PIIE Blog | China Economic Watch
The Peterson Institute for International Economics is a private, nonprofit, nonpartisan
research institution devoted to the study of international economic policy. More › ›
Subscribe to China Economic Watch Search
China Economic Watch

Are Higher Costs Impacting Chinese Export Competitiveness?

by | May 1st, 2014 | 11:21 am
|

There has been mounting concern that exchange rate appreciation and wage growth are undermining Chinese export competitiveness. However, the concern is premature. China continues to increase its share of global exports whether footwear or turbines.

The costs of Chinese exports are most certainly increasing relative to other developing economies. The RMB has appreciated by 14 percent in nominal terms since the beginning of 2008 faster than any other major Asian economy. Manufacturing wages in China are now higher than developing neighbors such as Thailand, Indonesia, Cambodia, and Vietnam.

However, higher costs have not yet impacted Chinese export competitiveness. China leads the world in global exports after surpassing Germany in 2009. Last year, it increased its market share even further to 12 percent of global exports just below the peak export market share of the United States in the 1990s and close to the peak share of German exports in the late 1980s.

Percent of global exports by country, 1980-2013

Figure 1 Trade Competitiveness

Rising prices have not stopped China from strengthening its dominance in labor-intensive exports. Chinese exports of apparel and footwear now command two-fifths of global exports up from one-fifth in 2002, and around 30 percent in 2008. China’s share of knitted glove exports, an export that should face relatively higher price elasticity, increased from 47 percent in 2008 to 53 percent in 2012.

China’s position in capital-intensive exports is more modest but still growing faster than most countries. Chinese exports of machinery, nuclear reactors, and boilers and optical, photo, technical, and medical equipment are now over one-sixth of global exports up from only 4 percent in 2001 and 12 percent in 2008. In some capital-intensive exports China is already a dominant global player. For example, in 2010, China became the second largest exporter of self-propelled railway coaches (often used for high speed rail systems) after Germany. In 2013, China exceeded Germany to become the second leading exporter of steam turbines in the world, behind only Japan.

Eventually higher manufacturing costs and nominal exchange rate appreciation will reduce China’s competitiveness in labor-intensive exports. Indeed China’s share of global exports could be nearing a peak as its share of global exports comes closer to the peak levels of the United States and Germany. But the effect is likely to be gradual. It took twenty years for Japan to fall from 9.8 percent of global exports in 1993 to 4 percent in 2013. It will take longer for China. Labor remains relatively competitive with Chinese per capita GDP still only one-fifth the level of Japan in 1993. And loses in labor intensive exports will be offset by opportunities for substantial gains in capital-intensive exports. All we know for now is China continues to expand its lead in global exports with no sign that it is losing competitiveness.