What's so special about China's exports?

In a new paper, Harvard's Dani Rodrik asks What's So Special About China's Exports? (PDF) The short answer is that "China is exporting stuff that is way too sophisticated for its level of income, and that explains part of its success". Here's the longer version:

..what is so special about China’s exports is not that they are voluminous or that its large pool of labor gives it a huge labor cost advantage. What stands out is that China sells products that are associated with a productivity level that is much higher than a country at China’s level of income. This helps account both for why China’s trade is viewed as problematic in advanced countries, and for China’s rapid economic growth.

The economically relevant question for sustainability is not whether trade-GDP can keep on rising, but whether China will manage to latch on to higher- and higher-income products over time, and continue to fuel its growth thereby.

Rodrik is sceptical that China can manage it; if not, "this is something that is likely to slow down growth." He concludes by discussing the nature of future industrial policies:

A clear implication of this paper is that China’s industrial policies - however incoherent they may have been - have had a hand in China’s past success. Future economic performance may also need to be supported by such policies.

...Therefore, a key question for China going forward is whether Chinese policies will maintain their experimental and flexible nature - whether governments will remain willing to support new industries but also willing to turn against ventures that under-perform. Designing the appropriate institutional structure to foster such an experimental, carrot-and-stick approach to industrial policy is an important challenge facing Chinese policy makers. This is an area where institutional transplantation does not work very well.

...The challenge for China therefore is to develop institutional models that are based on Chinese realities.

Comments

[y]

I tend to think, government policy aside, perhaps the fact China/India is so big and complex is also part of the story. And the two countries also have good public education system that countries of comparable income level can't boast about. Evidence is in every class room of American Graduate school's. If you can't that as China/India's export, the productivity (EXPY) would be even higher, because usually the Americans pick the best.

My theory is: there are two or three countries inside China/India, each sub-country has different income level and productivity. So well ,aparanetly, China not only has vast cheap labour coming from the country-side (peasents), China also have comparative advantage in scientific research for the "cheap" labour there; after all, according to National Academy, in 2004, China graduated about 500,000 engineers, India 200,000 and America 70,000. Assuming each year 10,000 went to USA, Europe and Japan, (I guess it is an exegeration, but I am sure there is way to check the exact numbers); the remaiming scientific labour force is still sizable. That is why China has no problem producing mixed bag of exports.

Is it possible, experts?

[Arthur Eckart]

I'm still waiting for China and India to stop pirating American technology. I agree, some of the finest engineers working in the U.S. are from China and India. However, China and India aren't leading the world in technology (and the U.S. continues to win most of the Nobel Prizes in sciences, more than the rest of the world combined). Perhaps, China's and India's education systems are overrated or the U.S. education system is underrated.

[Jim]

Looks a very interesting paper. I think Rodrik might be on to something, but I'd have two comments:
-Firstly, Rodrik says that China exports "more and better" than you would expect given its average income. I would have thought that no longer applies to the same extent if you look only at the coastal regions which produce the majority of China's exports and which have considerably higher incomes.
-Secondly, there might be a role for geography and culture in China's surprising performance. After all, it's a country with a huge pool of cheap labour but with good geographic links and surrounded by much more wealthy countries, many of which include large networks of succesful Chinese ex-pats. By far the biggest source of China's FDI is Hong Kong. Exp-pat Chinese entrepreneurs from Hong Kong, Singapore or Taiwan would presumably have much lower 'discovery costs' in China than others, which (if I understand Rodrik correctly) would tend to increase the scale and profitability of their investment there.

Of course, I haven't read the whole thing yet so I don't know if he addresses these kind of issues!

[y]

Arthur, for China/Indian to lead "lead the world in technology", it will wait for a while, though there are evidence that they are making significant innovations in limited areas.

Their education upto university/college level is undoubtedly excellent to the extend that both US and Europe are trying to attract their tallents. There are numerous reports about the US university professors worrying about the fall of enrolments of graduate students from overseas (lots of them from China).

I have to say that there is some weakness in the argument that CHina can't keep up with the growth because Income per capita is cathcing up with the productivity of export: because historically China did not fit into the regression models built on other countries statistics, how can the professors confidently say that their rationale would be true?

Why would it not be true that once the income per capita cathces up, the economic growth would be more driven by domestic need? Especially when the data itself show that the recent closing gap between the two did not SLOWING down the growth?

[Arthur Eckart]

The U.S. has a shortage of high-skilled labor, because it's moving so fast into emerging industries, and it takes years to obtain required skills. Consequently, the U.S. has been "importing" massive numbers of high-skilled workers. I worked at a university a few years ago and visited several other universities. It was obvious foreign enrollments increased. Also, I wouldn't assume China will catch-up with the West anytime soon. There's an inverse relationship between employment and productivity. Most don't understand the powerful economic forces (or barriers) China will face.

