In terms of the value, quantity, and quality of exports, which countries are more affected by the rise of China?

The paper “Quality Upgrading and Import Competition: Impact of Chinese Competition on Developing Asia” shows the differential impact of Chinese competition on Asian countries, where it concerns their exports to the US. Given similarities in comparative advantage and geography with China, it seems that most Asian countries should be negatively affected, however, based on the analyses of this paper, it seems that some countries have successfully used their product differentiation strategy, and thus China’s export expansion has not been associated with a contraction in exports from these countries in the US market, while others do not. In other words, different Asian countries have been differentially affected. Extant literature indicates that consumers in advanced countries value quality more than those in poor countries. Therefore, based on this, the positive effects of Chinese competition on value and quantity might imply that higher competitive pressure from China creates an incentive for other countries to concentrate on quality upgrading so as to differentiate their exports from China’s exports in order to better insulate themselves from Chinese competition. The results of this paper indicate that countries in groups 1 and 2 might respond to increasing competition from China by adjusting the quality of their exports (please refer to tables 6 and 7 below). In addition, the analyses imply that most of the impact of the rise of China on the two groups of countries comes from the effect on differentiated products.

Obviously the rapid integration of China into the world economy has considerably affected the exporting environment faced by other developing countries in the region. However, this paper provides clear evidence that the impacts of the increasing competition from China on value and quantity are mixed, depending on the similarity in export structure between a country and China. For countries with considerably high numbers of similar comparative advantage products with China, such as Vietnam, Bangladesh, and Sri Lanka, China’s export expansion has not been associated with a contraction in their exports to the US. On the other hand, there is a tendency for China’s exports to crowd out the exports of other countries, who have divergent exports from China’s export products or who have a smaller number of similar comparative advantage products with China.

In general, all countries respond to tougher competitive pressure from China by upgrading product quality, which is consistent with the fact that their exports have become more sophisticated. Nonetheless, the rate of quality upgrading depends importantly on whether the product is a comparative advantage product, how far the product is from the world quality frontier, and the length of the quality ladder. The results indicate that both groups of countries upgrade quality more for their comparative advantage products or products where China has a comparative advantage, but the rate of quality upgrading is higher for the group of Vietnam, Bangladesh, and Sri Lanka (group 1 countries). By contrast, the author finds no difference in response with respect to quality for products exported by Indonesia, Malaysia, Philippines, India, Pakistan, and Thailand (group 2 countries). Countries in group 2 improve quality more for short-ladder products when facing China’s export expansion.

By CHOW Yi Lin Dawn

Researcher: Thi Hang BANH

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