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 2 nd 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 COMPETITIVECOMPLEMENTARY DIRECT Chinese imports displacing domestic producers Exports to China Imports of parts from China INDIRECT Loss of market share to China in export markets Involvement in Global Production Networks with China

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

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) ∆k H = ΣX t Hi *∆m i + ΣM i t+1 *∆k Hi (1) where:k H is the share of country H in total imports of the destination market X H is the total exports of country H to the destination market m i is the share of product i in the total imports of the destination market M i 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: ∆k HCi = ∆k Hi *k t Ci - ∆ k Ci * k t Hi (2) Summing over all products gives the aggregate loss of market share to China: Σ∆k HCi = Σ∆k Hi *k t Ci - Σ∆ k Ci * k t Hi (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 (%) 1996200120062009 Food & beverages3.30.90.71.0 Industrial supplies22.326.223.626.5 Fuels & lubricants3.69.21.70.6 Capital goods12.318.126.224.9 Parts for capital goods11.923.428.325.3 Transport equipment0.30.00.10.8 Parts for transport equipment 2.62.24.64.4 Consumption goods43.619.814.816.5

14. BRAZILIAN IMPORTS FROM CHINA BY TYPE OF PRODUCT (%) 1996200120062009 Primary Commodities3.4%4.3%1.4%1.6% Resource Based Manufactures10.9%17.0%9.5%10.7% Low Technology39.6%20.6%16.1%20.8% Medium Technology20.2%19.2%26.2%25.2% High Technology25.0%38.4%46.5%41.4%

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

16. CHINESE IMPORTS SHARE OF DOMESTIC CONSUMPTION (%) IndustryShare 2007 Office equipment62.9 Optical and photographic equipment31.2 Travel and other leather goods18.3 Batteries and accumulators17.8 Lamps and lighting equipment15.5 Radio & TV receivers and sound and video recorders14.6 Miscellaneous manufactures12.8 Electronic data processing equipment12.8 Basic electronic materials12.7 Telephone and radio & TV transmitting equipment12.5

17. DISPLACEMENT OF OTHER IMPORTS AND DOMESTIC PRODUCTION BY CHINESE IMPORTS (1996-2007) 1996-20012001-20042004-2007 Total gain by China (Reais mn.)7873,7189,016 Gain by China from ROW (Reais mn.)1972,2255,099 Gain by China from domestic producers (Reais mn.)5901,4933,917 % from RoW25.0%59.8%56.6% % from domestic producers75.0%40.2%43.4%

18. OVERALL IMPACT OF CHINESE IMPORTS ON INDUSTRIAL EMPLOYMENT (1996-2007) 1996-20012001-20042004-2007 Loss of employment to Chinese imports -6,312-9,168-32,726 Gain from exports to China 8,12112,813-4,870 Growth in total industrial employment 320,111867,210767,703

19. PANEL DATA RESULTS Fixed effectsGMM (Arellano-Bond) All industriesL-intensive (additional) All industriesL-intensive industries only Prices-ve*** 0 Profits Productivity+ve***+ve*-ve*+ve** Employment-ve**-ve*0-ve*** Wages-ve***0 -ve**

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

21. DISPLACEMENT OF BRAZILIAN MANUFACTURED EXPORTS BY CHINA, 1996-2009 Share of Brazilian exports 1996-20012001-20042004-2009 USA -0.7%-9.6%-5.3% EU -2.5%-0.3%-5.9% Argentina 0.1%-0.3%-6.8% Chile -1.2%-1.0%-14.4% Mexico -0.4%-1.2%-6.6% Venezuela -0.8%0.2%-8.6%

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