The "China Effect" on EU Exports

16  June 2011    4:00 pm

Giorgia Giovannetti, University of Florence and European University Institute


wiiw, Rahlgasse 3, 1060 Vienna, lecture hall (entrance from the ground floor)


The rapid growth of China in the last thirty years has had a very strong impact on the world economy. Having gone through a rapid process of structural transformation as well as international integration, China has recently improved quantity and quality of its exports. Its market share has increased dramatically, so that in 2009 China overtook Germany to become the first world exporters of goods. A recent ample literature has been discussing the likelihood of this upgrade resulting in a change in Chinese comparative advantage towards more sophisticated productions and therefore whether there are countries/sectors more subject to increased Chinese competition.

Following China’s entry into the WTO, some papers have investigated the possible impact on trade performance of different groups of countries (Shafaeddin, 2002; Yang, 2006), mainly focusing on East Asia. There is evidence that the upgrading of Chinese exports and the consequent changes in its trade specialization threatened both the “mature tigers” and the “new tigers” in more advanced segments of production (Lall and Albaladejo, 2004; Eichengreen et al., 2004; Greenaway et al., 2006; Yusuf, 2008). More recently, some papers analyzed the impact of China on other developing countries in Latin America and Africa (Jenkins et al., 2008; Giovannetti and Sanfilippo, 2009). Conversely, little attention has been given so far to the possible impact on developed countries, whose productive structures were considered to be less at risk, due to the relatively less sophisticated exports from China.

Against this background, this paper analyzes the indirect impact of China on the export performance of four European countries (Germany, France, Italy and Spain) to their main trading partners. Given their strong specialization in manufacturing sector, these countries are likely to be the most at risk from China’s competition. Among them, Italy, whose productive structure is based on so-called “traditional” sectors, i.e. those less intensive in technology and skilled labour, seems to be the most vulnerable and will be studied more in detail. Indeed, some recent analyses have shown that the overlap between Chinese and Italian trade specializations has been growing considerably over time, especially in low skilled sectors (Amighini and Chiarlone, 2005).

Using disaggregated data at 6-digit level of the harmonized system (HS) classification for the period 1995-2009, this paper aims at measuring the possible existence of a displacement effect at sector and market level. Preliminary results show that there is indeed a significant negative effect of Chinese exports particularly in high income countries and both in traditional sectors (such as textile) and more capital intensive sectors (such as machinery and equipment).