[Soumam Debgupta]

And Arthur you understand all those powerful economic forces ..... how amazingly intelligent

[John W. Price]

While China is producing a lot of Engineers who have solid fundamentals, they just don’t have the type of technology to work with, that we have in American labs and Universities. (Instead of using pencils in space, the US developed a 20 million dollar pen.) With that said, while the Chinese have not had any significant contributions to technology since the industrial revolution, there are a lot of them, and they are hungry for success. So it will be interesting to see what happens. China is, and will continue to be an economic power, and its prowess as a manufacturer will continue to grow. In order to combat the loss of American jobs to Asia manufacturers’, we must sell our products to these countries consumers. There are almost as many Millionaires in China as there are in America, and China is the biggest consumer of 700 series BMW’s and Mercedes. It is inevitable that Asia will continue to grow economically. American and European countries should focus on manufacturing some types of goods in China, and also selling value added exports to the wealthy Chinese consumer. There are companies such as Price Translations that specialize in translating existing websites written in English, and building them in Chinese so that the average upper class Chinese housewife can get online and buy these products.(www.pricetranslations.net) This is how we should combat the problems that we are facing due to the outsourcing of manufacturing jobs.

[Lafayette]

JP: "There are almost as many Millionaires in China as there are in America,"

Gotcha. I aint necessarily so. A French program on China's millionaires (just last night) mentioned the figure of "only" 300,000 Euro millionaires.

That simply does not compare with the US where there are 7.5 million (households).

I liked the bit about one Chinese millionaire who made a carbon copy of Versailles for his private residence. Talk about copy cat ... :^(

Next Chinese craze is ... get this ... buying a real French chateau. First French jobs went to China and now the Chateau are going to Chinese ownership. (The French will have a conniption. Ce n'est pas Catholique!)

[Juan de la O]

----China is exporting stuff that is way too sophisticated for its level of income----

This can only be posed as a problematic so long as we continue to misrepresent the world as one of discrete national economies trading with one another rather than a world tied together through both international trade and the internal transfers of transnational firms.

The majority of "China's" exports derive from that latter group and there is no reason to think that its members refuse to use state of art means of production simply because they operate in a low wage environment.

In short, "too sophisticated [for China]" but not at all "too sophisticated" for transnational capital.

[Lafayette]

O : "... to misrepresent the world as one of discrete national economies trading with one another rather than a world tied together through both international trade and the internal transfers of transnational firms."

I suggest that your description is NOT a misrepresentation. In fact, it is spot on in all three respects.

International business is discrete countries trading with one another (since time immemorial) AND internal transnational transfers AND international trade (of products and services) between dissimilar companies.

Where is the misrepresentation? Each representation depends upon the circumstance and all three exist simultaneously in world trade accounts.

[Juan de la O]

Lafayette:

Agreed, my description is not, nor was it meant to be, a misrepresentation.

Yes, the different categories exist simultaneously but we tend to ignore this, tend to ignore the fact that, e.g., production in China is not necessarily production of China, so fall into questions such as "What's so special about China's exports?"...How can these exports be so "sophisticated" -- questions derived from misrepresentations in thought, in theory and in national accounts. Failure to grasp that second phase globalization has also been/is a changed mode of organization of production within the same mode of production. Of course this has not been smooth, nothing is. In particular, a greater tension between the economic and the political, a tension that each struggles to make advantage of.

[Lafayette]

O: "How can these exports be so "sophisticated""

I'll answer this question: The Chinese have opened design shops in Germany where they are learning how to conceive and build machine tools. It is simply a question of time before they arrive at a level comparable with that of any medium-sized German operation that is the backbone of this major export industry. In fact, they are probably at the first level already. (Chinese outbound FDI reached $45.7B in 2005, up from $32.6B in 2004, all channelled through Hong Kong as reported by the OECD.)

As for production, one can imagine that they will NOT be producing these machines in Germany.

Come on, people, this technique of pilfering ideas has been used since ancient times. The Romans assimilated "new technologies" in the same manner (the Roman baths employing several of them including that of cement). Mankind has always advanced in a similar manner by borrowing where one can and by stealing where one cannot. The only modern advance on the use of technologies is the patent and licensing (better known as "technology transfer").

If we want to compete with the Chinese, we need to stop deluding ourselves about their capacities. It is a culture that is much older than ours and, indeed, has proven its ability to innovate and develop over past centuries.

It has recently awoken from a very long slumber. But, it IS awake. Let us not make any mistakes about this fact. (I address this remark particularly to the Europeans who think that tariff barriers will be coming back to save them from the global onslaught on the protective post-war cocoon that they had built around their economies to recontruct them. Those tariff barriers are gone forever.)

The paradigm has changed. Period.

[Juan de la O]

Just to remind that the question re. sophisticated exports was posed at the beginning of the thread, in association with Dani Rodrik's paper.

Yes, there has been 'a paradigm shift', most easily seen as the rise of the transnational form of corporate organization. If UNCTAD figures are correct, 30-40% of total global trade takes place as intra-corporate transfers which, from one perspective, can also be seen as the negation of trade as normally considered.
But it should be kept in mind that this 'shift' has been taking place within and partially in reaction to profit rate (not earnings) and growth rate difficulties which the capital system has been experiencing since the earlier 1970s. That is, the dominant mode of organization has been changing but the dominant mode of production along with its inherent contradictions remains.

