China’s Economic Rise & Its Potential Implications on the World Economic Order as We Know It
Alexander B. HammerLead Economist & Head of China Research
U.S. International Trade Commission
For the National Academy of Public Administration(Oct 16, 2019)
Note: The views expressed in this presentation do not represent those of the USITC or any of its individual Commissioners
Irving WilliamsonFormer Chairman & Commissioner
U.S. International Trade Commission
Agenda
• How Fast is China Growing?• Why Has it Grown so Fast?• Is it a Rival or Partner to the U.S.?• Implications of its Rise on the Global Economic Order• Implications for the Policy Tools the U.S. Traditionally Uses to
Address Unfair Trade Practices
1. How Fast is China Growing?
8
8
8
8
8
2. How Did China Grow So Fast?
2. How Did China Grow So Fast?
• Improved Resource Allocation (ended AG reliance)
• Careful, Experimental, and Nimble Planning-Opposing ideologies ok, “Growing Out of Plan” (Naughton)
• Became Global Manufacturing Hub-Assemble, Export, & Become GVC Glue
• ↑ FDI, “Learned” Technology, Now Leading Innovation?
• Expanded Outwards for Resources & Markets
8
Evolved From Agrarian Society1950 1978 2018
AG (Primary) 50% 28% 7%Industry (Secondary ) 21% 48% 41%Services (Tertiery) 29% 25% 52%
Composition of China's GDP (Production Side)
Data
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UnitRMB bnRMB bnRMB bnRMB bnRMB bnRMB bnRMB bnRMB bnRMB bnPrimaySecondaryTirtiary
195234.29014.11019.51067.91050%21%29%100%
195337.80019.16025.48082.44046%23%31%100%
195439.20021.08025.70085.98046%25%30%100%
195542.10022.15026.91091.16046%24%30%100%
195644.39028.04030.640103.07043%27%30%100%
195743.00031.66032.480107.14040%30%30%100%
195844.59048.36038.280131.23034%37%29%100%
195938.38061.68044.690144.75027%43%31%100%
196034.07065.26047.680147.01023%44%32%100%
196144.11039.35039.770123.23036%32%32%100%
196245.31036.39034.510116.21039%31%30%100%
196349.75041.28033.790124.82040%33%27%100%
196455.90051.93039.160146.99038%35%27%100%
196565.11060.85047.440173.40038%35%27%100%
196670.22071.54047.100188.86037%38%25%100%
196771.42060.80047.200179.42040%34%26%100%
196872.63054.26047.520174.41042%31%27%100%
196973.62069.50053.100196.22038%35%27%100%
197079.33091.81083.6308.45056.83010.020227.97035%40%25%100%
197182.630102.99093.6309.66060.06010.840245.68034%42%24%100%
197282.740109.160100.0109.48063.33012.300255.23032%43%25%100%195211.9602.2002.900
197390.750118.040108.29010.10066.83013.100275.62033%43%24%100%195316.3202.9003.500
197494.520119.980109.44010.89068.27013.220282.77033%42%24%100%195418.4502.7003.800
197597.120137.870125.66012.61068.96014.840303.95032%45%23%100%195519.1203.1003.900
197696.710134.600121.68013.31067.55014.710298.86032%45%23%100%195622.5205.6004.600
197794.220151.780138.50013.73079.00016.520325.00029%47%24%100%195727.1604.6004.900
1978101.846175.516162.14813.88690.50818.203367.87028%48%25%100%195841.5906.9107.100
1979125.897192.538178.65314.45691.61019.374410.04531%47%22%100%195954.1307.7209.400
1980135.948220.474201.48519.634102.33621.343458.75830%48%22%100%196057.4208.03010.400
1981154.568226.908206.77220.798112.10722.077493.58331%46%23%100%196136.7702.7006.920
1982176.169239.769218.30322.164121.39724.693537.33533%45%23%100%196233.0903.4105.740
1983196.090266.304239.90627.166139.69827.503602.09233%44%23%100%196337.1704.2305.500
1984229.562312.482281.59031.792185.80733.861727.85032%43%26%100%196446.8105.2705.840
1985254.173388.647347.83341.927267.07442.183909.89528%43%29%100%196555.4205.6007.740
1986276.405451.524400.07752.727309.68649.8961037.61527%44%30%100%196665.6306.1208.510
1987320.446527.397462.12766.749369.61656.8451217.45926%43%30%100%196755.1605.8207.230
1988383.118660.736581.41381.185474.18468.5881518.03925%44%31%100%196849.6904.7307.050
1989422.820730.090652.57079.608565.06481.2901717.97425%42%33%100%196963.3706.3308.490
1990501.722774.429690.47086.170611.136116.7211887.28727%41%32%100%197079.33091.81083.6308.45056.83010.020
1991528.885912.980813.819101.766758.698142.0502200.56324%41%34%100%197182.630102.99093.6309.66060.06010.840
1992580.0281172.5321034.048141.794966.893168.9212719.45321%43%36%100%
1993688.7601647.3081424.879226.9931231.255217.4273567.32319%46%35%100%
