China: The Challenges and
Opportunities for the British
Economy
Chris Milner
(GEP, School of Economics,
University of Nottingham)
China’s 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 China’s liberalisation
and integration into the world economy has been
dramatic
Table 1
China’s 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
6.8
3.6
6.9
After WTO accession
Table 2
Indicators for China (annual percentage change)
Year
(constant)
GDP
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
China in the Global Economy
•
Even with exceptionally high growth rates, China’s 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 China’s exports grew 3.5 times more rapidly than world
exports
–
China is forecast to be world’s 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
Table 3
Annual Percentage Change of World Exports of
Merchandise Goods
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
Year
Source: WTO; own calculation
Table 4
World Exports in Merchandise Goods
Unit: US dollar at current prices (100 millions)
World
China
China’s %
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
Year
Source: WTO
Table 5
World Exports in Commercial Services (value)
Unit: US dollar at current price(100 millions)
World
China
China’s % 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
Year
Table 6
Indicators for China’s (% 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
Role of FDI in China’s
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 world’s 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
Table 7
FDI inward (stock value)
Unit: US dollar at current prices (millions)
World
China
China’s %
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
Year
Source: UNCTAD
Table 8
FDI outward Stock
Unit: US dollar at current prices (millions)
World
China
China’s %
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
Year
Source: UNCTAD
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 shortterm 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 exportoriented 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
Table 9
Indicators for China
Unit: US dollar at current prices (100 millions) unless stated otherwise
Year
(constant)
GDP
(current)
GDP
Exports
of
Goods
and
Services
Goods
Export
s
Servic
e
Export
s
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
Table 10
China’s 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
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 China’s substantial trade surpluses?
– platform for EU market?
– ‘tariff-jumping’ motives?
Table 11
China’s 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
GEP, Nottingham and China
• Many new research challenges posed by the scale and pace of
China’s 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
– Nottingham’s campuses in China and Malaysia