CHINESE COMPETITION AND THE
RESTRUCTURING OF SOUTH
AFRICAN MANUFACTURING
Rhys Jenkins (UEA)
Lawrence Edwards (UCT)
1
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
2
Rising Importance of China as
Trade Partner with South Africa
• In 2009 China becomes South Africa’ s largest
export market ahead of the United States
– 11% total exports in 2010
• And its largest supplier of imports ahead of
Germany
– 15% total imports in 2010
3
Coinciding with Long-run Decline in Share of
Manufacturing in South African GDP and
Employment
4
Key Questions
• What types of products are being imported
from China?
• Consumer goods
• Intermediate goods
• Capital goods
• Which industries are affected by Chinese
competition?
• Are Chinese imports displacing imports from
other countries or domestic production?
• What is impact of Chinese competition on
employment and prices?
5
Characteristics of SA trade with
China
6
Composition of Trade Unbalanced
Table: SA Trade with China by Type of Product (%)
Exports
2000
2010
Imports
2000
2010
Raw materials
43%
81%
3%
1%
Intermediate goods
45%
17%
21%
16%
Consumer goods
2%
0%
52%
40%
Capital goods
10%
1%
24%
42%
7
With Increasing Trade Deficit,
driven by Manufactures
Figure: SA Bilateral Trade Balance with China, US$ bill
8
China’s Share in SA’s Imports and Exports
of Manufactures, 1996-2010 (%)
9
China’s Ranking as a Source of Imports by Sector
and Share of Chinese Imports in Total Imports
Meat, fish, fruit, vegetables, oils
Dairy products
Beverages
Knitted and crocheted fabrics
Clothing
Footwear
Sawmilling/planing of wood
Basic chemicals
Other chemicals
Non-metallic mineral products
Basic iron and steel
Structural steel products
General purpose machinery
Household appliances
Electrical motors, generators
TV, radio and other electronics
Motor vehicles
Bodies for motor vehicles
Total Manufacturing
Country ranking of China as
source of imports by sector
1995
2010
20
8
23
18
49
17
5
1
1
1
1
1
41
4
13
1
15
4
8
1
19
1
21
3
15
1
2
1
13
1
11
1
25
8
6
1
10
1
Share Chinese imports in total
SA imports
1995
2010
0.8
4.3
0.0
0.8
0.0
0.2
5.4
66.7
29.0
75.1
35.5
76.8
0.0
5.8
1.4
12.6
0.8
7.2
5.1
25.0
0.9
16.4
0.4
13.4
1.1
23.8
13.7
62.6
1.2
23.4
2.2
33.5
0.0
3.0
1.4
32.6
10
2.0
18.5
Trend in Chinese Imports as Share
Domestic Demand
11
Chinese Imports Share of Domestic
Consumption
Industry
Footwear
Knitted and crocheted fabrics
Television, radio and other electronic equipment
Electric lamps and lighting equipment
Clothing
General purpose machinery
Household appliances
Leather and leather products
Spinning and weaving
Furniture
Other textiles
Special purpose machinery
Electrical motors, generators and transformers
2010
46%
42%
32%
31%
28%
23%
21%
19%
18%
15%
13%
11%
11%
12
Measuring the Impact of Chinese
Import Competition on
Manufacturing Industries
13
Increased imports from China
Falling domestic prices
Import competing
industries
Import using
industries
Falling profit
margins
Rising profit
margins
Exit of least
efficient firms
Falling
production
Defensive innovation
by survivors
Productivity
changes
Falling
Employment
Wages
Increased
production
Increased
employment
Increased
wages
14
Methodology for Analysing the
Impacts of Imports from China
• Chenery-type decomposition to estimate
impacts on output and employment.
• Estimate extent to which China displaces other imports
and/or domestic production
• Use of employment coefficients to estimate
employment effects
• Panel data estimation
• Estimate conditional relationship using structural
models
• Data
• 44 manufacturing industries, 1992-2009
15
The Impact of Chinese
Competition on Production
16
Loss of Market Share to China,
Chenery Decomposition
1992-2001 2001-2010
Total gain by China (R. mn.)
7 242
41 384
Gain from Domestic Producers (R mn.)
As % of Total Gain
7 161
98.9%
30 296
73.2%
As % of Domestic Sales in Base Year
1.50%
5.00%
17
Industries in Which Loss to Chinese
Imports Represented More than 10% of
2001 Production, 2001-10
Knitted and crocheted fabrics
Footwear
Clothing
General purpose machinery
Household appliances
Television, radio and other electronic equipment
Special purpose machinery
Medical appliances, measuring and controlling equip.