1994947.1792245.3111954.690296.8831671.255278.8214863.74519%46%34%100%
19951202.0482867.7462502.390373.3742064.194324.4686133.98920%47%34%100%
19961387.8333382.8132952.977439.2972410.717378.2607181.36319%47%34%100%
19971426.5233754.5993302.353462.8262790.382414.9097971.50418%47%35%100%
19981461.8733901.8533413.486499.3023155.825466.1478519.55117%46%37%100%
19991454.8984108.0933601.541518.0873493.447517.5869056.43816%45%39%100%
20001471.7364566.4854025.972553.4023989.794616.18810028.01415%46%40%100%
20011550.2504966.0664385.556594.5484569.996687.13411086.31214%45%41%100%
20021619.0235410.5484777.626648.2125142.171749.42612171.74213%44%42%100%
20031697.0256269.7385536.379751.0755775.441791.47613742.20312%46%42%100%
20042090.4327428.6906577.682762.8265174.850583.326872.0506664.893930.64616184.01613%46%41%100%
20052180.6728808.4417796.0551031.8246011.799679.4561040.0467742.7771066.87718731.89012%47%41%100%
20062331.70110436.1799223.8361208.2877121.289801.5181245.0109175.9671218.62521943.84711%48%42%100%
20072767.41012663.36411169.3921346.0708746.495960.9221534.80211578.4601460.51027009.23410%47%43%100%
20083246.41014995.65613172.7621962.94310253.949809.1311880.75713682.3901636.75731924.45610%47%43%100%
20093358.38016017.17013809.5471672.60211011.850839.5432268.14715476.2201652.24134851.77010%46%44%100%
20103843.08019162.97716512.6382087.22913028.2531122.1622725.92918205.8601878.36241211.9179%46%44%100%
20114478.14022703.88119514.2852629.60015645.7001239.0003292.65421612.0002184.19748794.0219%47%44%100%
20124908.45024464.32620890.5622509.30016980.6601400.6003689.61224485.2202376.32453857.9969%45%45%100%
20135302.81026195.60722233.7612546.76018186.7801500.2204089.67627797.9102604.26659296.3279%44%47%100%
20145562.63027757.18523385.6372341.71019562.0301481.9004488.04530808.2502850.09364128.0659%43%48%100%
20155777.46028204.02923650.6261910.45020242.0101498.1704662.67034617.8003048.78068599.2898%41%50%100%
20166013.92029654.77024787.7701826.04021428.9301532.8004970.29038337.3903305.88074006.0808%40%52%100%
20176209.95033274.27027832.8202102.55024050.5401679.7205531.38042591.2103717.26082075.4308%41%52%100%
20186473.40036600.09030516.02026482.0406180.80046957.4604055.02090030.9507%41%52%100%
Table
Composition of China's GDP (Production Side)
195019782018
AG (Primary)50%28%7%
Industry (Secondary )21%48%41%
Services (Tertiery)29%25%52%
Ch_1
COMPOSITION OF CHINA'S GDP
Ag193291969420059204242079021155215202188522251226162298123346237122407724442248072517325538259032626826634269992736427729280952846028825291902955629921302863065131017313823174732112324783284333208335733393934304346693503435400357653613036495368613722637591379563832238687390523941739783401484051340878412444160941974423394270543070434350.504932999558238890.458515283842794720.455919981391021190.461825362000877590.430678179877752980.401344035840955790.339785110112017060.265146804835924010.231752941976736240.357948551489085390.389897599173909310.398573946482935430.380297979454384590.375490196078431370.371809806205655010.398060416898896430.416432544005504280.375191112017123680.347984383910163670.336331813741452270.324178192218783080.329257673608591540.334264596668670640.319526237868070440.32359633273104460.289907692307692310.276854178198334360.307032786969508860.296339383575962180.313155812062347940.327857031035217630.325681223834824840.315396955619130670.279343575172623150.266384965307425340.263208996406110340.252376865324238030.24611551959102970.265843081182362880.240340673864157440.213288613754465810.193074684031713660.194742827282163110.195965196102779460.193254855480121330.178952767359584350.171590347601409840.16064788466848010.146762416552996630.13983461352373810.133014877128561050.123489989653686380.129166481669764990.116414956027144590.106257605277687270.102461626550335650.101690376875821649.6361819254982925E-29.3251668819323549E-29.1776407779129182E-29.1136885500978815E-28.9428979891441399E-28.6742520723648672E-28.4220405837161783E-28.1262512485460653E-27.566149820963472E-27.1901940388277588E-2Industry193291969420059204242079021155215202188522251226162298123346237122407724442248072517325538259032626826634269992736427729280952846028825291902955629921302863065131017313823174732112324783284333208335733