CHINESE COMPETITION AND THE RESTRUCTURING OF SOUTH AFRICAN MANUFACTURING

1. CHINESE COMPETITION AND THE RESTRUCTURING OF SOUTH AFRICAN MANUFACTURING Rhys Jenkins (UEA) Lawrence Edwards (UCT)

2. 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

3. ANALYTICAL FRAMEWORK

4. Increased imports from China Falling domestic prices Import using industries Import competing industries Rising profit margins Falling profit margins Defensive innovation by survivors Exit of least efficient firms Increased production Falling production Productivity changes Increased employment Falling Employment Increased wages Wages

5. TWO KEY QUESTIONS • What types of products are being imported from China? • Consumer goods • Intermediate goods • Capital goods • Are Chinese imports displacing imports from other countries or domestic production?

6. WHICH INDUSTRIES ARE AFFECTED BY CHINESE COMPETITION? • By technology level – Lall classification • Primary products • Resource-based manufactures • Low technology manufactures • Medium technology manufactures • High technology manufactures

7. CHINESE IMPORT PENETRATION • Estimation of China’s share in apparent consumption by industry • Converting trade data to industrial classification • Level of disaggregation (3 digit ISIC) • Data problems – unregistered trade

8. METHODOLOGY FOR ANALYSING IMPACTS OF IMPORTS FROM CHINA • Chenery-type decomposition to estimate impacts on output and employment. • Discrete time periods • Estimate extent to which China displaces other imports and/or domestic production • Use of employment coefficients to estimate employment effects • Panel data estimation • Structural model (fixed effects) • Dynamic model (GMM)

9. METHODOLOGY FOR ANALYSING IMPACTS OF CHINESE COMPETITION ON EXPORTS TO THIRD MARKETS • Constant Market Share Analysis (Shift/Share) ∆kH = ΣXtHi*∆mi + ΣMit+1*∆kHi(1) where: kH is the share of country H in total imports of the destination market XH is the total exports of country H to the destination market mi is the share of product i in the total imports of the destination market Mi is the total imports of product i by the destination market Superscripts t and t+1 represent the initial and final year of the period. • Extension by Batista to distribute changes in market shares between competitors.

10. BATISTA METHOD • The loss of market share by a country (H) to China (C), in a particular product i is defined as: ∆kHCi = ∆kHi*ktCi - ∆kCi* ktHi (2) Summing over all products gives the aggregate loss of market share to China: Σ∆kHCi = Σ∆kHi*ktCi - Σ∆kCi* ktHi(3)

11. BRAZILIAN TRADE IN MANUFACTURES WITH CHINA, 1996-2010 (US$bn.)

12. CHINA’S SHARE IN BRAZIL’S TOTAL IMPORTS AND EXPORTS OF MANUFACTURES, 1996-2010 (%)

13. BRAZILIAN IMPORTS FROM CHINA BY END USE (%)

14. BRAZILIAN IMPORTS FROM CHINA BY TYPE OF PRODUCT (%)

15. IMPORTS AS A SHARE OF DOMESTIC DEMAND IN MANUFACTURING, 1996-2007

16. CHINESE IMPORTS SHARE OF DOMESTIC CONSUMPTION (%)

17. DISPLACEMENT OF OTHER IMPORTS AND DOMESTIC PRODUCTION BY CHINESE IMPORTS (1996-2007)

18. OVERALL IMPACT OF CHINESE IMPORTS ON INDUSTRIAL EMPLOYMENT (1996-2007)

19. PANEL DATA RESULTS

20. SHARE OF INDUSTRIAL IMPORTS FROM BRAZIL AND CHINA, 1996-2009

21. DISPLACEMENT OF BRAZILIAN MANUFACTURED EXPORTS BY CHINA, 1996-2009

22. CHINESE TRADE FLOWS WITH SOUTH AFRICA: A CURSORY OVERVIEW

23. CHINA’S RISING DOMINANCE AS SOURCE OF SA IMPORTS

24. … DRIVEN BY INCREASED IMPORTS OF EXISTING PRODUCTS AND NEW PRODUCTS

25. … AND ACROSS NUMEROUS INDUSTRIES

26. … AT SUBSTANTIALLY LOWER PRICES

27. COMPOSITION OF IMPORTS SHIFTING TO HIGH-TECH

28. TREND IN CHINESE IMPORTS AS SHARE DOMESTIC DEMAND DIFFERS FROM BRAZIL

29. … WITH MUCH VARIATION AT THE INDUSTRY LEVEL