Implications of China

1
Implications of Chinas Accession to the WTO for
Sectoral Adjustment in China and USA

• Anwar Hussain
• Shuji Kasajima

2
Introduction

• Shocks
• CHN2005Tariff reduction Quota elimination
  during 2000 and 2005
• SFG2010 Tariff reduction Quota elimination
  during 2000 and 2010
• Objectives
• 1. Trade liberalization and return to capital
  investment
• 2. Short-term effects vs. long-term effects
• 3. IS balance, trade balance and capital
  mobility
• 4. Inter-sectoral resource allocation in China
  and USA
• 5. Factor substitution under capital mobility

3
Policy-Rerun Rate of Return Rate of Return Rate of Return Rate of Return Rate of Return Rate of Return
Difference CHN2005 CHN2005 CHN2005 SFG2010 SFG2010 SFG2010
Each Period Data 2000-2005 2005-2010 2010-2015 2000-2005 2005-2010 2010-2015
CHN_TWN            
rorge 0.98 0.56 -1.01 0.96 0.58 -0.98
rorga 2.40 0.44 -2.89 2.34 0.48 -2.81
rental 2.62 0.35 -3.59 2.39 0.40 -3.35
pcgds 0.22 -0.09 -0.73 0.05 -0.08 -0.56
qk 2.22 6.61 6.16 2.16 6.50 6.18
             
NAmerica            
rorge 0.05 0.20 0.24 0.05 0.20 0.24
rorga 0.01 0.18 0.29 0.01 0.18 0.29
rental -0.03 0.29 0.57 0.00 0.28 0.54
pcgds -0.04 0.11 0.28 -0.02 0.10 0.25
qk -0.10 -0.42 -0.50 -0.10 -0.42 -0.50
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5
National account identity

• Saving-Investment Balance Trade Balance Net
  Foreign Income
• yqht(r) regional (China) household income from
  equity in the global trust
• yqtf(r) global trusts income from equity in
  firms located in region r (China)
• in China

6
Policy-Rerun Saving, Investment, Trade Balance Net foreign Income Saving, Investment, Trade Balance Net foreign Income Saving, Investment, Trade Balance Net foreign Income Saving, Investment, Trade Balance Net foreign Income Saving, Investment, Trade Balance Net foreign Income Saving, Investment, Trade Balance Net foreign Income
Difference CHN2005 CHN2005 CHN2005 SFG2010 SFG2010 SFG2010
Each Period Data 2000-2005 2005-2010 2010-2015 2000-2005 2005-2010 2010-2015
CHN_TWN            
qsave 2.18 3.09 1.10 2.08 3.05 1.18
qcgds 8.70 12.17 1.11 8.47 12.13 1.38
DTBAL -56025 -53575 55004 -54385 -54239 51899
yqht -9.92 -27.22 -24.27 -9.74 -26.89 -24.31
yqtf 19.01 48.20 34.69 18.20 47.50 35.38
qk 2.22 6.61 6.16 2.16 6.50 6.18
             
NAmerica            
qsave -0.03 -0.03 0.02 -0.04 -0.03 0.03
qcgds -0.80 -1.27 -0.08 -0.80 -1.27 -0.09
DTBAL 18566 18353 -16812 18398 18389 -16483
yqht 0.37 1.58 2.01 0.40 1.56 1.97
yqtf -0.35 -0.85 -0.76 -0.32 -0.86 -0.80
qk -0.10 -0.42 -0.50 -0.10 -0.42 -0.50
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Policy-Rerun Foreign Asset Ownership Foreign Asset Ownership Foreign Asset Ownership Foreign Asset Ownership Foreign Asset Ownership Foreign Asset Ownership
Difference CHN2005 CHN2005 CHN2005 SFG2010 SFG2010 SFG2010
Each Period Data 2000-2005 2005-2010 2010-2015 2000-2005 2005-2010 2010-2015
CHN_TWN            
wqht -10.01 3.36 -24.49 -9.84 -27.09 -24.53
wqtf 14.90 47.18 40.75 14.22 46.39 41.30
             