393934304346693503435400357653613036495368613722637591379563832238687390523941739783401484051340878412444160941974423394270543070434350.207774996318657030.232411450752062130.245173296115375640.242979376919701620.272048122635102310.29550121336568980.368513297264345010.426113989637305680.443915379906128840.319321593767751320.313140005163066840.330716231373177410.353289339410844230.350922722029988480.378799110452186890.338869691227287880.31110601456338510.354194271735806750.402728429179278040.419203842396613460.427692669357050580.428270807633698570.424302436609258430.453594341174535340.450378103459813940.467015384615384610.477114113725848550.469553996813154790.480589719159208340.459715778906981950.446217953861277050.442297902581867960.429321216168819190.427134415673620430.435155580422803830.433194543346053280.435256636702990360.424971289568981060.410339899496239830.414884785359580180.431164462135632860.461777049372637690.461642378381345480.467517368210413950.471054471288245850.471002589269861380.457988093172782770.453610277970967980.455372786448855370.447945705627514290.444517167834309450.45623964421759050.459014016538701440.470237711494888580.475585666676832390.468853124589538980.469723155098890950.45957982094346050.464986299869600490.465300475721042770.454237582690349030.441774526473278810.432839895492359020.411141714335076570.400707212164189750.405410851944363880.40652786625043941Services193291969420059204242079021155215202188522251226162298123346237122407724442248072517325538259032626826634269992736427729280952846028825291902955629921302863065131017313823174732112324783284333208335733393934304346693503435400357653613036495368613722637591379563832238687390523941739783401484051340878412444160941974423394270543070434350.287292004123104130.309073265405143130.298906722493603120.295195261079420790.297273697487144660.303154750793354520.291701592623637870.308739205526770260.324331678117134870.322729854743163180.296962395663023790.270709822143887220.266412681134771010.273587081891580150.249391083342158230.263069891873815630.272461441431110620.270614616247069620.249287186910558430.244464343861934220.248129138424166480.242471518757709890.241432966722070930.22687942095739430.226025563809141380.243076923076923080.246031708075817090.223413216217336310.223070897264829590.227128409030670030.225925015103505350.232020873583307140.255281828212050140.293522009153756420.298459454269770830.303596460247836370.312366497972771610.328913190839989210.323817019321397230.344774540776262350.355546924109901190.345148266595648680.343614794336491340.33651743568680670.335690673231632820.35004464337055430.370421559225807330.385741837360552010.397864796998147920.41221968084874760.422467955037129530.420270366128723090.411819501791533480.413347332477966840.418156728045480370.428685248860125270.428586468025287380.444058359801556610.4417620313110760.442923116499828020.45462553180867210.46879649363527970.48041758378399230.504637879827761650.518030275350349620.518927649846001480.52157019336128296
Careful Planning (Medium-Term)
8
Careful Planning (Long-Term)
8
Growing Out of the Plan
SOE Trade: Down But Not Out
From Hammer and Jones, “SOEs Play a Smaller, But Still Strategic, Role in China’s External Sector” Jan 2018
8
Built a Global Manufacturing Hub
8
Built a Global Manufacturing Hub
Lead Innovation?R&D Expenditures (in % of GDP) Global Patent Applications (in % of Total)
From “The Mysterious Divergence in China’s Productivity and Innovation Patterns” (Bernard and Hammer, Aug 2019)
Expand Outward
3. Is China a Partner or Rival to U.S.?Partner
U.S. Consumer Welfare
Major Investor
Largest Consumer Growth Market
Foreign Invested Enterprises
Manufacturing Offshoring
Global Value Chain Partner
“Stable” Trade Partner
Rival
Unfair Competition in China (e.g. SOEs)
Unfair Trade (e.g., AD, CVD)
IP Infringement & Forced Tech Transfer
Internationalization of FX
Innovation Race
Securing Global Resources
FDI & Soft Power
Ambiguous
Trade Balance
Currency Valuation
Treasury Bonds
Manufacturing: Jobs vs. Productivity/High-Tech Focus
The US-China merchandise trade balance reached $419
bil in 2018 (before real trade war
effects kicked in)
Source: USITC Dataweb 25
…far surpassing other major
trade partners.
