Has China Displaced its Competitors in High‐tech Trade?

• Author: Cong S. Pham,Xueli Tang,Xuan Nguyen,Pasquale Sgro
• Date: 01 August 2017
• DOI: http://doi.org/10.1111/twec.12390
• Published date: 01 August 2017

Has China Displaced its Competitors in

High-tech Trade?

Cong S. Pham, Xuan Nguyen, Pasquale Sgro and Xueli Tang

Department of Economics, Deakin Business School, Deakin University, Geelong, Victoria, Australia

1. INTRODUCTION

FOR the last 20 years, China has displayed unprecedented good growth performance in its

exports in general and in its high-tech exports in particular. In 2010, it surpassed Ger-

many and the United States to become the leader in world exports, and in 2013, China

became the world’s leading exporter in high-tech products largely surpassing traditional giant

high-tech exporters such as the United States, Japan and the EU.

1

The exceptional rise of China in world trade in general has raised concern of economists

and policymakers both in developed and developing economies. It has motivated many econo-

mists to look into the effects that the exponential growth in Chinese trade may have on world

trade patterns. The first group of related studies focused on the effect of China’s WTO adhe-

sion on world trade using simulation or the general equilibrium setting of the GTAP model.

For example, Ianchovichina and Martin (2001) empirically examined the effect of China’s

adhesion to the WTO on global trade and trade patterns. They predicted that the reduction of

tariffs following China’s WTO adhesion would boost labour-intensive manufacturing sectors

in China and especially in textiles and apparel sectors. Inchovichina and Walmsley (2005)

found that China’s WTO accession had a negative impact on the exports of developing and

emerging economies such as Vietnam, the Philippines, Thailand, Indonesia and Malaysia. Yet,

China’s WTO accession was found to have a positive effect on the exports of Japan, Hong

Kong, South Korea, Singapore and Taiwan (see also Shafaeddin, 2004).

The second group of studies, with contributions by Eichengreen et al. (2004, 2007), Green-

away et al. (2008), Amann et al. (2009) and Giovann etti and Sanfilippo (2009), on the other

hand, used the gravity model in which they applied different instrumental variables (IV) for

Chinese exports. Eichengreen et al. (2004, 2007) found that China’s exports crowded out the

exports of other Asian countries. Yet, this effect was felt in markets for consumer goods and

hence by less-developed Asian countries, not in markets for capital goods or by more

advanced Asian economies. On the contrary, Greenaway et al. (2008) found evidence of a dis-

placement effect, which is more pronounced for high-income Asian exporters such as Korea,

Singapore and Japan. It is important to note that the difference in the results of Eichengreen

et al. (2004, 2007) and Greenaway et al. (2008) must be put in perspective. On the one hand

they used different IVs. In Eichengreen et al. (2004) the full set of instruments include both

China’s GDP and the bilateral distance between China and its trading partners while the lim-

ited set of instruments only includes the bilateral distance. Eichengreen (2007) used only the

We would like to thank Hong Hwang, Eden Yu (the editor), Yuqing Xing (the discussant), participants

at the Trade and Development Workshop at Deakin University, Australia, on 27 November 2014 and an

anonymous referee for useful comments and suggestions.

1

China’s exceptional performance in high-tech exports is well documented not only in the trade litera-

ture but also in the news. See for example the following recent article by James Kynge in the Financial

Times: http://blogs.ft.com/beyond-brics/2014/03/18/china-leads-em-surge-in-high-tech-exports/.

©2016 John Wiley & Sons Ltd 1569

The World Economy (2017)

doi: 10.1111/twec.12390

The World Economy

bilateral distance as the instrument in a gravity equation that includes year dummies. Finally,

Greenaway et al. (2008) includes both China’s GDP and the bilateral distance between China

and its trading partners as the instruments. Giovannetti and Sanfilippo (2009) used highly dis-

aggregate 6-digit HS classification data to study the impact of Chinese exports on African

manufactures exports. Using the bilateral distance between China and destination markets as

an instrument for Chinese exports to these markets, they found that Chinese exports had

reduced African exports especially for textiles and clothing, machinery and equipment.

Finally, Amann et al. (2009) empirically examined the impact of rise of China’ s textile and

clothing sector on the exports of its Asian counterparts. They found that China’s textile and

clothing exports had a negative and significant impact on the textile and clothing exports of

other Asian economies, except the clothing exports of the middle-income group.

2

The final group of related studies consists of papers that focused on the extent to which Chi-

na’s trade patterns resemble those of its competitors. For example, Schott (2008) computed the

similarity indices between China’s and other countries’ trade patterns. He found that while Chi-

na’s manufacturing export bundle increasingly overlapped with that of the world’s most devel-

oped economies, China’s exports sold at an increasing discount relative to the exports of OECD.

Thus, Schott (2008) concluded that the competition between China and the OECD might be less

extreme than their growing overlap in terms of export bundles would otherwise imply. Using

aggregate trade data of the 1990s, Lall and Albaladejo (2004) assessed the potential for China’s

competitive threat for East Asian (EA) neighbours. Specifically, they examined the evolution of

China’s world market shares in relation to the world market shares of its EA neighbours in order

to assess the extent to which export structures of the latter resemble that of China over time and

the degree of overlap within each technological category. They found evidence of complemen-

tarity between China and its neighbours in high-tech industries and evidence of China being the

main threat to EA exporters in medium-tech and especially high-tech industries.

3

Apart from the above three main groups of studies which explored the impact of China’s

trade liberalisation and Chinese exports at the aggregate level on its competitors and world

trade patterns, a number of papers have discussed the extent of Chinese high-tech exports in

the world. Given high-tech trade as the focus of our paper, a more detailed review of three

recent papers on China’s high-tech exports and a comparison of these papers to our study is

especially warranted. Edwards and Lawrence (2010) computed the ‘similarity index’ to explore

the overlap between US high-tech exports and foreign high-tech exports to the United States.

They documented a weak overlap in the export bundles of developing countries including

China with the United States and other developed countries. Thus, their study was mainly

descriptive and did not look into the effects of Chinese high-tech exports on the exports of Chi-

nese exporters in a regression framework. Xing (2014), on the other hand, empirically exam-

ined what contributions China had made to its high-tech exports and provided two important

findings. First, while China exported a large volume of high-tech products, its trade balance in

2

Using aggregate trade data and the technique of vector autoregression (VAR) estimation, Ahearne

et al. (2003) also found positive correlations between the growth of China’s export and that of Asian

emerging economies in the period 1981–2001.

3

We only can provide a brief review of the literature that most closely relates to our study. It may be

impossible and is beyond the scope of this paper to provide a comprehensive review of all studies on

the extent to which China’s growth in trade can reshape the world trade patterns and world trade vol-

ume. The list of studies on the impact of China’s rise on world trade may include other studies such

Hanson and Robertson (2010) and Montalbano and Nenci (2012).

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