NAmerica            
wqht 0.27 0.07 1.70 0.29 1.29 1.67
wqtf -0.37 -1.14 -1.22 -0.34 -1.14 -1.25
wqht(r) equity held by regional household in
global trust wqtf(r) equity held by global
trust in firms located in region r
9
Sectoral Output CHN2005
qo CHN CHN CHN NAM NAM NAM
qo 2000/05 2005/10 2010/15 2000/05 2005/10 2010/15
1 grains -2.3 -1.8 0.89 1.7 1.8 0.19
2 othfood 0.5 1.1 0.9 0.1 0.2 0.1
3 extract -1.3 1.6 4.9 0.2 0.1 -0.3
4 textiles 19.8 19.1 -0.9 -4.3 -5.0 -0.9
5 mnfcs -4.3 0.7 8.8 0.2 -0.3 -1.1
10
Factor Demand CHN2005
2000-05 2000-05 2000-05 2000-05 2000-05 2000-05 2000-05 2000-05 2000-05
qfe CHN CHN CHN CHN NAM NAM NAM NAM
qfe Textiles Textiles Mfcs Mfcs Textiles Textiles Mfcs Mfcs
qfe Exp Sub Exp Sub Exp Sub Exp Sub
1 Land 19.8 -10.1 -4.3 3.1 -4.3 0.6 0.2 -1.9
2 UnSkLab 19.8 -0.9 -4.3 -0.9 -4.3 0.0 0.2 0.0
3 SkLab 19.8 -1.9 -4.3 -1.8 -4.3 0.0 0.2 0.0
4 Capital 19.8 0.9 -4.3 0.9 -4.3 -0.1 0.2 -0.1
5 NatRes 19.8 -20.0 -4.3 4.4 -4.3 4.3 0.2 -0.2
2005-10 2005-10 2005-10 2005-10 2005-10 2005-10 2005-10 2005-10 2005-10
1 Land 19.1 -11.5 0.7 -1.4 -5.0 0.6 -0.3 -2.1
2 UnSkLab 19.1 -3.6 0.7 -3.5 -5.0 0.2 -0.3 0.2
3 SkLab 19.1 -4.0 0.7 -3.9 -5.0 0.2 -0.3 0.1
4 Capital 19.1 2.8 0.7 2.9 -5.0 -0.3 -0.3 -0.3
5 NatRes 19.1 -19.2 0.7 -0.7 -5.0 5.0 -0.3 0.3
2010-15 2010-15 2010-15 2010-15 2010-15 2010-15 2010-15 2010-15 2010-15
1 Land -0.9 -2.0 8.8 -7.4 -0.9 -0.1 -1.1 -0.1
2 UnSkLab -0.9 -3.8 8.8 -3.8 -0.9 0.2 -1.1 0.2
3 SkLab -0.9 -2.5 8.8 -2.5 -0.9 0.2 -1.1 0.2
4 Capital -0.9 2.7 8.8 2.7 -0.9 -0.3 -1.1 -0.3
5 NatRes -0.9 0.9 8.8 -8.6 -0.9 0.9 -1.1 1.1
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Sectoral Output SFG2010
SFG2010
qo CHN CHN CHN NAM NAM NAM
qo 2000/05 2005/10 2010/20 2000/05 2005/10 2010/20
1 grains -2.3 -1.8 0.9 1.7 1.8 0.2
2 othfood 0.3 1.1 1.1 0.1 0.2 0.1
3 extract -1 1.5 4.5 0.2 0.1 -0.3
4 textiles 13 19 4.9 -3 -5 -2.3
5 mnfcs -3.3 0.6 7.7 0.1 -0.3 -1
l
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Factor Demand SFG2010
2000-05 2000-05 2000-05 2000-05 2000-05 2000-05 2000-05 2000-05 2000-05
qfe CHN CHN CHN CHN NAM NAM NAM NAM
qfe Textiles Textiles Mfcs Mfcs Textiles Textiles Mfcs Mfcs
qfe Exp Sub Exp Sub Exp Sub Exp Sub
1 Land 13.0 -6.3 -3.3 2.8 -3.0 -0.1 0.1 -1.9
2 UnSkLab 13.0 -0.8 -3.3 -0.8 -3.0 0.0 0.1 0.0
3 SkLab 13.0 -1.9 -3.3 -1.8 -3.0 0.0 0.1 0.0
4 Capital 13.0 0.8 -3.3 0.9 -3.0 -0.1 0.1 -0.1
5 NatRes 13.0 -13.2 -3.3 3.4 -3.0 3.0 0.1 -0.1
2005-10 2005-10 2005-10 2005-10 2005-10 2005-10 2005-10 2005-10 2005-10
1 Land 19.0 -11.4 0.6 -1.3 -5.0 0.6 -0.3 -2.1
2 UnSkLab 19.0 -3.5 0.6 -3.5 -5.0 0.2 -0.3 0.2
3 SkLab 19.0 -3.9 0.6 -3.9 -5.0 0.2 -0.3 0.1
4 Capital 19.0 2.7 0.6 2.8 -5.0 -0.3 -0.3 -0.3
5 NatRes 19.0 -19.1 0.6 -0.6 -5.0 5.0 -0.3 0.3
2010-15 2010-15 2010-15 2010-15 2010-15 2010-15 2010-15 2010-15 2010-15
1 Land 4.9 -5.5 7.7 -6.9 -2.3 0.6 -1.0 -0.1
2 UnSkLab 4.9 -3.9 7.7 -3.9 -2.3 0.2 -1.0 0.2
3 SkLab 4.9 -2.5 7.7 -2.5 -2.3 0.2 -1.0 0.2
4 Capital 4.9 2.7 7.7 2.7 -2.3 -0.3 -1.0 -0.3
5 NatRes 4.9 -4.9 7.7 -7.5 -2.3 2.3 -1.0 1.0
13
Conclusion

