Description
It also explains causes of unemployment in european region. It compares EU vs China Trade and Economy policies
China?s Manufacturing Boom and EU?s unemployment crisis
Chinese Economy - facts
? Second Largest Economy in the world (GDP – ppp)- 8.8.Trillion
US$[2009]
? Third Largest Economy in the world (GDP nominal)- 4.91 Trillion
US$[2009]
? Fastest-growing major economy in the world, and has had the
fastest growing major economy for the past 30 years with an average annual GDP growth rate over 10%.
? Per capita income has likewise grown at an average annual rate of
more than 8% over the last three decades drastically reducing poverty, but accompanied by rising income inequalities
? Largest trading nation in the world and the largest exporter and
second largest importer of goods.
China?s Industry
? Industry (including mining, manufacturing, construction,
and power) contributed 52.9 percent of GDP in 2008 and occupied 2.5 percent of the workforce
? The manufacturing sector produced 44.1 percent of
GDP in 2004 and accounted for 11.3 percent of total employment in 2006.
? China is the world?s leading manufacturer of chemical
fertilizers, cement, and steel.
? China ranks third worldwide in industrial output
Reasons for growth over the last decade
? Foreign Direct Investment
? International Trade Policy
? Labor Supply ? Currency Policy ? Market Promise and Exports ? Education and Recruitment ? Formal and Informal IP Policy ? Transition From Low to High Tech Production
Three clusters for Chinese transformation: Beijing, Shanghai and Guangzhou
? The Guangdong Region: A key manufacturing base for
China, whose investors include Intel, Honda, IBM and WalMart, among others
? The Shanghai Region: 250 of the Fortune 500 invest here,
and the city has become world-class in the last decade.
? The Beijing Region: Motorola (with more FDI than any other
? These three areas represent 7.5% of China?s land and
MNC) focuses efforts here, top universities are located here, and the area is gearing up for 2008 Summer Olympics.
1.25% of its population, but also garner 73% of China?s foreign direct investment and creates 30% of the nation?s GDP
FDI & International Trade Policy
? As a result of the Chinese government?s economic reform efforts,
particularly in Eastern China, the nation has experienced an explosion of Foreign Direct Investment (FDI).
? China?s economic Westernization is being accelerated by
international trade policy, particularly entry into the World Trade Organization (WTO). ? A five year process begun in November 2001. ? Average tariffs on products will gradually drop below 10% (versus
44% in 1991). ? Nontariff barriers (quotas, licensing) will ease. ? Increases in jointly-owned enterprises (9% in 1990, 40% now, perhaps 60% by 2006). ? Reforms of state-run monopolies expected to accelerate in the next three years, with new antimonopoly laws driving restructuring of China?s service industries (such as telecommunications).
Cheap and Abundant Labor
? China?s almost inexhaustible native labor supply, with
nearly 1.3 billion inhabitants.
? The standard Chinese labor rate is roughly 40 cents
per hour, or about 1/40th that of the U.S.
Currency Policy
? China?s continued under valuation of its currency has
kept the cost of Chinese labor and good extremely low.
? It maintains an extremely tight trading band on the yuan
between 8.276 and 8.280 to the dollar, varying by only 0.02% since April 2000.
? This policy has helped the nation to accumulate $280
billion of currency reserves, including $75 billion alone in 2002.
Low tech to hi tech
? The notion that China is purely a source of low-quality goods
produced with low-tech manufacturing operations and processes is now inaccurate.
? Over the last decade, China has shifted from traditional, lowtech production and processes toward higher-tech, higher-wage manufactured products and processes.
? China has also undertaken a strategy to greatly enhance its
intellectual property, both by requiring that foreign manufacturers train their local partners in the technologies associated with their products and by illegally acquiring intellectual property.
? China is benefiting from a “fast-follower” advantage, and has
successfully leveraged the strategy of being first to put together a combination of features, value, and sound business
Recessionary effects on Chinese economy
? China?s growth rate – 11.4 % in 2007 (GDP)
? In the face of economic downturn, economic stimulus
package of 4 trillion yuan in the form of fixed infrastructure and human capital ? Rise in short-term credit
? Brutal fight for domestic market ? Slowdown undermining whole south-east region ? China?s growth rate - 7.7% in 2009 (GDP)
? Astonishing, as exports markets dried up
? Optimistic view – Help relieve inflationary pressures
Recessionary effects on Chinese economy
? Demand for jobs will outpace creation
? Rise in labor costs - 70 to 100 percent (2006-09)
? Appreciating Yuan coupled with decrease in demand –
> Closing of domestic factories
Robust growth sustainable?
