China: The Challenges and Opportunities for the British Economy

1
China The Challenges and Opportunities for the
British Economy

• Chris Milner
• (GEP, School of Economics,
• University of Nottingham)

2
Chinas Entry into the Global Economy

• Prior to its WTO accession, China had one of the
  highest rates of trade protection in the world
• tariffs on imports averaged over 40 in 1992 and
  were complemented by an array of non-tariff
  barriers (licences, quotas state trading
  restrictions)
• The extent and speed of Chinas liberalisation
  and integration into the world economy has been
  dramatic

3
Table 1 Chinas Average (Trade-Weighted)
Statutory Tariff Rates on Merchandise
Trade (percent)
ALL PRODUCTS PRIMARY PRODUCTS MANUFACTURES
Year Weighted Weighted Weighted
1992 40.6 22.3 46.5
1993 38.4 20.9 44.0
1994 35.5 19.6 40.6
1996 22.6 20.0 23.2
1997 18.2 20.0 17.8
1998 18.7 20.0 18.5
1999 14.2 21.8 13.4
2000 14.1 19.5 13.3
2001 12.0 17.7 13.0
After WTO accession 6.8 3.6 6.9

4
Table 2 Indicators for China (annual percentage
change)
Year   GDP (constant) Exports of Goods and Services   Imports of Goods and services  
1991 9.2 16.1 17.7
1993 13.5 9.0 28.9
1995 10.5 22.3 19.4
1997 8.8 20.7 6.7
1999 7.1 6.5 16.3
2001 7.5 7.1 8.2
2003 9.3 32.7 36.9
Source World Bank
5
China in the Global Economy

• Even with exceptionally high growth rates,
  Chinas export growth is outstripping its output
  growth
• the Chinese economy is much more open and incomes
  (especially in the coastal regions) have grown
  rapidly
• Between 1990 and 2004 Chinas exports grew 3.5
  times more rapidly than world exports
• China is forecast to be worlds largest exporter
  by 2010
• of particular interest because almost two-thirds
  of those exports are to the OECD countries
• China already represents a major market, but has
  enormous further potential (given population size
  and scope for income growth)
• the share of imports in GDP has more than doubled
  in 15 years
• as yet, most of the imports are in raw materials,
  capital goods and intermediate goods

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Table 3 Annual Percentage Change of World
Exports of Merchandise Goods
Year World China
1992 7.1 1.8
1994 4.8 32.0
1996 4.5 1.5
1998 -1.4 0.5
2000 1.3 27.8
2002 4.8 22.3
2004 2.1 35.4
Source WTO own calculation
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Table 4 World Exports in Merchandise Goods Unit
US dollar at current prices (100 millions)
Year World China Chinas Share
1990 34,487 620 1.8
1992 37,657 849 2.3
1994 43,257 1,210 2.8
1996 53,913 1,510 2.8
1998 54,962 1,837 3.3
2000 64,446 2,492 3.9
2002 64,811 3,256 5.0
2004 91,235 5,934 6.5
Source WTO
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Table 5 World Exports in Commercial Services
(value) Unit US dollar at current price(100
millions)
Year World China Chinas Share
1990 7,084 57 0.7
1992 9,222 91 1.0
1994 10,360 164 1.6
1996 12,781 206 1.6
1998 13,507 239 1.8
2000 14,852 301 2.0
2002 15,923 394 2.5
2004 20,997    
Source WTO
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Table 6 Indicators for Chinas ( GDP)
Year Exports of Goods and Services Imports of Goods and services
1990 17.5 14.3
1995 24.0 21.7
2000 25.9 23.2
2001 25.5 23.1
2002 28.9 25.9
2003 34.3 31.8
Source World Bank
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Role of FDI in Chinas Transformation

• China had a relative abundance of unskilled
  labour, i.e. a potential for exporting
  standardised, labour-intensive goods
• Inward FDI offered an opportunity to acquire
  capital (machinery, equipment) and technological
  know-how
• now about 6 of the worlds FDI goes to China
• FDI offered foreign firms both an opportunity to
  gain a platform in the host market, but also an
  opportunity to outsource labour-intensive stages
  of export production
• exports so far have been concentrated in
  labour-intensive activities, but upgrading (more
  apparent than actual) into higher value-added and
  skill intensive exports (consumer electronics,
  transport equipment) is already occurring