• Trade liberalization helps China to achieve
  efficient resource allocation toward textile
  products with strong comparative advantage
• Higher return to capital associated with
  expansion of textile industry attracts more
  foreign capital which is used to substitute for
  other factors of production
• Availability of capital especially in the later
  phase of liberalization facilitates expansion of
  manufacturing in China which becomes major
  exporting industry.
• Higher productivity of capital results in capital
  intensive textile and manufacturing production
• Delayed liberalization results in relatively
  lower efficiency advantages in China

14
Evolution of Factor Price in China
CHN2005 Factor Price Policy ReRun Difference by each period Factor Price Policy ReRun Difference by each period Factor Price Policy ReRun Difference by each period
China pfe 200005 200510 201015
UnSkLab 4.05 5.41 1.57
SkLab 4.82 5.71 0.53
Capital 2.62 0.35 -3.59
15
Memo 1

• Dynamic relationship between trade
  liberalization, return to capital, capital inflow
  and investment in the short-run and long-run.
• Focus on return to capital, capital inflow and
  sectoral resource allocation with factor
  substitution in the short run and long run.

16
Memo 2

• Trade liberalization and quota elimination
• Resource moves into textile industry which China
  has comparative advantage.
• Pro-competitive effects in import competing
  industries
• Rental price of capital increases and price of
  investment goods fall (because of import of
  cheaper foreign products)
• Rate of return to capital increases
• Foreign capital flows into China
• With more capital, not only textile industry but
  also forward and backward linkage industries
  invest in productive facilities and expand
  production
• With expansion of textile industry, real wage
  increases and rate of return to capital continue
  to rise.
• The capital labor ratio of both textile industry
  and other manufacturing industry rise. Use more
  capital intensive technology.
• Due to rising real wage, textile industry
  gradually lose international competitiveness, and
  instead other manufacturing industry with more
  capital grow to become export industry.
• In the medium and long run, rate of return to
  capital gradually fall, but still keep attracting
  foreign capital making manufacturing industry
  more capital intensive
• In the long-run, textile industry loses
  international competitiveness to other countries
  and manufacturing industry expand production and
  export.
• Investment relative to saving gradually falls,
  but net foreign payment continues to be high
  which is covered by trade surplus in the
  long-run.