? Refinancing of short term credit necessary
? Long-term loans ? Raising banks? non-performing loan ratios (loans – 9.6
trillion yuan) ? Threat to long term stability of financial system
? Infrastructure new projects still in planning stage
? US consumer is unlikely to come to the rescue
? Prudent fiscal policy being withdrawn gradually to avoid
rising inflation and asset bubbles
? Sustaining double digit growth seems difficult
? Large manufacturing base – still highly competitive on
global front but lowest cost producer crown may be transferred to other nations in the region
14
European Union
? The European Union comprises 27 countries with a
combined population of 456 million and a GDP of $12.6 trillion.It is the largest combined economy in the world
? The services sector is by far the most important sector
in the European Union, making up 69.4% of GDP, compared to the manufacturing industry with 28.4% of GDP and agriculture with only 2.3% of GDP.(2008 figures)
? Unemployment is a persisting problem. It is the result of
jobless recoveries from economic crises
Causes of Unemployment
1) Large-scale off- shoring of manufacturing.
2) Labour Unionism
3) Immigration Problem
Large-scale off- shoring of manufacturing
Fall of Iron Curtain, opening up of China
? Huge part of world population got integrated into the
world economy within a short time period. Not just markets but also labour
? The labour supply , unlike at previous market entry of
„peripheral countries?, has medium to high skills
sector and 1.25 million in manufacturing and construction over a 10 year period(1995-2005)
? Estimated loss of 2.3 million jobs in the primary
Competitiveness of Industries: Promising but also challenging…
2000-2004 annual growth rate of exports (CAGR)
Size of the bubbles indicate export volume in 2004
Emerging Sectors
60%
50%
Petroleum Products
Star Sectors
40%
30%
Automotive
TVs and Telecom
Electrical Machinery Metals
Güç kaynaklar? (makinalar)
20% machinery General
10%
0% 0%
Iron&Steel Non mettalic minerals Plastic Materials
Fruit&Vegies Textiles Apparel
transportation equipment
1%
2%
3%
4%
5%
6%
Snail Sectors
Traditional Sectors
World market share %
Source: United Nations COMTRADE
… challenging because China does not only mean cheap labor
2000-2004 annual growth rate of exports (CAGR)
Size of the bubbles indicate export volume in 2004
Emerging Sectors
120% 100% 80% 60% 40% 20% 0% -20% 0% 20%
Office Equipment
Scientific Equipment
Star Sectors
#BA?V!
TVs and Telecom
Industrial Machinery Electrial Machinery Iron and Metal productsi Steel Furniture Metal-d??? ürünler Textiles Automotive Coal products
Aparell
40%
60%
80%
100%
120%
Snail Sectors
Traditional Sectors
World market share %
Large-scale off- shoring of manufacturing
Wage Differance
? Wage difference between EU and China at exchange
rate, on average 4.5 times. E.g. wages in Germany are six times higher than in China
? Yuan fixed exchange rate is also not helping!! As labour
costs, it stays nearly constant in China
? Foreign Investment motivation due to:
Cost advantage, Cheap labour, Lower tax levels, infrastucture availabilit and political stability.
EU Imports from China
EU imports of manufactures
Exchange rate
Labour Unionism
? Existence of unions in Europe and social benefits have
kept unemployment high
? Challenge: skilled labour at much lower costs in vicinity ? Companies seek to take advantage of new
opportunities to exploit large differentials in wages and working conditions
? Insider-outsider theory: union negotiates the best wage
without causing the firm to cut employment
? Result: High labour costs
Avg Growth in Unit Labour costs(1996-2007) in EU
Immigration Problem
? Dearth of skills and favourable immigration policies
have caused massive influx of immigrants
? For e.g. over the 1995-1999 period significant
increases in population (> 0.5% per year) over the 1995-1999 period as a result of international migration into Spain, Ireland and Luxembourg. Since then Iceland, Italy and Switzerland have joined the list.
Problem of Immigration
16
3-year average at end of period 3-year average at beginning of period
14 12 10 8 6 4 2 0 -2 -4
2008 Financial Downturn
? There has been a steep upturn in the unemployment
rate in recent months due to the worldwide credit crunch and following recession.
