Shanghai h and China s Integration ti Into the World Economy o Wolfgang Keller (Colorado) Ben Li (Boston College) Carol H. Shiue (Colorado)
In a word: China s recent economic performance Red Hot (National Public Radio 2011) Breathtaking (di Giovanni, Levchenko, Zhang, IMF/U Michigan 2011) Astonishing (Lin, Chief Economist, The World Bank,2011)
Trade led Growth? 20 18 16 14 12 10 8 Share of World GDP Share of World Exports 6 4 2 0 1960 1970 1980 1990 2000 2010 Year
Size matters China s impact on richer countries Local U.S. Labor Markets (Autor, Dorn, Hanson) Employment in Europe (Bloom, Draca, van Reenen) China s impact on poorer countries Latin America (Devlin, Estevadeordal, Rodriguez Clare) China s global impact Global CA Imbalances (Ju, Shi, Wei) Global Welfare (di Giovanni, Levchenko, Zhang)
Questions we pursue How extraordinary is China s trade performance today? What is the cause of China s current trade performance the 1978 market reforms? Is China s trade and its growth rates related?
Two elements 1. A longer view: two of China s trade liberalizations After the Opium War, 1840s After the 1978 reforms 2. A city view: China s trade through the lens of Shanghaih
The longer view: China s Share in World ldgdp and World ldexports 18 16 14 12 GDP Exports 10 8 6 4 2 0 1860 1880 1900 1920 1940 1960 1980 2000 2020
The longer view: China s Share in World ldgdp and World ldexports 18 16 14 12 GDP Exports 10 8 6 4 2 0 1860 1880 1900 1920 1940 1960 1980 2000 2020
Shanghai China Why a city? A country s trade liberalization rarely occurs at a point in time Rather, it takes time to spread Regional heterogeneity Shanghai potentially important for China as a whole Why this city? 1850 : Shanghai had half of China s foreign trade Today : Shanghai is the world s biggest port
China s trade liberalization in 19 th c. Before 1840, Guangzhou (Canton) only port open to trade w/ Western countries West desires more importsfrom China withoutexporting silver; searches pretext for opening Britain exports opiumfrom India; China resists => war; China defeated by Britain New ports opened to trade with West t(treaty of Nanjing, 1842) Shanghai one of them Low tariffs, close to free trade
Shanghai: some basics Located at the mouth of the Yangzi river: easy access to seafaring routes and river traffic Long overshadowed by nearby administrative capital cities (Suzhou, Hangzhou, and Nanjing) Emerged quickly as China s most important port for foreign trade in treaty port era (1842 to 1942)
Chinese Maritime Customs (CMC) service Formally reporting to China s Foreign Office Each member of the CMC was a paid agent of the Chinese government for the performance of specified work (Robert Hart, Inspector General) De facto a Western led organization Operated customs system with more and more treaty ports since year 1854 Tariff revenue net of collection costs sent to Qing Tariff revenue net of collection costs sent to Qing emperor
Maritime Customs House, Shanghai 1857
Customs and HSBC bank on the Bund, 1927
Shanghai: Center of China s Foreign Trade during Treaty Port Era Shanghai s unique geographic position had long been recognized Overtook Guangzhou as most important port in early 1850s By the 1860s, the North China Herald wrote: The heart of foreign trade is Shanghai, and the outports mere blood vessels
Shanghai s importance: Half of China s gross foreign trade, 1870 to 1930 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 1870 1875 1880 1885 1890 1895 1900 1905 1910 1915 1920 1925 1930 Share of China's imports of foreign goods Share of China's Exports and Re Exports Going Abroad