To say 'from ancient times' is ahistoric as such conception does away with any real understanding of what have proved to be specific and historically limited sets of social relations of production in favor of a 'one size fits all' production-in-general.

China has not escaped from the capital system but become more enmeshed, which, among other things, means that it cannot escape the cycle, that 'grow or die' also becomes an overaccumulation of capital made worse by the still partially developed character of its internal market. The tens of thousands of small rebellions over the last year and a half are indicative.

[Lafayette]

O: "If UNCTAD figures are correct, 30-40% of total global trade takes place as intra-corporate transfers which, from one perspective, can also be seen as the negation of trade as normally considered."

I can't agree with this. It is not a negation of trade, just another classification.

The end customer is always the same, regardless of the means employed to approach the client and sell a product or service.

Let’s consider definitions. "Transnational" and "multinational" are synonymous. The only way one MIGHT distinguish them is that multinationals have local implantations (sales and service), whilst transnational could mean a local representation by means of distributors, franchisees or individual wholesalers or retailers.

So, "international trade" can be inter-company transfers within a given multinational or simple export-import from producer/distributor to distributor/retailer (as in transnational).

Frankly, the distinction is not all that important. The final customer is always the same. "Trans" simply means "on the other side", without any distinction as to who and how and why that transfer is made.

(It became popular when journalists decided that they had had enough of "multinational", which was an evolution by journalists when they were fed up with "international". Word mongers get impatient always using the same words, apparently.)

As regards China, they are just starting their multinational network and, as mentioned, with their FDI rivaling that of many a western country, they will as well develop the same sort of global business network. (Lenovo is a good example, since it was a simply buy-out of IBM’s "multinational" PC business.)

[Juan de la O]

'trans' also means: 'over, beyond, through and through'.
which is distinct from 'multi' that still carries the imprint of 'inter', which by emphasizing the between also deemphasizes the real combining and interpenetratings.
transnats are in fact an organizational form which has moved _beyond_ what, in a desire to save the national state rather than place it in proper perspective, was signified as 'inter-national' and 'multi-national'.
hard, hard, hard to break through, beyond, our quite ingrained beliefs, notions, definitions of the nation state system as determinant but a little serious analysis as has been off and on performed since the 1960s, and earlier, can help, as well as an ability to put aside presuppositions which, by depending on 'end user', completely fail to take account of the globalization of 'the shop floor' and that movement of goods/services within the shop is mere transfer, which is definitvely not trade.
Any attempt to grasp the tensions in today's world, and in its various corners, must get past all the neat and pat preconceptions of another age.
But then most do usually find it easier to assign primacy to the political rather than grasp the interplay of political economic contradictions, systemic shiftings and uneven change.
so it goes, at least until the next 'surprise'.

[Lafayette]

JO: "'trans' also means: 'over, beyond, through and through'.
which is distinct from 'multi' that still carries the imprint of 'inter', which by emphasizing the between also deemphasizes the real combining and interpenetratings."

Thanks for the definition. But, it is superfluous.

Transnational mostly means employing resellers whereas multinationals usually manifests itself as local implementation of corporate offices.

The difference being that it is easier to use a reseller to test local market viability before investing in a full-fledged operation.

It's all about business models and not nation-states, imho.

[Juan de la O]

L. said: "It's all about business models and not nation-states, imho."

'business models' = 'mode of organization', so we agree - but that is overly one-sided.

The mode of organization has to be understood not in a self-referential sense but in its relation
to other and simultaneous modes of organization of production and distribution on one hand and national states and the system of national states on the other. Only in this manner are
we able to begin to grasp contradictions within and between, and from these tensions and counter-tensions, the overall global process within which national states compete to provide
subsidies to trans-national enterprises, i.e. compete to purchase jobs from these enterprises.

In their interactions with one another and supranational institutions, the national state
increasingly becomes a labor contractor, with taxpayers purchasing employment via the mediation of the national state. From which we begin to see the new nationalisms.

[cheap r4 dsi]

The question is whether the Chineese will agitate for higher wages and better working conditions. Remember that Japan was at one time thought of as an unstoppable economic juggernaut. There is also the real danger that their very success will invoke a protectionist response in the rest of the world.

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Sohbet

[Association Management]

Much more than comparative advantage and free markets have been at play in shaping China's export success. Well I think that Government policy has helped to fill the national capacities in the consumer electronics and other advances that will most likely not have developed in their absence.

[energy healing]

China has ended up with an export basket that is significantly more erudite than what would be normally expected for a country at its income level. Well I think that China’s exports were associated with an income level that is more than six times higher than China’s per-capita GDP at the time.

[wall coatings specialist]

Government policies have helped the auspices of local capacity in the field of consumer electronics and other advanced areas that would probably not have developed in their absence.

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Much more than comparative advantage and free markets have been at play in shaping China's export success. Well I think that Government policy has helped to fill the national capacities in the consumer electronics and other advances that will most likely not have developed in their absence.

[erotic shop]

Much more than comparative advantage and free markets have been at play in shaping China's export success. Well I think that Government policy has helped to fill the national capacities in the consumer electronics and other advances that will most likely not have developed in their absence.

[Gate Remote Control]

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[Gate Remote Control]

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