? Spain, Ireland and the Baltic countries with the
unemployment rate doubling or in case of the Baltic countries nearly tripling.
EU vs China Trade and Economy policies
China: scenario
•
In contrast to its liberalized economy, its political system is one party authoritarian state In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards and these reforms have unleashed individual initiative and entrepreneurship leading to a high growth of rural sector
•
•
China pursued agricultural reforms, dismantling the commune system and introducing a household-based system that provided peasants greater decision-making in agricultural activities
as village enterprises in rural areas, and promoted more selfmanagement for state-owned enterprises
• The government also encouraged nonagricultural activities such
New Developments
? Abolition of price regulation
? Changes to company law allowing private ownership of
limited liability companies
? Permitting foreign direct investment
? Abolition of the state export trading monopoly
? Abolition in 2005 of rules preventing the private sector
being involved in various sectors of the economy such as infrastructure, public utilities and financial services. Private sector now accounts for around 59 % GDP
Roadblocks
? Foreign Affairs : Yet to improve relations with other
economic superpowers like Japan due to historical reasons
? Freedom of Information: Govt control over media and
internet may hamper growth
? Technology: In certain areas of technology, China is still
decades behind in comparison with developed countries
? Economic Crimes: A high level of corruption and collusion
exists in govt employees
European Union
? ?
Countries bounded by a common currency : Euro EU generated an estimated nominal gross domestic product (GDP) ofUS$18.39 trillion (15.247 trillion international dollars based on purchasing power parity) in 2008, amounting to over 22% of the world's total economic output in terms of purchasing power parity Free circulation of goods, capital, people and services within the EU Single Market: Customs union involves the application of a common external tariff on all goods entering the market. Once goods have been admitted into the market they can not be subjected to customs duties, discriminatory taxes or import quotas, as they travel internally The free movement of persons means citizens can move freely between member states to live, work, study or retire in another country. This required the lowering of administrative formalities and recognition of professional qualifications of other states The free movement of services and of establishment allows self-employed persons to move between member states in order to provide services on a temporary or permanent basis Common Agricultural Policy (CAP)
? ?
?
?
?
European Union
Evolution of trade policies EUChina
? Phase I : Limited Contact
? Western ostracism/Chinese self-sufficiency (1949-59)
? Phase II : Both sides seeking rapid growth and
becoming mutually dependent (bilateral trade) (196088) ? Economic cooperation agreements ? Growing economic interdependency between EU and
China
Evolution of trade policies EUChina
? Phase III : High mutual trade levels with political
considerations re-emerging, China being kept at arm?s length by GATT/WTO and the EU restraining trade through increasing quotas, tariffs and anti-dumping actions (1989- present)
? 1993 – Formation of the European Union
? EU?s third largest partner – China in terms of total trade
volume
Trade Relationship
? China exports growing faster of manufacturing goods
than the overall exports to EU ? Low technology, low unit value
? China?s raw material export less than that of
manufactured goods to EU ? Reflection of China?s industrialization ? High IIT ratio (intra-industry trade) : Exchange of
differentiated products which are close substitutes or belong to the same industry ? China?s imports and exports more diversified with EU than with Japan or Australia; greater scope for trading
Trade Relationship
? Adoption of discriminatory practices against PRC
? ? ? ?
Tariff barriers Non-tariff barriers (abolition of GSP) Increased usage of anti-dumping legislations Extensive imposition of import quotas
? Practices arise of the fear of the widening trade deficit/
imbalance ? Indication of highly uncompetitive EU products with
respect to trading partners
EU Imports
EU: Major Trade Partners
Imports by Product Category
Intra EU Trade
PPP
? Norway - USD 5.79
? Switzerland - USD 5.60
? Denmark - USD 5.07 ? Sweden - USD 4.58 ? France - USD 4.25
China, People's Republic of - USD 1.83
Inflation Rate: EU and China
No. of Patents filed
250,000 200,000
150,000
100,000
50,000
China UK Spain Germany Italy France
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
No. of Patents Approved
60,000 50,000
40,000
30,000
20,000
China UK Spain Germany Italy France
10,000
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
EU Innovation Gap with US & Japan
? EU has been closing innovation gap with its
international competitors.