21 Change versus continuity, recovery and income growth China s and Shanghai s foreign imports since 1865 20 19 18 17 log tra ade 16 15 14 13 12 11 1860 1880 1900 1920 1940 1960 1980 2000 2020
Shanghai s openness since 19 th c Analyze levels and trends of Trade FDI international ti migration Questionthroughout: throughout: Extraordinarilyhigh today, return to trend, or identical to past trend? Start with Shanghai s re exports, the link between regional and national economy
6 JAPAN 7 Jiujiang 1 CHINA 8 9 4 Shanghai 3 2 5 1: Imports from Foreign 2: Re exports to Foreign (F) 3: Re exports to China (F) 4: Imports from China (F) 5: Exports to Foreign 6: Re exports to Foreign (D) 7: Exports to China 8: Re exports to China (D) 9: Imports from China (D) Xiamen PHILIPPINES
Exports versus re exportsof exports of Chinese goods 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1865 1925 1990 2009 Re exports Exports of Local Production
Re exports of foreign imports to elsewhere in China: less of it today 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 1865 1925 1999 2009 Re Exports Net Foreign Imports
Re exports as trade intermediation in a search model dl Similar level over time on export side Lower now than in 19 th c. on import side Re exports as trade intermediation when matching of buyers and sellers is costly Shanghai vs hinterland: relative costs of finding foreign customer constant over time Foreigners vs Shanghai: relative costs of finding Chinese customers have decreasedd
Income growth reallocates trade share away from British Empire Import Composition 1870 to 2009 Import Composition, 1870 to 2009 0.4 035 0.35 0.3 025 0.25 0.2 01 0.15 1870 1900 1990 2009 0.1 0.05 0
The level of trade Suppose a forecaster in Shanghai in 1900 Naïve: knew nothing except past trade Not the fall of the Qing dynasty; two world wars; Japanese invasion; the Great Depression; restrictive trade policy before, opening after 1978 reforms Not the evolution of world income, falling trade costs, vertical specialization & offshoring Q: How close would the forecaster have come in predicting Shanghai s h imports from Japan now?? A:
Answer: Pretty much right on Shanghai s imports from Japan 30 25 y = 0.052x 79.3 ports ($US 2006) 20 15 y = 0.140x 256.3 log gross im 10 5 0 1860 1880 1900 1920 1940 1960 1980 2000 2020 2040
History predicts level in early 21 st century but ttrade growth continues: imports from Britain Biti 23 21 y = 0.0004x + 19.7 19 log gross im mports ($US 2006) 17 15 13 11 y = 0.12x 215.3 9 7 5 1860 1880 1900 1920 1940 1960 1980 2000 2020
No extraordinary levels of trade: Shanghai s imports from US are bl below the naïve forecast 35 30 25 rts ($US 2006) log gross impo 20 15 10 y = 0.097x 164.9 y = 0.126x 228.8 5 0 1850 1870 1890 1910 1930 1950 1970 1990 2010
Lessons from bilateral trade and the gravity model: Continuity and Change (1) (2) (3) (4) log Exports log Imports log Exports log Imports log GDP 1.504*** 1.722*** 0.945*** 1.197*** (0.105) (0.110) (0.082) (0.318) log Shanghai population 0.565 0.308 1.575*** 3.686* (0.533) (0.427) (0.408) (1.966) log distance 0.755*** 1.944*** 0.471*** 0.856*** (0.262) (0.203) (0.127) (0.290) Entrepot dummy 7.771*** 771*** 9725*** 9.725*** 3580*** 3.580*** 2464** 2.464** (0.606) (0.641) (0.346) (1.195) Sample History History Modern Modern Observations 58 54 69 52 R squared 0.81 0.89 0.76 0.62
Now, Shanghai s size matters for trade more (1) (2) (3) (4) log Exports log Imports log Exports log Imports log GDP 1.504*** 1.722*** 0.945*** 1.197*** (0.105) (0.110) (0.082) (0.318) log Shanghai population 0.565 0.308 1.575*** 3.686* (0.533) (0.427) (0.408) (1.966) log distance 0.755*** 1.944*** 0.471*** 0.856*** (0.262) (0.203) (0.127) (0.290) Entrepot dummy 7.771*** 9.725*** 3.580*** 2.464** (0.606) (0.641) (0.346) (1.195) Sample History History Modern Modern Observations 58 54 69 52 R squared 0.81 0.89 0.76 0.62
