China's Trade Slowdown: Cyclical or Structural?

• Author: Zhao Liu,Xuefeng Qian,Ying Pan
• Date: 01 November 2017
• DOI: http://doi.org/10.1111/cwe.12221
• Published date: 01 November 2017

©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 65–83, Vol. 25, No. 6, 2017

65

China’s Trade Slowdown: Cyclical or Structural?

Xuefeng Qian, Zhao Liu, Ying Pan*

Abstract

This paper analyzes whether the slowdown of China’s trade in 2012–2015 was cyclical

or structural, and further discusses the effects of structural factors, including trade

structure, trade protectionism and global value chain participation. Using the national

panel data from 2000 to 2015, based on the error correction model and import-intensity-

adjusted demand model, our results show that the slowdown of China’s trade growth

in 2012–2015 was mainly a result of cyclical factors. Using 2000–2015 industry-

level data, we also nd that the structure of trade goods had an inhibitory eect on the

import slowdown but a positive eect on the export slowdown. Trade protectionism had

an adverse eect on the trade growth slowdown. The global value chain participation

marginally contributed to the slowdown in trade growth. Therefore, the impacts of

structural factors on trade growth slowdown cannot be ignored, and related policies

should receive greater attention from policy-makers.

Key words: cyclical factor, structural factor, trade slowdown

JEL codes: E32, F13, F14

I. Introduction

Since 2008, world trade has been hit heavily by the global financial crisis. In terms

of trade growth, the average annual growth rate of global trade (exports of goods and

services) was 7.29 percent between 2003 and 2007. The annual growth rate of global

trade fell sharply, to 2.69 percent in 2008, and continued to fall thereafter to −10.16 pe rcent.1

Economists describe the fall in global trade in 2008–2009 as a “trade collapse” (Bems et al.,

2011; Gopinath et al., 2012). After the outbreak of the nancial crisis of 2008–2009,

global trade growth rebounded for a short time, but it was still relatively sluggish. In

*Xuefeng Qian, Professor, School of Business Administration, Zhongnan University of Economics and Law,

China. Email: xfqian@126.com; Zhao Liu, Graduate Student, School of Business Administration, Zhongnan

University of Economics and Law, China. Email: liuzhao_06@126.com; Ying Pan, PhD candidate, School of

Business Administration, Zhongnan University of Economics and Law, China. Email: panying08@126.com.

This research is supported by a project of the Zhongnan University of Economics and Law: The New Normal

of the Economy and China’s New International Competition Advantage (Grant No. 31501710801).

1Data are available from: https://data.worldbank.org.cn/indicator/NE.EXP.GNFS.KD.ZG.

Xuefeng Qian et al. / 65–83, Vol. 25, No. 6, 2017

©2017 Institute of World Economics and Politics, Chinese Academy of Social Sciences

66

2010, the global trade growth rate was 11.59 percent, and declined to 6.56 percent in

2011. The global trade growth rate then continued to drop, to 2.89, 2.99, 3.61 and

3.39 percent in the following 4 years, with researchers referring to this as a period

of “trade slowdown” (Cabrillac et al., 2016; Constantinescu et al., 2016; Hoekman,

2016).2 In terms of trade elasticity, the average of the elasticity of trade income in

2003–2007 was 1.66, which showed that trade grew faster than GDP. What is worse,

the average trade–income ratio fell to 1.36 in 2008–2014, and was even less than 1

during 2012–2015 (Hoekman, 2016). From the perspective of both the trade growth

rate and the elasticity of trade income, global trade growth remained depressed during

2012–2015.

The slowdown in global trade has attracted worldwide attention, for which

researchers give various explanations. There are two main categories of such

explanations: one is related to cyclical factors (short-term factors); another is structural

determinants (long-term factors). Based on the error correction model, Constantinescu

et al. (2015) find that cyclical and structural factors accounted for 47 and 53 percent

of the trade decline, respectively, in 2012–2014. Moreover, using the error correction

model with structural and time-series data, Nakajima et al. (2016) demonstrate that

approximately 30 percent of trade collapse is attributed to cyclical factors, with the rest

due to structural determinants. In contrast, referring to Bussière et al. (2013), Boz et al.

(2015) adopt the import-intensity-adjusted demand (IAD) model and nd that the share

of global trade downturn explained by cyclical factors is 54 percent.

As for the general reasons for the decline in trade, many published studies have

emphasized the effects of specific cyclical or structural factors. Among the cyclical

factors, Duval et al. (2014) and Ollivaud and Schwellnus (2015) discuss the role of

aggregate demand in global trade decline. Following qualitative and quantitative

analysis, these studies conclude that some sort of change in the economic cycle leads to

insucient demand, which then leads to the decline of global trade. Chinn et al. (2014)

and the IMF (2015) demonstrate that inadequate investment contributes to the expansion

of the current account decit and the slowdown in global trade. From the perspective

of commodity structure, Miroudot (2013) and Levchenko et al. (2010) suggest that a

decline in manufacturing industry growth mainly causes a trade slowdown. Meanwhile,

Kee et al. (2010) and Auboin and Borino (2017) incorporate trade protectionism into the

IAD model, and nd that the eects of trade protectionism on global trade slowdown

are not signicant. Moreover, Johnson and Noguera (2012) and Ferrantino and Taglioni

(2014) calculate the global value chain (GVC) participation index for dierent industries

2Data are available from: https://data.worldbank.org.cn/indicator/NE.EXP.GNFS.KD.ZG.