? Current Economic uncertainty & increased cost of
financing are discouraging investments in RnD.
? European programmes such as the Research
Framework Programme and the Competitiveness and Innovation Programme offer valuable sources of finance for businesses, with the Research Framework Programme alone offering €53bn of funding
World Market Share in commercial services
? The EU services sector has increased significantly over
the past 30 years. Services now account for approximately 70% of EU output and employment. In 2007, EU companies exported €1160bn in services – 57% of these were traded within the EU and 43% with the rest of the world.
World market share for up-market products
? A strong manufacturing sector is and will remain part of
the bedrock of Europe?s economic success. In recent years, much of the world?s low-end manufacturing has shifted to the developing economies, where labour costs are low.
Demand Side Policies to solve the problem
• Expand the rate of public sector investment through
increased government (capital)investment, concentrating on “specific infrastructures capable of giving [competitive market] returns in the short-run”
? Increase private sector investment through
central bank (ECB) lowering of interest rates.(Possible??)
Supply side policies to solve the problem
? Adopt job-creation policies. Encourage fixed-term and
part-time jobs. Government support for job training
? Reform job security legislation - Make it easier for firms
to fire workers. Remove barriers that keep wages from adjusting
? Restructure minimum wage legislation - Devise a
„special? (sub-minimum) wage for the least employable
? Support a benefit transfer program - Take money that is
currently spent on unemployment benefits and give it to firms as subsidies
Problem in the future
Ageing of the population
? Europe?s total population will peak around 2022 and by
2050 will have contracted by 13% from its 2000 total. The current median age of 37.7 years will rise to 52.3 by 2050 and the working age will fall to 50% of the total.
Regression
Regression between EU Unemployment rate and Imports of manufactured goods from China
? Regression Statistics
Multiple R R Square Adjusted R Square Errror Observations
0.709 0.5027 0.4198 0.4901 8
Regression
? ANOVA
df Reg Res Total 1 6 7 SS 1.46 1.44 2.89 MS 1.46 0.24 F 6.06 Sig 0.048
? Unemployment Rate = (-0.0036) Imports + 10.52
Thank You
doc_302181190.pptx
It also explains causes of unemployment in european region. It compares EU vs China Trade and Economy policies
China?s Manufacturing Boom and EU?s unemployment crisis
Chinese Economy - facts
? Second Largest Economy in the world (GDP – ppp)- 8.8.Trillion
US$[2009]
? Third Largest Economy in the world (GDP nominal)- 4.91 Trillion
US$[2009]
? Fastest-growing major economy in the world, and has had the
fastest growing major economy for the past 30 years with an average annual GDP growth rate over 10%.
? Per capita income has likewise grown at an average annual rate of
more than 8% over the last three decades drastically reducing poverty, but accompanied by rising income inequalities
? Largest trading nation in the world and the largest exporter and
second largest importer of goods.
China?s Industry
? Industry (including mining, manufacturing, construction,
and power) contributed 52.9 percent of GDP in 2008 and occupied 2.5 percent of the workforce
? The manufacturing sector produced 44.1 percent of
GDP in 2004 and accounted for 11.3 percent of total employment in 2006.
? China is the world?s leading manufacturer of chemical
fertilizers, cement, and steel.
? China ranks third worldwide in industrial output
Reasons for growth over the last decade
? Foreign Direct Investment
? International Trade Policy
? Labor Supply ? Currency Policy ? Market Promise and Exports ? Education and Recruitment ? Formal and Informal IP Policy ? Transition From Low to High Tech Production
Three clusters for Chinese transformation: Beijing, Shanghai and Guangzhou
? The Guangdong Region: A key manufacturing base for
China, whose investors include Intel, Honda, IBM and WalMart, among others
? The Shanghai Region: 250 of the Fortune 500 invest here,
and the city has become world-class in the last decade.
? The Beijing Region: Motorola (with more FDI than any other
? These three areas represent 7.5% of China?s land and
MNC) focuses efforts here, top universities are located here, and the area is gearing up for 2008 Summer Olympics.
1.25% of its population, but also garner 73% of China?s foreign direct investment and creates 30% of the nation?s GDP
FDI & International Trade Policy
? As a result of the Chinese government?s economic reform efforts,
particularly in Eastern China, the nation has experienced an explosion of Foreign Direct Investment (FDI).
