Is Competition from China So Special?

Dr Benedikt Heid, Senior Lecturer - School of Economics The University of Adelaide 
The rapid increase in China’s exports in recent decades has led to concerns that they are displacing other countries’ exports.  As the sophistication of Chinese exports has increased, the concerns are now shared by high-income countries including Australia.  In a new Discussion Paper (Is Competition from China So Special?), Dr. Benedikt Heid from the University of Adelaide School of Economics and two co-authors from Spanish universities analyse Spanish exports from 1997 to 2016 to assess whether an increase in competition from China has a larger negative effect on exporters than a similar increase in competition from other countries.

They find that the impact of tougher competition from China on export revenues, prices, and exported products is similar to that from other countries. Heightened competition from China only has a larger negative effect on the probability that a firm ceases to export a good to a destination. However, this last effect narrows over time and is small relative to the average risk of a firm ceasing to export a good to a destination.  Revenue and product scope of firms with high productivity are less affected by Chinese competition.  In sum, while the absolute level of competition from China has increased, its nature is similar to that from other countries.

The paper concludes by observing that: “In the end, this result is not so surprising. China is only the most recent example of a country coming under scrutiny because of its integration into the world economy.  This echoes previous concerns in the 1980s and 1990s regarding the rise of countries such as Japan, South Korea, and Mexico. Today, fears about competition from these countries have subsided, and the focus has shifted toward China. While the rise of Chinese exports is indeed unprecedented, our results indicate that the nature of Chinese competition is similar to competition from other countries.”

A lesson for Australia is that global competition is tough but firms that establish export markets have no more to fear from Chinese competitors than from leading exporters of any nationality.

By Dr Benedikt Heid, Senior Lecturer - School of Economics The University of Adelaide