IS CHINA CROWDING OUT SOUTH AFRICAN EXPORTS TO SUB-SAHARAN AFRICA?

1. IS CHINA CROWDING OUT SOUTH AFRICAN EXPORTS TO SUB-SAHARAN AFRICA? Lawrence Edwards (UCT) Rhys Jenkins (UEA)

2. GROWING INVOLVEMENT OF CHINA IN SUB-SAHARAN AFRICA • Trade links - total trade between China & SSA increased from US$7.5 bn. to US$113 bn. (2001-2011) • Chinese FDI in Africa – US$13 bn. In 2010 • Chinese technical cooperation • Most of the discussion has related to the role of China in oil, mining and infrastructure projects; less attention to manufacturing.

3. CHINA, SOUTH AFRICA AND SSA • Chinese exports to SSA increased 13-fold 2001-2011 (mainly manufactures). • Some studies looking at impacts on domestic market in destination countries. • None looking in detail at implications for South African exports to these markets. • SSA an important market - 22% of total SA exports of manufactures

4. RESEARCH QUESTIONS • Are China and South Africa competing with each other in SSA markets, how extensive is such competition and how is this changing over time? • To what extent has Chinese competition led to the displacement of South African exports? • In which countries have South African exports been most affected? • Which South African export sectors face the greatest threat from Chinese competition?

5. DATA

6. SHARES OF SA AND CHINA IN MANUFACTURED IMPORTS OF 10 SSA COUNTRIES

7. SA SHARE OF MANUFACTURED IMPORTS BY COUNTRY

8. CHINA SHARE OF MANUFACTURED IMPORTS BY COUNTRY

9. GROWTH AT THE INTENSIVE AND EXTENSIVE MARGINS, 1997-2010

10. GROWING OVERLAP OF SA AND CHINA EXPORTS

11. INDEX OF COMPETITIVE THREAT FROM CHINA FOR SA EXPORTS

12. POTENTIAL IMPACTS OF CHINA ON SA EXPORTS • Most studies of impact of China on other countries’ exports focus on products which both countries export (intensive-intensive margin). • But over half of growth of Chinese exports to SSA have come through entry into new products (extensive margin). • Important to look at both intensive and extensive growth by China and to see how these affect South African growth at both intensive and extensive margins.

13. GRAVITY MODEL • Estimating equation derived from a gravity-type trade model. and iis the exporter, j is the importer, k is the product and t is the year, and DSA is a South African dummy variable. A positive sign for 2 indicates the Chinese exports affect South African exports positively relative to alternative export suppliers.

14. IMPACT OF CHINESE EXPORTS ON SA EXPORTS (MARGINAL EFFECTS)

15. SUMMARY OF RESULTS • South Africa is less likely (relative to other exporters) to export a product to a market where China already exports or enters (extensive-extensive margin). However, this effect is felt at the margin with only a minor impact on the value of SA trade flows. • In product-market combinations that overlap for China and South Africa, Chinese export growth negatively affects South Africa’s exports relative to other countries (intensive-intensive margin). • Chinese export growth in particular product-market combination reduces probability that SA exports in the same product-market combination (relative to other countries) (Intensive-extensive margin), but the overall impact on the value of SA exports is low.

16. IMPACT ON SA EXPORTS • Seen that there competition between Chinese and SA exports to SSA has increased significantly over time. • Some evidence that Chinese exports have negative impacts on SA exports of the same product. • Now try to quantify the size of this impact. • Two approaches: • Simulation using the coefficients from the econometrics • Decomposition using extension of CMS analysis

17. CROWDING OUT OF SA EXPORTS, 1997-2010

18. CROWDING OUT OF SA EXPORTS BY COUNTRY, 1997-2010

19. SA LOSS OF MARKET SHARE TO CHINA, 2001-10 (DECOMPOSITION ANALYSIS)

20. IMPACTS OF CHINA ON SA EXPORTS BY TECHNOLOGY LEVEL

21. SECTORS MOST AFFECTED BY CHINESE COMPETITION • In absolute terms • Electrical and electronic equipment • Boilers and machinery • Iron and steel and products of iron and steel • Vehicles • In relative terms • Textile and apparel Partly reflects low level of exports (at end of period)

22. CONCLUSIONS • Limited competition between SA and China in late 1990s. • Increasing competition post-WTO accession – result of Chinese expansion at both extensive and intensive margins. • SA exports to SSA markets 10-20% lower in 2010 compared to counterfactuals. • Up to now impact on SA exports has been less pronounced in neighbouring markets (Zimbabwe, Malawi and possibly Zambia). • Although SA exports have declined in relative terms and this is partly attributable to crowding out by Chinese products, this has not meant a decline in the value of SA exports to these markets.