? China?s economic Westernization is being accelerated by
international trade policy, particularly entry into the World Trade Organization (WTO). ? A five year process begun in November 2001. ? Average tariffs on products will gradually drop below 10% (versus
44% in 1991). ? Nontariff barriers (quotas, licensing) will ease. ? Increases in jointly-owned enterprises (9% in 1990, 40% now, perhaps 60% by 2006). ? Reforms of state-run monopolies expected to accelerate in the next three years, with new antimonopoly laws driving restructuring of China?s service industries (such as telecommunications).
Cheap and Abundant Labor
? China?s almost inexhaustible native labor supply, with
nearly 1.3 billion inhabitants.
? The standard Chinese labor rate is roughly 40 cents
per hour, or about 1/40th that of the U.S.
Currency Policy
? China?s continued under valuation of its currency has
kept the cost of Chinese labor and good extremely low.
? It maintains an extremely tight trading band on the yuan
between 8.276 and 8.280 to the dollar, varying by only 0.02% since April 2000.
? This policy has helped the nation to accumulate $280
billion of currency reserves, including $75 billion alone in 2002.
Low tech to hi tech
? The notion that China is purely a source of low-quality goods
produced with low-tech manufacturing operations and processes is now inaccurate.
? Over the last decade, China has shifted from traditional, lowtech production and processes toward higher-tech, higher-wage manufactured products and processes.
? China has also undertaken a strategy to greatly enhance its
intellectual property, both by requiring that foreign manufacturers train their local partners in the technologies associated with their products and by illegally acquiring intellectual property.
? China is benefiting from a “fast-follower” advantage, and has
successfully leveraged the strategy of being first to put together a combination of features, value, and sound business
Recessionary effects on Chinese economy
? China?s growth rate – 11.4 % in 2007 (GDP)
? In the face of economic downturn, economic stimulus
package of 4 trillion yuan in the form of fixed infrastructure and human capital ? Rise in short-term credit
? Brutal fight for domestic market ? Slowdown undermining whole south-east region ? China?s growth rate - 7.7% in 2009 (GDP)
? Astonishing, as exports markets dried up
? Optimistic view – Help relieve inflationary pressures
Recessionary effects on Chinese economy
? Demand for jobs will outpace creation
? Rise in labor costs - 70 to 100 percent (2006-09)
? Appreciating Yuan coupled with decrease in demand –
> Closing of domestic factories
Robust growth sustainable?
? Refinancing of short term credit necessary
? Long-term loans ? Raising banks? non-performing loan ratios (loans – 9.6
trillion yuan) ? Threat to long term stability of financial system
? Infrastructure new projects still in planning stage
? US consumer is unlikely to come to the rescue
? Prudent fiscal policy being withdrawn gradually to avoid
rising inflation and asset bubbles
? Sustaining double digit growth seems difficult
? Large manufacturing base – still highly competitive on
global front but lowest cost producer crown may be transferred to other nations in the region
14
European Union
? The European Union comprises 27 countries with a
combined population of 456 million and a GDP of $12.6 trillion.It is the largest combined economy in the world
? The services sector is by far the most important sector
in the European Union, making up 69.4% of GDP, compared to the manufacturing industry with 28.4% of GDP and agriculture with only 2.3% of GDP.(2008 figures)
? Unemployment is a persisting problem. It is the result of
jobless recoveries from economic crises
Causes of Unemployment
1) Large-scale off- shoring of manufacturing.
2) Labour Unionism
3) Immigration Problem
Large-scale off- shoring of manufacturing
Fall of Iron Curtain, opening up of China
? Huge part of world population got integrated into the
world economy within a short time period. Not just markets but also labour
? The labour supply , unlike at previous market entry of
„peripheral countries?, has medium to high skills
sector and 1.25 million in manufacturing and construction over a 10 year period(1995-2005)
? Estimated loss of 2.3 million jobs in the primary
Competitiveness of Industries: Promising but also challenging…
2000-2004 annual growth rate of exports (CAGR)
Size of the bubbles indicate export volume in 2004
Emerging Sectors
60%
50%
Petroleum Products
Star Sectors
40%
30%
Automotive
TVs and Telecom
Electrical Machinery Metals
Güç kaynaklar? (makinalar)
20% machinery General
10%
0% 0%
Iron&Steel Non mettalic minerals Plastic Materials
Fruit&Vegies Textiles Apparel
transportation equipment
1%
2%
3%
4%
5%
6%
Snail Sectors
Traditional Sectors
World market share %
Source: United Nations COMTRADE
… challenging because China does not only mean cheap labor
2000-2004 annual growth rate of exports (CAGR)
Size of the bubbles indicate export volume in 2004
Emerging Sectors
120% 100% 80% 60% 40% 20% 0% -20% 0% 20%
Office Equipment
Scientific Equipment
Star Sectors
#BA?V!
