China's Global Influence: A Survey through the Lens of International Trade

• Author: Chaoqun Zhan,Larry D. Qiu
• Published date: 01 February 2016
• Date: 01 February 2016
• DOI: http://doi.org/10.1111/1468-0106.12151

CHINA’S GLOBAL INFLUENCE: A SURVEY THROUGH

THE LENS OF INTERNATIONAL TRADE

LARRY D. QIU*The University of Hong Kong

CHAOQUN ZHAN The University of Hong Kong

Abstract. One of the most impressive changes in the global economy in the past half-century hasbeen

China’s high and sustained growth and its integration into the global economy. This phenomenal

change not only brings huge benefits to the Chinese people, but also exerts a tremendous influence

on the rest of the world. How large is China’sinfluence on the global economy? How are various

countries/regions affected differently? How are various industries in a country affected differently?

Answering these questions is not simple. In this paper, we review the recent literature that attempts

to answer these questions. The findings of the survey conducted in this study aim to provide a com-

plete picture of China’s global influence and to identify issues that require further analysis.

1. INTRODUCTION

China began its economic reform and adopted an open-door policy in 1979. This

development has brought two significant changes to China: (i) rapid growth and

development of the domestic economy; and (ii) graduate integration of the do-

mestic economy into the global economy. China’s GDP increased from approx-

imately US$201bn in 1979 to US$4864bn in 2013, with an average annual

growth rate of roughly 9.83%. China’s exports increased from US$30bn in

1979 to US$2033bn in 2013, with an average annual growth rate of approxi-

mately 13.18%. Moreover, imports increased from US$29bn in 1979 to US

$1696bn in 2013, with an average annual growth rate of roughly 12.71%.

1

In

1979, China’s total trade ranked 32nd in the world. In 2014, China became

the largest trading country in goods trade and the second largest in goods and

services combined, after the United States.

To a large extent, China’s open-door policy resembles the switch from au-

tarky to free trade, as illustrated in standard international trade textbooks. Stan-

dard trade theories predict that China’s economic growth and trade expansion

bring both opportunities and challenges to the rest of the world. As for opportu-

nities, on the one hand, given that the rapid economic growth has made China

the second largest economy in the world, its huge market creates strong demands

for imports of both raw materials and intermediate goods for infrastructure

building and manufacturing production, as well as for imports of final goods

consumption. China has also become one of the most attractive places for for-

eign direct investments. On the other hand, China supplies a vast amount of

cheap manufacturing goods, which benefits consumers in the importing coun-

*Address for Correspondence: Faculty of Business and Economics, The University of Hong Kong,

Pokfulam Road, Hong Kong. E-mail: larryqiu@hku.hk. Qiu was a research fellow of the Hong

Kong Institute for Monetary Research (HKIMR) when this paper was written, and he expresses

his gratitude to HKIMR for the research support.

1Data are from the World Bank with constant 2005 US dollar price.

Pacific Economic Review, 21: 1 (2016) pp. 45–71

doi: 10.1111/1468-0106.12151

© 2016 John Wiley & Sons Australia, Ltd

bs_bs_banner

tries as they can enjoy a wide variety and an extensive quantity of products at

low prices. Moreover, the integration of China into global production chains

helps enhance the efficiency of global production. As for challenges, countries

that share the comparative advantages of China might suffer from severe com-

petition in both domestic and third markets. Industries that are in competition

with China might shrink and some firms might even exit the market.

Although the integration of China into the global market may not offer any

new theory, its sheer size attracts people’s attention because of its potentially

huge influence on the rest of the world. This paper critically reviews the litera-

ture on the influence of China on the rest of the world with a focus on the chan-

nel of international trade. China has an abundant labour supply, rich resources,

high innovative capability, a vast domestic market and very unbalanced levels of

regional development. Moreover, it has a huge GDP but low per capita income.

Consequently, its trade exerts different effects on various countries and indus-

tries. We initially examine the effects on developed countries (Section 2), then

Asian countries (Section 3), then other developing countries (Section 4) and,

finally, the world as a whole (Section 5).

2. DEVELOPED COUNTRIES

The effect of competition from low wage countries (LWC) on developed coun-

tries has been a hot topic in recent years. Among LWC, China stands out. In this

section, we first review the debate about the effect of China’s competition on the

labour markets in developed countries. We subsequently discuss the mechanisms

and evidence of trade-induced resource reallocation, productivity growth and

technological progress in developed countries. Finally, we evaluate the claim

of China exporting deflation.

2.1. Labour market

How does trade affect income inequality in developed countries? This question is

old, but it has received renewed attention recently primarily because of China’s

deepening integration into the global economy. Researchers are particularly

interested in China’s effects on developed countries with regard to unemploy-

ment, the wage gap and labour participation. In this subsection, we initially

focus on the US market and then on other developed countries.

2.1.1. United States

In a widely cited paper based on data from 1990 to 2007, Autor et al. (2013a)

rate every US county for its manufacturers’exposure to competition from

China. They determine that regions most exposed to China tend not only to lose

more manufacturing jobs, but also see an overall employment decline and

reduced rate of labour force participation. Regions with a higher exposure also

have a larger increase in the number of workers receiving unemployment insu-

rance, food stamps and disability payments. Specifically, Autor et al. demonstrate

L. D. QIU AND C. ZHAN46

© 2016 John Wiley & Sons Australia, Ltd