1. China’s competitive threat to Latin America Sanjaya Lall (Oxford University) and John Weiss (ADBI) 2004 LAEB ANNUAL CONFERENCE THE EMERGENCE OF CHINA: CHALLENGES AND OPPORTUNITIES FOR LATIN AMERICA AND ASIA Beijing, 3-4 December, 2004

3. Some LAC countries worry about the Chinese competitive threat… The Economist (July 24, 2003), in ‘The sucking sound from the East’ says “ Labour costs in China … are about a quarter of their level in Mexico. The result: about 300 manufacturing plants have moved from Mexico to China in the past two years”. The International Herald Tribune is more gloomy: “In all, 500 of Mexico’s 3,700 maquila plants have shut down since 2001, at a cost of 218,000 jobs”. September 3, 2003 The Economist (July 24, 2003), in ‘The sucking sound from the East’ says “ Labour costs in China … are about a quarter of their level in Mexico. The result: about 300 manufacturing plants have moved from Mexico to China in the past two years”. The International Herald Tribune is more gloomy: “In all, 500 of Mexico’s 3,700 maquila plants have shut down since 2001, at a cost of 218,000 jobs”. September 3, 2003

4. Popular perception of a ‘competitive threat’ Rapid export growth by China reduces exports and (if they are open to imports) domestic production by other countries This leads to losses in incomes, jobs and growth Rapid growth by China can also reduce access to, or raise cost of, resources like capital (esp. FDI) and natural resources

10. Five possible combinations of relative market share changes E. Mutual withdrawal: no threat Both parties lose shares in export markets to other competitors. D. Direct threat China gains market share and other country loses, this may indicate causal connection unless other country was losing market shares in the absence of Chinese entry. Falling C. Reverse threat No competitive threat from China. The threat is the reverse, from the other country to China. A. No threat Both China and other country have rising market shares and latter is gaining more than China B. Partial threat Both are gaining market share but China is gaining faster than other country Rising Other country’s export market shares Falling Rising Chinese export market shares Matrix of competitive interactions between China and other country in export markets

12. Shares of world exports by technology (%)

13. Shares of developing countries in world exports (1990-2002)

14. 50 most dynamic exports in the world, 1990-2002

15. LAC’s manufacturing value added record (world share, 1980-2000)

16. World market shares of LAC and East Asian exports (1990-2002)

17. Changes in world market shares, 1990-2002

19. Export dynamism: % dynamic products in manufactured exports

20. Technological similarity of export structures, China and LAC

21. Structural stability of exports (181 three-digit manufactured products)

22. Correlation of Chinese and LAC export structures, 1990 & 2000

23. Measuring the competitive threat by relative WMS changes… 100.0% 100.0% 325,978.5 117,403.4 Total 14.5% 32.0% 47,253.8 37,538.4 Mutual Withdrawal 14.6% 12.1% 47,648.8 14,229.0 China under Threat 11.4% 30.5% 37,142.1 35,809.9 Direct Threat 31.5% 10.8% 102,644.9 12,661.4 No Threat 28.0% 14.6% 91,288.9 17,164.8 Partial Threat 2002 1990 2002 1990 Distribution (%) Values ($ m.) Competitive threat from China for LAC 18

24. Chinese competitive threat by LAC country in 2000 (% of manufactured exports)

27. Bilateral trade patterns

28. Technology breakdown of bilateral trade between LAC & China 86.33% 89.22% 90.08% 60.45% 23.85% 17.64% 21.64% 33.85% 'Pure' manufactures 13.67% 10.78% 9.92% 39.55% 76.15% 82.36% 78.36% 66.15% Primary + RB 2.66% 2.37% 2.68% 2.42% 0.90% 1.53% 0.58% 0.13% Other HT 11.75% 10.11% 3.20% 0.41% 5.69% 5.04% 0.17% 0.11% Electronics 14.41% 12.48% 5.88% 2.83% 6.58% 6.57% 0.75% 0.24% High technology 16.51% 18.50% 21.40% 20.10% 2.10% 1.22% 2.75% 0.48% Engineering 7.28% 7.48% 6.25% 3.97% 4.25% 3.36% 5.10% 21.93% Process 2.64% 2.44% 3.30% 3.17% 2.65% 0.51% 2.90% 0.91% Automotive 26.43% 28.42% 30.94% 27.24% 9.00% 5.09% 10.75% 23.31% Medium technology 12.67% 16.23% 18.36% 10.88% 2.83% 0.80% 3.99% 8.59% Other LT 32.82% 32.09% 34.90% 19.49% 5.44% 5.18% 6.15% 1.71% Fashion cluster 45.49% 48.32% 53.26% 30.37% 8.27% 5.98% 10.15% 10.30% Low technology 10.11% 8.82% 7.84% 10.04% 20.37% 20.31% 16.52% 8.87% Mineral-based 0.39% 0.45% 0.42% 0.48% 13.26% 8.50% 37.14% 22.97% Agro-based 10.50% 9.27% 8.26% 10.52% 33.63% 28.81% 53.66% 31.84% Resource based 96.83% 98.49% 98.34% 70.97% 57.48% 46.45% 75.31% 65.68% Manufactured 3.17% 1.51% 1.66% 29.03% 42.52% 53.55% 24.69% 34.32% Primary Products 2002 2000 1995 1990 2002 2000 1995 1990 China's exports to LAC 18 LAC 18 exports to China Distribution of bilateral exports between LAC and China (% of total exports)

29. Bilateral trade of ‘big three’

32. But bilateral trade so far is very small… 5.9% 2.2% 1.8% 6,941 7,500 5,787 Japan 24.2% 11.3% 11.7% 28,707 38,433 38,481 EEC15 3.7% 2.1% 2.6% 4,436 7,277 8,676 East Asia ( excl. China & Japan ) 12.8% 14.7% 13.2% 15,216 49,852 43,299 LAC total 39.1% 59.5% 58.7% 46,305 202,024 192,619 United States 0.7% 1.1% 1.9% 864 3,691 6,224 China 100.0% 100.0% 100.0% 118,428 339,671 328,301 World 1990 2000 2002 1990 2000 2002 Distribution (%) Export values (US$ million) LAC18's export to 9.6% 15.3% 14.8% 5,932 38,230 48,256 EEC15 14.5% 16.7% 14.9% 9,011 41,654 48,434 Japan 52.6% 31.7% 32.3% 32,670 79,051 105,242 East Asia ( excl. China & Japan ) 8.3% 20.9% 21.5% 5,175 52,156 70,050 United States 1.1% 2.2% 2.4% 661 5,594 7,742 All LAC 100.0% 100.0% 100.0% 62,091 249,203 325,596 World 1990 2000 2002 1990 2000 2002 Distribution (%) Export values (US$ million) China's export to Exports destinations of China and LAC18