Publication: NBER Reporter
Publication Date: 01-MAY-07
Delivery: Immediate Online Access
Author:
Article Excerpt
China's Growing Role in World Trade
An NBER conference on "Chinas Growing Role in World Trade" took place in Chatham, MA on August 3 and 4. NBER Research Associates Robert C. Feenstra, who directs the Bureau's Program of Research on International Trade and Investment, and Shang-Jin Wei of NBER and Columbia University, who recently was on leave at the IMF, organized this meeting. The following papers were discussed:
"The Rising Sophistication of Chinas
Exports: Assessing the Roles of Processing Trade, Foreign Invested Firms, Human Capital and Government Policies"
Authors: Zhi Wang, International Trade Commission, and Shang-Jin Wei
Discussant: Galina Hale, Federal Reserve Bank of San Francisco
"An Anatomy of China's Export Growth"
Authors: Mary Amid, Federal Reserve Bank of New York, and Caroline Freund, IMF
Discussant: Bin Xu, China Europe International Business School
"Chinas Local Comparative Advantage"
Authors: Haiyan Deng, The Conference Board, and James Harrigan, Federal Reserve Bank of New York and NBER
Discussant: Chong Xiang, Purdue University
"China and the Manufacturing Exports of Other Developing Countries"
Authors: Gordon H. Hanson, University of California, San Diego and NBER, and Raymond Robertson, Macalester College
Discussant: Irene Brambilla, Yale University and NBER
"China's Exports and Employment"
Authors: Robert C. Feenstra, and Chang Hong, IMF
Discussant: Michael Dooley, University of California, Santa Cruz and NBER
"Exporting Deflation? Chinese Exports and Japanese Prices"
Authors: Christian Broda, University of Chicago and NBER, and David E. Weinstein, Columbia University and NBER
Discussant: Joshua Aizenman, University of California, Santa Cruz and NBER
"Chinas Current Account and Exchange Rate"
Authors: Yin-Wong Cheung, University of California, Santa Cruz; Menzie D. Chinn, University of Wisconsin and NBER; and Eiji Fujii, University of Tsukuba
Discussant: Jeffrey A. Frankel, Harvard University and NBER
"Chinas WTO Entry: Antidumping, Safeguards, and Dispute Settlement"
Author: Chad P. Bown, Brandeis University
Discussant: Thomas J. Prusa, Rutgers University and NBER
"Chinas Experience Under the Multifiber Arrangement (MFA) and the Agreement on Textile and Clothing (ATC)"
Authors: Irene Brambilla and Peter K. Schott, Yale University and NBER, and Amit Khandelwal, Yale University
Discussant: Joseph Francois, Johannes Kepler University Linz
"Agricultural Trade Reform and Rural
Prosperity: Lessons from China"
Authors: Jihm Huang and Yu Liu, Center for Chinese Agricultural Policy; Will Martin, World Bank; and Scott Rozelle, Stanford University
Discussant: Kym Anderson, University of Adelaide
"Trade Growth, Production Fragmentation, and Chinas Environment"
Authors: Judith M. Dean, International Trade Commission, and Mary E. Lovely, Syracuse University
Discussant: Arik Levinson, Georgetown University and NBER
"Facts and Fallacies about U.S. FDI in China"
Authors: Lee Branstetter, Carnegie Mellon University and NBER, and C. Fritz Foley, Harvard University and NBER
Discussant: Stephen Yeaple, University of Pennsylvania and NBER
"Please Pass the Catch-up: The Relative Performance of Chinese and Foreign Firms in Chinese Exports, 1997-2005"
Authors: Bruce A. Blonigen, University of Oregon and NBER, and Alyson C. Ma, University of San Diego
Discussant: Raymond Robertson
"China's Outward FDI: Past and Future"
Authors: Leonard K. Cheng, Hong Kong University of Science and Technology, and Zihui Ma, Renmin University of China
Discussant: Nicholas Lardy, Peterson Institute for International Economics
As China becomes a major world exporter, its product sophistication--measured by increased similarity between the product structure of its exports and those of the developed countries--has increased rapidly, as has the volume of its exports. This has generated anxiety in developed countries because the competitive pressure increasingly may be felt outside labor-intensive industries. Using product-level data on exports from different cities within China, Wang and Wei investigate the roles of processing trade, foreign invested firms, and government promotional policies--in the form of tax-favored high-tech development zones and export processing zones--in raising the country's export sophistication.
Decomposing Chinas real export growth, of over 500 percent since 1992, reveals a number of interesting findings. First, Chinas export structure changed dramatically, with growing export shares in electronics and machinery and a decline in agriculture and apparel. Second, despite the shift into these more sophisticated products, the skill content of Chinas manufacturing exports remained unchanged, once processing trade is excluded. Third, export growth was accompanied by increasing specialization and was accounted for mainly by high export growth of existing products (the intensive margin) rather than by new varieties (the extensive margin). Fourth, consistent with an increased world supply of existing varieties, Amiti and Freund find that Chinas export prices to the United States fell by an average of 1.6 percent per year between 1997 and 2005, while export prices of these products from the rest of the world to the United States increased by 0.7 percent annually over the same period.
Chinas trade pattern is influenced not just by its overall comparative advantage in labor intensive goods but also by geography. Deng and Harrigan show theoretically that, since trade costs are proportional to weight rather than value, relative distance affects local comparative advantage as well as the overall volume of trade. Their model predicts that China has a comparative advantage in heavy goods in nearby markets, and lighter goods in more distant markets. This theory motivates a simple empirical prediction: within a product, Chinas export unit values should be increasing in distance. Deng and Harrigan find some evidence for this effect in their empirical analysis on product-level Chinese exports in 2006, although the effect is small.
Hanson and Robertson examine the impact of Chinas growth on developing countries that specialize in manufacturing. Over 2000-5, manufacturing accounted for 32 percent of China's GDP and 89 percent of its merchandise exports, making it more specialized in the sector than any other large developing economy. Using the gravity model of trade, the authors decompose bilateral trade into the components associated with demand conditions in importing countries, supply conditions in exporting countries, and bilateral trade costs. They identify ten developing economies for which manufacturing represents more than 75 percent of merchandise exports (Hungary, Malaysia, Mexico, Pakistan, the Philippines, Poland, Romania, Sri Lanka, Thailand, and Turkey), all of which in theory are countries most exposed to the adverse consequences of Chinas export growth. The results suggest that if Chinas export supply capacity had been constant from 1996-2003, then the demand for exports would have been 0.6 percent to 1.4 percent higher in the ten countries studied. Thus, even for the developing countries most specialized in export manufacturing, Chinas expansion has represented only a modest negative shock.
Dooley et al (2003, 2004a,b,c) argue that China seeks to raise urban employment by 10-12 million persons per year because of export growth. In fact, total employment increased by 7.5 to 8 million per year over 1997-2005. Feenstra and Hong estimate that export growth over 1997-2002 contributed at...
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