19 th c liberalization also allowed people and firms to move: Multinational Firms in Shanghai Jardine, Matheson & Co. in the International Settlement
Income convergence makes Britain less important But only one entrant tamong today s top 5 FDI sources 1872 to 1921 1995 to 2009 Other 13% Great Britain 30% Great Britain 7% Germany 9% Others 11% USA 32% Japan 35% Germany 7% Singapore 10% France 4% USA 11% Japan 31%
FDI into Shanghai today is neither extraordinarily il high h in terms of levels l or growth Year 1872 1921 1995 2009 No. of 153 1,741 3,912 6,516 foreign firms Period 1872 1921 1921 1995 1995 2009 Av. Annual growth 5% 1.1% 3.6%
Continuity: Also for FDI, gravity in FDI holds in both periods 1872 1930 1990 2009 log GDP 0.772** 1.232*** (0.325) (0.119) log Shanghai population 1.235** 15.167** (0.567) (5.329) log distance 0.488** 0.776*** (0.205) (0.077) Observations 19 15 R squared 0.59 0.95
Foreign Residents in Shanghai: Carriers of new ideas? 1872 to 1921 2000 to 2009 France 4% Germany 7% Other 22% Japan Japan 29% 23% USA 10% Great Britain Republic of 28% Others 44% France 4% Singapore 5% Korea 11% USA 13%
13 Number of British residents in Shanghai: Match up with treaty port era trend in 2020 12 11 predicted 2009 number: 68,251 actual 2009 number: 5,137 s British Residen nts in Shanghai, logs 10 9 8 7 y = 0.031x 50.6 y = 0.167x 326.4 6 5 4 1860 1880 1900 1920 1940 1960 1980 2000 2020 2040
Shanghai s Trade Openness, 1870 2009 Trade per capita 3.5 3 2.5 Exports plus Imp ports per Capita, log 2 1.5 1 0.5 0 0.5 1 1.5 1860 1880 1900 1920 1940 1960 1980 2000 2020
Continuity, Change, Income Growth and Recovery: Summary Openness ess has asbeen high recently, and in some ways going beyond expectations Though an analysis in terms of 1. Return to trends from depressed post WWII levels 2. Growth and convergence in the world economy 3. Continuity i of historic i trends goes a long way
Trade & Openness Shanghai 0.016 1.6 0.014 1.4 0.012 1.2 Popu lation Share 0.01 0.008 0.006 1 0.8 0.6 Tra ade Share 0.004 0.4 0.002 0.2 0 1870 1875 1880 1885 1890 1895 1900 1905 1910 1915 1920 1925 1930 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009 Year 0 Shanghai's Population Share Shanghai Trade Share
Back to China s long run GDP growth 20 18 16 14 12 10 8 6 4 2 0 1860 1880 1900 1920 1940 1960 1980 2000 2020 China's Share of World GDP
China s Trade China s GDP? 20 18 16 14 12 10 8 6 4 2 0 1860 1880 1900 1920 1940 1960 1980 2000 2020 China's Share of World GDP China's Trade Openness
Shanghai s Trade China s GDP? 25 20 15 10 5 0 1860 1880 1900 1920 1940 1960 1980 2000 2020 China's Share of World GDP China's Trade Openness Shanghai's Trade Openness
20 18 Shanghai and China s Growth in the World China Openness China's Share in World GDP Shanghai Openness 16 14 12 10 Correlation = 0.74 8 6 4 2 0 1865 1885 1905 1925 1945 1965 1985 2005
Conclusions China s performance is truly extraordinary in some ways Much of it is accounted for by 1. Return to trend from depressed post WWII levels 2. Income growth and convergence 3. Continuity of 19 th c. trends Shanghai s openness a good predictor of China s share in world GDP Shanghai initiated mobilization of today s Chinese economy? Importance of integrating analysis of int l and regional trade New empirical support for economic geography models
Chinese Junk at Shanghai
Junk in the Yangzi Gorges near Yichang