TVs and Telecom
Industrial Machinery Electrial Machinery Iron and Metal productsi Steel Furniture Metal-d??? ürünler Textiles Automotive Coal products
Aparell
40%
60%
80%
100%
120%
Snail Sectors
Traditional Sectors
World market share %
Large-scale off- shoring of manufacturing
Wage Differance
? Wage difference between EU and China at exchange
rate, on average 4.5 times. E.g. wages in Germany are six times higher than in China
? Yuan fixed exchange rate is also not helping!! As labour
costs, it stays nearly constant in China
? Foreign Investment motivation due to:
Cost advantage, Cheap labour, Lower tax levels, infrastucture availabilit and political stability.
EU Imports from China
EU imports of manufactures
Exchange rate
Labour Unionism
? Existence of unions in Europe and social benefits have
kept unemployment high
? Challenge: skilled labour at much lower costs in vicinity ? Companies seek to take advantage of new
opportunities to exploit large differentials in wages and working conditions
? Insider-outsider theory: union negotiates the best wage
without causing the firm to cut employment
? Result: High labour costs
Avg Growth in Unit Labour costs(1996-2007) in EU
Immigration Problem
? Dearth of skills and favourable immigration policies
have caused massive influx of immigrants
? For e.g. over the 1995-1999 period significant
increases in population (> 0.5% per year) over the 1995-1999 period as a result of international migration into Spain, Ireland and Luxembourg. Since then Iceland, Italy and Switzerland have joined the list.
Problem of Immigration
16
3-year average at end of period 3-year average at beginning of period
14 12 10 8 6 4 2 0 -2 -4
2008 Financial Downturn
? There has been a steep upturn in the unemployment
rate in recent months due to the worldwide credit crunch and following recession.
? Spain, Ireland and the Baltic countries with the
unemployment rate doubling or in case of the Baltic countries nearly tripling.
EU vs China Trade and Economy policies
China: scenario
•
In contrast to its liberalized economy, its political system is one party authoritarian state In the 1980s, China tried to combine central planning with market-oriented reforms to increase productivity, living standards and these reforms have unleashed individual initiative and entrepreneurship leading to a high growth of rural sector
•
•
China pursued agricultural reforms, dismantling the commune system and introducing a household-based system that provided peasants greater decision-making in agricultural activities
as village enterprises in rural areas, and promoted more selfmanagement for state-owned enterprises
• The government also encouraged nonagricultural activities such
New Developments
? Abolition of price regulation
? Changes to company law allowing private ownership of
limited liability companies
? Permitting foreign direct investment
? Abolition of the state export trading monopoly
? Abolition in 2005 of rules preventing the private sector
being involved in various sectors of the economy such as infrastructure, public utilities and financial services. Private sector now accounts for around 59 % GDP
Roadblocks
? Foreign Affairs : Yet to improve relations with other
economic superpowers like Japan due to historical reasons
? Freedom of Information: Govt control over media and
internet may hamper growth
? Technology: In certain areas of technology, China is still
decades behind in comparison with developed countries
? Economic Crimes: A high level of corruption and collusion
exists in govt employees
European Union
? ?
Countries bounded by a common currency : Euro EU generated an estimated nominal gross domestic product (GDP) ofUS$18.39 trillion (15.247 trillion international dollars based on purchasing power parity) in 2008, amounting to over 22% of the world's total economic output in terms of purchasing power parity Free circulation of goods, capital, people and services within the EU Single Market: Customs union involves the application of a common external tariff on all goods entering the market. Once goods have been admitted into the market they can not be subjected to customs duties, discriminatory taxes or import quotas, as they travel internally The free movement of persons means citizens can move freely between member states to live, work, study or retire in another country. This required the lowering of administrative formalities and recognition of professional qualifications of other states The free movement of services and of establishment allows self-employed persons to move between member states in order to provide services on a temporary or permanent basis Common Agricultural Policy (CAP)
? ?
