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Implications of China’s Accession to the WTO for Sectoral Adjustment
in China and USA
Anwar Hussain
Shuji Kasajima
Introduction• Shocks: CHN2005 ・・ Tariff reduction + Quota elimination
during 2000 and 2005 SFG2010 ・・ Tariff reduction + Quota elimination
during 2000 and 20 １０
• 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
Policy-Rerun Rate of Return
Difference: CHN2005 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
Capital Accumulation and Rate of Return to Capital:CHN2005
-6.00
-4.00
-2.00
0.00
2.00
4.00
6.00
8.00
2000~05 2005~10 2010~15
Period
Pol
icy-
ReR
un D
evia
tion:
%
rorge
rorga
rental
pcgds
qk
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 trust’s income from equity in
firms located in region r (China)
in China
)( yqtfyqhtMXIS
yqhtyqtf
Policy-Rerun Saving, Investment, Trade Balance & Net foreign Income
Difference: CHN2005 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
Saving, Investment and Foreign Receipt & Payment:CHN2005
-40.00
-20.00
0.00
20.00
40.00
60.00
2000~05 2005~10 2010~15
Period
Pol
icy-
ReR
un D
evia
tion:
%
qsave
qcgds
yqht
yqtf
Policy-Rerun Foreign Asset Ownership
Difference: CHN2005 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 trustwqtf(r): equity held by global trust in firms located in region r
Sectoral Output: CHN2005
qo
CHN NAM
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
Factor Demand: CHN20052000-05
qfe
CHN NAM
Textiles Mfcs Textiles Mfcs
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
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
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
Sectoral Output: SFG2010
SFG2010
qo
CHN NAM
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
Factor Demand: SFG20102000-05
qfe
CHN NAM
Textiles Mfcs Textiles Mfcs
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
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
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
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
Evolution of Factor Price in China
CHN2005 Factor Price: Policy ReRun Difference by each period
China
pfe
2000~05 2005~10 2010~15
UnSkLab 4.05 5.41 1.57
SkLab 4.82 5.71 0.53
Capital 2.62 0.35 -3.59
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.
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.