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Table 7 FDI inward (stock value) Unit US
dollar at current prices (millions)
Year World China Chinas Share
1980 692,714 1,077 0.2
1985 972,205 6,063 0.6
1990 1,950,303 20,694 1.1
1995 2,992,068 134,869 4.5
2000 6,089,884 348,346 5.7
2002 7,371,554 447,966 6.1
2003 8,245,074 501,471 6.1
Source UNCTAD
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Table 8 FDI outward Stock Unit US dollar at
current prices (millions)
Year World China Chinas Share
1985 738,809 131 0.0
1990 1,758,216 2,489 0.1
1995 2,897,574 15,802 0.5
2000 5,983,342 25,804 0.4
2002 7,209,582 35,206 0.5
2003 8,196,863 37,006 0.5
Source UNCTAD
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Challenges to the British Economy

• Strong expectation that globalisation increases
  average incomes in long-run, but that there may
  be some groups that lose and short-term
  adjustment costs
• China is increasing pace of adjustment required
• Types of adjustment issues
• direct competition from Chinese imports to firms
  and workers, especially those involved in
  labour-intensive manufacturing
• outsourcing of activities to China in
  import-competing and export-oriented activities
  in both manufacturing and services
• direct export competition in the Chinese market
  from upgrading domestic firms and in third
  markets from Chinese exporters and FDI in China

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Table 9 Indicators for China Unit US dollar at
current prices (100 millions) unless stated
otherwise
Year GDP (constant) GDP (current) Exports of Goods and Services Goods Exports Service Exports Imports of Goods and Services FDI, net inflows FDI, by China
1991 4,507 3,766 789 58 70 653 44 9
1993 5,842 4,318 1,026 757 112 1,118 275 44
1995 7,269 7,003 1,680 1,281 191 1,519 358 20
1997 8,667 8,982 2,072 1,827 246 1,644 442 25
1999 10,007 9,914 2,210 1,947 262 1,903 388 18
2001 11,618 11,757 2,994 2,611 333 2,713 442 68
2003 13,752 14,170 4,850 4,384 467 4,489 535 63

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Table 10 Chinas Structure of Exports
(Commodities Only)
Exports () 2003
Agriculture, Forestry and Fishing 2.9
Oil and Gas Extraction Fuel Refining NA
Other Mining NA
Gas, Electricity and Water NA
Chemicals 4.2
Minerals 4.5
Metals 6.5
Machinery and Equipment Electrical and Optical Equipment 42.4
Transport Equipment 3.5
Food, Drink and Tobacco 1.8
Textile and Clothing 16.7
Wood and Wood Products 1.0
Paper, Printing and Publishing 0.7
Rubber and Plastics 2.9
Other Manufacturing NEC 12.9

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Opportunities for the British Economy

• Direct exports of goods (associated with rise in
  production, incomes and technological-intensity)
  and services
• Outward FDI opportunities in manufactures and
  services (platform for Chinese market and
  exporting)
• including outsourcing to increase cost
  competitiveness
• Inward FDI opportunities
• outlet for Chinas substantial trade surpluses?
• platform for EU market?
• tariff-jumping motives?

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Table 11 Chinas Structure of Imports
(Commodities Only)
Imports () 2003
Agriculture, Forestry and Fishing 2.5
Oil and Gas Extraction Fuel Refining NA
Other Mining NA
Gas, Electricity and Water NA
Chemicals 7.7
Minerals 9.8
Metals 10.0
Machinery and Equipment Electrical and Optical Equipment 48.9
Transport Equipment 4.3
Food, Drink and Tobacco 1.2
Textile and Clothing 4.7
Wood and Wood Products 1.1
Paper, Printing and Publishing 2.1
Rubber and Plastics 6.0
Other Manufacturing NEC 1.8
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GEP, Nottingham and China

• Many new research challenges posed by the scale
  and pace of Chinas economic development
• GEP has a programme of research on China the
  World Economy
• New teaching needs and opportunities are also
  being stimulated by this new global giant
• the School of Economics offers a degree in
  Economics and Chinese Studies
• New pressures to internationalise higher
  education
• Nottinghams campuses in China and Malaysia