economy
 Dramatic decline in manufacturing
from 1,000,000 ---> 386,000 workers
from 45% ---> 16% of workforce
 increasingly specialized in business
services--finance, marketing,
transport communications services
to Chinese industrial economy
Issue: Contribution of
foreign investment to
Chinese economic growth
 Prior to 1990, FDI was less than
1% of GDP
 until 1991, virtually all of industrial
output of foreign-invested
companies was exported--no
domestic market presence
 conclusion--economic reform was
the initial key
A closer look at textile
and clothing exports
Textile exports by
developing economies
% of total for developing economies
40
China
NIEs
ASEAN
South Asia
Latin Am erica
35
30
25
20
15
10
5
0
Developing economies
(US$billion)
World (US$billion)
1970*
1985
1994
2.2
16.7
55.3
12.1
52.3
126.0
Clothing exports by
developing economies
China
NIEs
ASEAN
South Asia
Latin Am erica
80
70
60
50
40
30
20
10
0
1970*
Developing economies
(US$billion)
World (US$billion)
1985
1994
1.5
24.9
93.1
5.7
46.6
150.3
Future trends???
DEMAND SIDE
 tariffs on textiles and clothing are
scheduled for elimination by 2005
China should profit especially if
admitted to WTO
 BUT. Changes in rules of origin for
US market make assemblage
country the country of origin.
May hurt China
 Impact of trade agreements like
NAFTA
preferential trade agreements
between EU and Turkey and Eastern
Europe
 Japan’s intention to apply
restrictions on exports of Chinese
textiles and clothing
1994: China accounted for 54% of
Japan’s clothing imports
Supply side factors
 Some shortages of labor in coastal
regions will create supply
constraints unless Chinese
relax constraints on migration out of
areas with surplus unskilled labor
improve infrastructure in inland areas
to promote industrial expansion there