Growth in
Manufacturing
Loss to China Sales
60.50%
-23.50%
45.30%
2.40%
31.10%
-7.60%
28.50%
-19.10%
26.40%
16.90%
21.50%
11.00%
18.70%
1.80%
18.00%
17.00%
Electric lamps and lighting equipment
Leather and leather products
13.30%
12.90%
0.30%
30.00%
Electrical motors, generators and transformers
Other textiles
Spinning and weaving
12.30%
11.10%
10.50%
-7.30%
-19.70%
-41.70%
18
Supported by Econometric Results: Output
Growth Slowest in Sectors With Highest Chinese
Import Penetration, 2000-2010
Change in log sales volume against change in Chinese import
penetration, 2000-2010
Change in log sales volume
0.8
0.6
0.4
0.2
0.0
-10%
-0.2 0%
10%
20%
30%
40%
-0.4
-0.6
-0.8
Change in Chinese import penetration
19
With Remarkably Similar Estimates
of Output Loss
Actual
Counterfactual
difference
1992
(R bill)
484
484
2000
(R bill)
579
584
-6
Change
1992- Annual
2009
09
log
(R bill) (R bill) growth
632
148
1.6%
667
183
1.9%
-34
-0.3%
Note: Based on output elasticity of -1.19
20
The Impact of Chinese
Competition on Employment and
Wages
21
Employment in SA Manufacturing Industry
• Measurement of employment made difficult by
inconsistent data series and surveys
• Share of manufacturing in total employment
declined from 17% in early 1990s to 13% in 2010
• With close to 300 000 jobs lost between 19922010
• And 113 000 lost in post 2000 period
– 55 000 decline in Clothing
– 21 000 decline in Textiles
– But 12 000 to 20 000 increase in chemicals and
machinery
22
Coinciding Increased Import Penetration
in Economy
23
Changes in Employment, 19922001 and 2001-2010
1992-2001 2001-2010
Loss of employment to Chinese imports -24 117
-77 751
Loss of employment to all imports
-144 734
-110 318
Productivity growth
-352 617
-226 124
Change in employment
-179 457
-113 467
Gain from exports to China
2 585
4 080
Note: Based on Chenery Decomposition
24
Estimated Job Losses as a Result of Increased
Import Penetration from China, 2001-2010
Clothing
General purpose machinery
Special purpose machinery
Knitted and crocheted fabrics
Other textiles
Spinning and weaving
Footwear
TV, radio and other electronic equipment
Other chemicals
Other electrical equipment
Other fabricated metal products
Furniture
Total decline in
Employment employment
Loss
(%)
22 640
-45%
12 717
51%
7 224
15%
3 991
-53%
3 053
-22%
2 851
-37%
2 521
-55%
2 453
-17%
2 442
30%
2 059
5%
1 983
-4%
1 895
-40%
25
Econometric Analysis: Employment Growth
Slowest in Sectors With Highest Chinese
Import Penetration, 2000-2010
26
Regression Results for Employment
Models, 1992-2009
VARIABLES
Employmentt-1
Real Wage
Output
Tariff
Import penetration, other
Import penetration, China
Export orientation
Constant
Empl:
static
within
-0.038
0.238+
0.347
-0.344
-2.084**
0.633**
1.964**
-0.588
Empl:
instrume
nt
Empl:
dynamic
within
-0.065+
0.312**
0.396**
-0.185
-1.444**
0.535**
1.553**
-0.272
0.819**
-0.078**
0.102**
0.144*
-0.036
-0.289*
0.120+
-0.164
-0.158
0.668**
-0.169*
0.230**
0.23
0.091
-0.417
0.202
-1.55
-1.23
748
0.829
704
Long-run effect
Import penetration, China
Observations
R-squared
792
0.399
792
Empl: gmm
diff
27
Caveats
• Much of action occurs in firms within
industries - need firm data
• Unexplained productivity effect dominates
• Positive and negative impacts in
downstream/upstream industries not
captured
• Employment growth effect in retail sector
missing
• Productivity impact of cheaper capital and
intermediate goods not accounted for
28
The Impact of Chinese
Competition on Prices
29
Chinese Import Prices Substantially Lower
than Imports from Other Countries
Import unit values of China relative to imports from other countries
(Chinese imports as weights)
0.60
0.50
0.40
0.30
0.20
0.10
Pchina/P Developing
2009
2008
2007
2006
2005
2004
2003
2002
2001
0.00
Pchina/P Developed
30
Import Prices, Top Imported Chinese
Products, US$
HS code and description
Unit
Emergin Highg
income
China
401120 New Pneumatic Tyres, Buses or Lorries
Item
74.4
89.3
144.4
610910 Cotton T-shirts
Item
1.4
5.5
5.4
620342 Men's or Boys' Trousers, Cotton
Item
3
12.7
22.2
620462 Women's or Girls' Trousers, Cotton
Item
3.4
9.9
16.5
640419 Other Footwear, Rubber /Plastics
Pair
2.3
11.8
18
844350 Other Printing Machinery
Item
343.3
339.5
1009.7
847120 Digital Automatic Data Processing Machines Item
558.6
582.3
576.1
851730 Telephonic Switching Apparatus
852520 Transmission Apparatus Incorporating
Reception Apparatus
852810 Colour Television Receivers
Item
171.1
499.8
542.6
Item
64.8
151
226.3
Item
83.4
206.5
295.1
31
Econometric Estimates: Impact of
Chinese Import Penetration on
Producer Prices
Annual log growth, 1992- Annual log growth,
2009
2000-2009
Actual
6.61%
6.48%
Counterfactual
6.93%
6.98%
Log difference
0.32%
0.50%
Note: Based on coefficient of 0.75
32
Conclusion
• Significant impact of Chinese competition on South
African manufacturing
• China’s share of the domestic market increased
steadily, but still less than 7% in 2010
• Uneven nature of import penetration means that some
industries face very significant competition from China.
• Bulk of increase in Chinese penetration been at
expense of local production rather than imports from
other countries
• Been associated with significant job losses in labourintensive industries such as clothing and footwear.
• But also lower priced products.
33
Implications
• China poses considerable challenge to growth
of manufacturing output and employment
– Decline in manufacturing relative to services
– Within manufacturing shift to resources
• What policy response?