?
?
?
European Union
Evolution of trade policies EUChina
? Phase I : Limited Contact
? Western ostracism/Chinese self-sufficiency (1949-59)
? Phase II : Both sides seeking rapid growth and
becoming mutually dependent (bilateral trade) (196088) ? Economic cooperation agreements ? Growing economic interdependency between EU and
China
Evolution of trade policies EUChina
? Phase III : High mutual trade levels with political
considerations re-emerging, China being kept at arm?s length by GATT/WTO and the EU restraining trade through increasing quotas, tariffs and anti-dumping actions (1989- present)
? 1993 – Formation of the European Union
? EU?s third largest partner – China in terms of total trade
volume
Trade Relationship
? China exports growing faster of manufacturing goods
than the overall exports to EU ? Low technology, low unit value
? China?s raw material export less than that of
manufactured goods to EU ? Reflection of China?s industrialization ? High IIT ratio (intra-industry trade) : Exchange of
differentiated products which are close substitutes or belong to the same industry ? China?s imports and exports more diversified with EU than with Japan or Australia; greater scope for trading
Trade Relationship
? Adoption of discriminatory practices against PRC
? ? ? ?
Tariff barriers Non-tariff barriers (abolition of GSP) Increased usage of anti-dumping legislations Extensive imposition of import quotas
? Practices arise of the fear of the widening trade deficit/
imbalance ? Indication of highly uncompetitive EU products with
respect to trading partners
EU Imports
EU: Major Trade Partners
Imports by Product Category
Intra EU Trade
PPP
? Norway - USD 5.79
? Switzerland - USD 5.60
? Denmark - USD 5.07 ? Sweden - USD 4.58 ? France - USD 4.25
China, People's Republic of - USD 1.83
Inflation Rate: EU and China
No. of Patents filed
250,000 200,000
150,000
100,000
50,000
China UK Spain Germany Italy France
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
No. of Patents Approved
60,000 50,000
40,000
30,000
20,000
China UK Spain Germany Italy France
10,000
0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
EU Innovation Gap with US & Japan
? EU has been closing innovation gap with its
international competitors.
? Current Economic uncertainty & increased cost of
financing are discouraging investments in RnD.
? European programmes such as the Research
Framework Programme and the Competitiveness and Innovation Programme offer valuable sources of finance for businesses, with the Research Framework Programme alone offering €53bn of funding
World Market Share in commercial services
? The EU services sector has increased significantly over
the past 30 years. Services now account for approximately 70% of EU output and employment. In 2007, EU companies exported €1160bn in services – 57% of these were traded within the EU and 43% with the rest of the world.
World market share for up-market products
? A strong manufacturing sector is and will remain part of
the bedrock of Europe?s economic success. In recent years, much of the world?s low-end manufacturing has shifted to the developing economies, where labour costs are low.
Demand Side Policies to solve the problem
• Expand the rate of public sector investment through
increased government (capital)investment, concentrating on “specific infrastructures capable of giving [competitive market] returns in the short-run”
? Increase private sector investment through
central bank (ECB) lowering of interest rates.(Possible??)
Supply side policies to solve the problem
? Adopt job-creation policies. Encourage fixed-term and
part-time jobs. Government support for job training
? Reform job security legislation - Make it easier for firms
to fire workers. Remove barriers that keep wages from adjusting
? Restructure minimum wage legislation - Devise a
„special? (sub-minimum) wage for the least employable
? Support a benefit transfer program - Take money that is
currently spent on unemployment benefits and give it to firms as subsidies
Problem in the future
Ageing of the population
? Europe?s total population will peak around 2022 and by
2050 will have contracted by 13% from its 2000 total. The current median age of 37.7 years will rise to 52.3 by 2050 and the working age will fall to 50% of the total.
Regression
Regression between EU Unemployment rate and Imports of manufactured goods from China
? Regression Statistics
Multiple R R Square Adjusted R Square Errror Observations
0.709 0.5027 0.4198 0.4901 8
Regression
? ANOVA
df Reg Res Total 1 6 7 SS 1.46 1.44 2.89 MS 1.46 0.24 F 6.06 Sig 0.048
? Unemployment Rate = (-0.0036) Imports + 10.52
Thank You
doc_302181190.pptx