Source: USITC Dataweb 26
Source: USITC & China Customs
FIEs are playing an
important role in China’s
exports to the U.S. ….
…FIEs also playing an
important role in China’s imports from the U.S. ….
Source: USITC & China Customs
U.S. firms finding cost
advantages in manufacturing,
selling, and even doing
R&D in China.
40
The majority of workers of U.S. affiliates
in China are in the computer (semiconduct
or) sector.
U.S. imports from Asia remained
fairly flat in past 2
decades…
..but their composition
is totally different.
So companies no longer doing this,
but importing directly from
China
Given lower final assembly costs in China,
companies (e.g., Apple,
Dell computers) are doing more final
assembly in China
China holds over $1
trillion $U.S. reserves
(18.8% of total, and
4th highest after
Japan, Caymen
Islands, UK).
However, selloff
would likely harm
China more (needs
stable investment).
Source: CRS (Morrison), “China-U.S. Trade Issues”, July 30 2018
U.S. Manufacturing Jobs ↓, BUTManufacturing Output & High-Tech Specialization ↑
From “Why Have U.S. Firms Offshored to China?” (Hammer, Jun 2017)
USITC Study “China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy” (May 2011)
IP Infringement from Chinese Entities: Real & Consequential
Innovation Race?R&D Expenditures (in % of GDP) Global Patent Applications (in % of Total)
From “The Mysterious Divergence in China’s Productivity and Innovation Patterns” (Bernard and Hammer, Aug 2019)
4. Implications of China’s Rise on the Global Economic Order as We Know it
8
Most Economists Quibble Over When, Not if, China Will Surpass U.S. (Nominal) GDP
High Tech Manufacturing: Not Just a U.S. Issue
SOE Industrial Output Back on Rise
Other Implications?
5. Implications for the Policy Tools the U.S. Traditionally Uses to Address Unfair Trade
Practices
Share of U.S. Imports Subject to
AD/CVD Orders
0
2
4
6
8
10
12
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
China
Total
Rest of the World
Bown 2017
Perc
ent o
f U
.S. I
mpo
rts F
rom
China’s represents a major share
(more than 50%) of AD investigations.
Source: USITC
China’s represents a major share
(more than 50%) of CVD
investigations.
Source: USITC
…same is true for IP related
investigations.
Source: USITC
US-China WTO Disputes, 2002-18Case Status Complainant
United States China
WTO Cases 23 15
Settled Early 9 1
Ruling for Complainant 10 4
Ruling for Respond 0 1
Split Decision 0 3Pending 4 6
SECTION 301 OF TRADE ACT OF 1974• Section 301 establishes domestic procedures that allow US companies
and unions to petition USTR to enforce US rights under international trade agreements and eliminate unfair foreign government trade practices that adversely affect US investment and exports of goods and services.
• USTR can self initiate
• USTR required to take appropriate action to remove foreign government policies or practices that violates a bilateral or multilateral trade agreement or are "unreasonable, unjustifiable, or discriminatory" and "burdens or restricts US commerce."
SECTION 301 (continued)
• If foreign unfair practices are not eliminated through successful WTO dispute settlement or negotiations, USTR can retaliate against the foreign country.
• Retaliation can take the form of suspending the benefits of trade concessions previously granted by the United States (i.e., tariffs) or other restrictions or fees on the trade of the offending nation.
Thank you!
China’s Economic Rise & Its Potential Implications on the World Economic Order as We Know ItAgenda1. How Fast is China Growing?�Slide Number 4Slide Number 5Slide Number 6Slide Number 7Slide Number 82. How Did China Grow So Fast?��2. How Did China Grow So Fast?Evolved From Agrarian SocietyCareful Planning (Medium-Term)�Careful Planning (Long-Term)�Growing Out of the PlanSlide Number 15Built a Global Manufacturing HubBuilt a Global Manufacturing HubLead Innovation?Expand Outward3. Is China a Partner or Rival to U.S.?��Slide Number 21Slide Number 22Slide Number 23Slide Number 24Slide Number 25Slide Number 26Slide Number 27Slide Number 28Slide Number 29Slide Number 30Slide Number 31Slide Number 32Slide Number 33Innovation Race?4. Implications of China’s Rise on the Global Economic Order as We Know it�Slide Number 36High Tech Manufacturing: Not Just a U.S. Issue��SOE Industrial Output Back on RiseSlide Number 39Other Implications?5. Implications for the Policy Tools the U.S. Traditionally Uses to Address Unfair Trade Practices��Share of U.S. Imports Subject to �AD/CVD OrdersSlide Number 43Slide Number 44Slide Number 45US-China WTO Disputes, 2002-18 SECTION 301 OF TRADE ACT OF 1974SECTION 301 (continued)Thank you!