Essays on China's exports to East Africa – University of Copenhagen

Essays on China's exports to East Africa

PhD defence

Qian Yu

Summary

China’s emergence as the world’s major trading nation has been well documented and discussed in the economics literature. One such trend that has garnered intensive media exposure and political discussion but far less formal economic analysis is the sudden rise of China as Africa’s biggest trading partner. The aim of this thesis is to compile a set of empirical economic evidence on the general characteristics of China’s exports to Africa, on the consequences of increasing Chinese exports on African consumers, on explaining why China rose to such prominence on the African market, as well as on the economic opportunities and threats placed by China’s expanding role in Africa on the latter’s traditional trading partners. The first three papers contained in this thesis form a sequence to answer the questions proposed above, using Ethiopia as a case study.

The first paper describes features of China’s exports to Ethiopia, including their increased market shares and expanded product penetrations. It further provides formal measures of “sophistication” of Chinese exports to this market, relative to both exports sourced from other major exporters such as the EU, and China’s overall exports. Findings in this paper not only contribute to the related empirical economic literature, they are useful for subsequent studies in this thesis. In the second paper, we take advantage of a recent breakthrough in empirical international trade on systematically estimate welfare gains from increasing import varieties to guide our efforts to estimate consumer welfare gains due to increased imports from China into the Ethiopia market. We find that Ethiopia’s overall exact consumer price index fell by over 2.1% during the examined period due to increased import varieties, and the associated welfare gains are estimated to be over 2.2% of Ethiopia’s GDP (for an annualized average increase of 0.15%). China is shown to be the one that contributed the most to these estimated changes in the price index and welfare gains. These findings provide further support to the theoretical predictions on gains from increased varieties, even in the context of a LDC with mostly poor consumers, and augment the emerging empirical literature mentioned above. It also adds an important dimension to the discussion on the expanding role of China in Africa and its implications. Based on the findings from the first paper, in the third paper we investigate why China’s exports to Ethiopia are less sophisticated as compared to its overall exports in both across- and within-product dimensions, an observation that might help explain rapid expansions of Chinese exports. Using detailed customs export statistics from China, identifiable by Chinese provinces, trade modes, and enterprise types, this paper measures these differences and explores their determinants. Through detailed data analysis, we find that higher shares of normal exports and of exports supplied by state-owned and private-owned enterprises (as opposed to higher shares of processing exports with more foreign contents and of exports sourced from foreign invested enterprises) can plausibly explain the observed lower sophistication level of Ethiopia-bounded Chinese exports. In addition, when measuring sophistications of exports to Ethiopia, cautions should be exercised in using across-product index and preferences should be attached to the within-product measures.

The last paper in this thesis departs from the Ethiopia focus in order to investigate how China’s expanded exports to the EAC impacted the EAC’s traditional export supplier, notably the EU. This is an equally important issue because it is related to many of the tensions and controversies associated with the rise of Chinese exports to Africa. Estimation results from a gravity trade model show that Chinese exports did have a significant displacement effect on other exporters, both on the global and EAC markets, with the effects being particularly strong on exports from the EU to the EAC. Disaggregated results at broadly defined sector level further suggest that on the EAC market China mainly competed with the EU in exporting manufacturing and machinery products, which had traditionally been and remain the latter’s main exports to the EAC. While augmenting the empirical evidence on the impacts of rising Chinese exports, our results also provide useful inputs into the debates on formulating future trade arrangements between the EU and EAC.

Principal Supervisor

Associate Professor Wusheng Yu, Department of Food and Resource Economics, University of Copenhagen.

Assessment Committee

Professor Niels Kærgård, Department of Food and Resource Economics, University of Copenhagen (chairman);

Professor Everett Peterson, Department of Agricultural and Applied Economics, Virginia Polytechnic Institute and State University (Virginia Tech), USA;

Professor Xiaohua Yu, Courant Research Centre PEG, University of Göttingen, Germany.