ChinaWorkshop

ChinaWorkshop - Chinas Cheap Labor and Its Export Capacity...

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1 China’s Cheap Labor and Its Export Capacity Yanling Wang * Abstract This article looks at China’s cheap labor and its export capacity. It shows how China’s cheap labor gives China the comparative advantage in the world market, and also analyzes its export capacity both in labor-intensive and capital-intensive goods. Acknowledgement : I would like to thank Jean Daudelin, Kevin Honglin Zhang, Zhiqi Chen, Maurice Schiff and an anonymous referee for valuable comments. * The Norman Paterson School of International Affairs, Carleton University. 1125 Colonel By Drive, Ottawa ON K1S 5B6, Canada. Phone: (1)(613) 520-2600 ext. 2626, fax: (1)(613) 520-2889. E-mail: Yanling_Wang@carleton.ca.
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2 Section 1: Introduction Since China opened its door to the World in 1978, its has not only been the world’s fastest growing large economy, but also an outstanding exporter and a large recipient of foreign direct investment (FDI) —it has emerged as a world “workshop”. It’s imports and exports have grown at a hefty annual rate of 14.73%, and 15.72% respectively from 1978 to 2003: imports increased from US$10.9 billion to US$412.8 billion, and exports from US$9.8 billion to US$438.4 billion. Its trade balance with the world turned into surplus in 1990 and peaked at US$43.5 billion in 1998. Trade accounts fairly large share in its economy, and has become an important engine for China’s continuous economic growth. Inflows of FDI also increases at an impressive annual growth rate of 21% from 1983 to 2003, making China the largest FDI recipient among developing countries, with US$53.5 billion in 2003. Table 1a highlights China’s trade and its shares in GDP for selected years since 1978; and Table 1b presents its FDI inflows and their shares in fixed capital formation and GDP for selected years since 1979. This article examines China’s competitiveness and its export capacity in the world market, along with the role of human capital in shifting the composition of trade. The basis of the analysis is China’s huge labor endowment and its cheap labor cost. Table 1a: China’s Total Merchandise Trade Unit: US$ billion Year 1978 1980 1985 1990 1995 2000 2001 2002 2003 Imports (M) 10.9 19.6 42.2 53.3 132.1 225.1 243.6 295.2 412.8 Exports (X) 9.8 18.3 27.3 62.1 148.8 249.2 266.1 325.6 438.4 Trade Balance -1.1 -1.3 -14.9 8.8 16.7 24.1 22.5 30.4 25.6 (M+X)/GDP (%) 9.62 12.57 23.38 30.13 51.78 43.90 43.98 49.03 60.40 Data Source: Imports and Exports are taken from the Ministry of Commerce at http://www.mofcom.gov.cn/ . GDP is from World Development Indicators from the World Bank. Percentages are calculated by the author.
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3 As shown, the share of trade in GDP increased steadily, and reached 60% in year 2003. Over the years, the percentages of FDI of GDP and of fixed capital formation also showed an
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This note was uploaded on 06/09/2011 for the course ECON econ 1001 taught by Professor Wong during the Fall '09 term at HKU.

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ChinaWorkshop - Chinas Cheap Labor and Its Export Capacity...

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