Cbm37 229

China’s Effects on Mexican China’s Effects on Mexican ExportsExports

Alejandro M. WernerAlejandro M. Werner

October 2004October 2004

2

Mexican exports recent evolutionMexican exports recent evolution

What explains the behavior of exports?What explains the behavior of exports?

Sector-level estimationSector-level estimation

Subsector-level estimationSubsector-level estimation

Concluding remarksConcluding remarks

IndexIndex

The rapid expansion of Mexican exports to the US following The rapid expansion of Mexican exports to the US following NAFTA slowed down after 2001. Chinese exports grew fast and NAFTA slowed down after 2001. Chinese exports grew fast and displaced Mexico as the second largest exporter to the US in displaced Mexico as the second largest exporter to the US in 2002. Concerns were raised by the breakdown of the Mexico-US 2002. Concerns were raised by the breakdown of the Mexico-US trade linkages.trade linkages.

Non-oil Exports to the USNon-oil Exports to the US(billion dollars, monthly)(billion dollars, monthly)

0

2

4

6

8

10

12

14

16

18

Jan-9

6

Jul-96

Jan-9

7

Jul-97

Jan-9

8

Jul-98

Jan-9

9

Jul-99

Jan-0

0

Jul-00

Jan-0

1

Jul-01

Jan-0

2

Jul-02

Jan-0

3

Jul-03

Jan-0

4

Jul-04

Mexico China

US Total Non-oil Imports CorrelationUS Total Non-oil Imports Correlation(18-month mobile correlation coefficient)(18-month mobile correlation coefficient)

-0.1

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

Jun-

97

Dic

-97

Jun-

98

Dic

-98

Jun-

99

Dic

-99

Jun-

00

Dic

-00

Jun-

01

Dic

-01

Jun-

02

Dic

-02

Jun-

03

Dic

-03

Jun-

04

With imports from China With imports from Mexico

Some observers wondered whether the recent behavior of Some observers wondered whether the recent behavior of

Mexican exports were driven by:Mexican exports were driven by:

The US recessionThe US recession

Increased Chinese competition in the US marketIncreased Chinese competition in the US market

Loss of competitivenessLoss of competitiveness

The last two effects nurtured the impression that the The last two effects nurtured the impression that the

Mexico-US trade linkages may have weakened, as the Mexico-US trade linkages may have weakened, as the

recovery of Mexican exports did not follow the rebound of recovery of Mexican exports did not follow the rebound of

US demand promptly.US demand promptly.

5






IndexIndex

To disentangle the different effects on exports of manufactures, the To disentangle the different effects on exports of manufactures, the analysis considered 3 sectors or types of goods (SITC classification): analysis considered 3 sectors or types of goods (SITC classification): ManufacturesManufactures, , Machinery and Transport EquipmentMachinery and Transport Equipment, and , and Miscelaneous Miscelaneous ManufacturesManufactures. A series of rolling regressions were estimated . A series of rolling regressions were estimated for each for each sectorsector..

The variables per sector were (MoM first-differences of logs):The variables per sector were (MoM first-differences of logs):

US imports in 2002 dollars (s.a.)US imports in 2002 dollars (s.a.)

Exports of China to the US in 2002 dollars (s.a.)Exports of China to the US in 2002 dollars (s.a.)

US-Mexico bilateral real exchange rate indexUS-Mexico bilateral real exchange rate index

A 36-month rolling sample ending in the date reported was used.A 36-month rolling sample ending in the date reported was used.

The equation allows to identify the contribution of each variable to The equation allows to identify the contribution of each variable to the growth of exports.the growth of exports.

The error term captured the presence of other factors affecting The error term captured the presence of other factors affecting exports.exports.

TCRXMX TCRCHCHEUEUMX

China´s Exports ( )

Real Exchange Rate ( ) US Imports ( )

CH

RER

US

-0.30

-0.20

-0.10

0.00

0.10

0.20

Jun-

99

Jul-9

9

Jun-

00

Jul-0

0

Jun-

01

Jul-0

1

Jun-

02

Jul-0

2

Jun-

03

Jul-0

3

Jun-

04

Jul-0

4

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

Jun-

99

Jul-9

9

Jun-

00

Jul-0

0

Jun-

01

Jul-0

1

Jun-

02

Jul-0

2

Jun-

03

Jul-0

3

Jun-

04

Jul-0

4

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Jun-

99

Jul-9

9

Jun-

00

Jul-0

0

Jun-

01

Jul-0

1

Jun-

02

Jul-0

2

Jun-

03

Jul-0

3

Jun-

04

Jul-0

4

Chinese exports do not have a Chinese exports do not have a

significant negative impact on significant negative impact on

Mexican exports.Mexican exports.

Except for some periods, the real Except for some periods, the real

exchange rate does not have a exchange rate does not have a

significant effect on exports.significant effect on exports.

There is a high positive correlation There is a high positive correlation

with US imports. The elasticity is with US imports. The elasticity is

stable and there is no evidence that stable and there is no evidence that

it diminished in 2000-2004.it diminished in 2000-2004.

Sector:Sector: Manufactures Manufactures

Sector:Sector: Manufactures Manufactures US imports fully explain Mexican exports’ growth for the period US imports fully explain Mexican exports’ growth for the period

1998-2000. Chinese exports had, in any case, a minor negative 1998-2000. Chinese exports had, in any case, a minor negative impact.impact.

In 2000-2003, the fall of US imports accounted for less than half of In 2000-2003, the fall of US imports accounted for less than half of the total change in Mexican exports and no negative effect of the total change in Mexican exports and no negative effect of China was present. China was present.

-50

150

350

550

750

950

1,150

1,350

X China M US RER Error Total

-26.2

1,330.9 12.3

-18.9

1,298.1

-370

-320

-270

-220

-170

-120

-70

-20

30


14.3

-161.7

9.7

-214.0

-351.7

Accumulated Variation 1998-2000Accumulated Variation 1998-2000(Million dollars of 2002)(Million dollars of 2002)



Real Exchange Rate ( ) US Imports ( )

CH

RER

US

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

Jun-9

9

Jul-99

Jun-0

0

Jul-00

Jun-0

1

Jul-01

Jun-0

2

Jul-02

Jun-0

3

Jul-03

Jun-0

4

Jul-04

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jun-9

9

Jul-99

Jun-0

0

Jul-00

Jun-0

1

Jul-01

Jun-0

2

Jul-02

Jun-0

3

Jul-03

Jun-0

4

Jul-04 0.2

0.4

0.6

0.8

1.0

1.2

1.4

Jun-9

9

Jul-99

Jun-0

0

Jul-00

Jun-0

1

Jul-01

Jun-0

2

Jul-02

Jun-0

3

Jul-03

Jun-0

4

Jul-04

Chinese exports appear to have a Chinese exports appear to have a negative effect on Mexican exports as negative effect on Mexican exports as the rolling sample enters 2002. This the rolling sample enters 2002. This negative effect increases steadily and negative effect increases steadily and stabilizes by the end of the sample.stabilizes by the end of the sample.

The real exchange rate had a positive The real exchange rate had a positive impact on exports, which is impact on exports, which is statistically significant for the sample statistically significant for the sample ending in early 2003.ending in early 2003.

The elasticity with respect to US The elasticity with respect to US imports is strong and relatively stable, imports is strong and relatively stable, but starts to diminish in late 2003.but starts to diminish in late 2003.

Sector: Machinery andTransport Equipment

In 1998-2000, shifts in US imports accounted for most of the changes in In 1998-2000, shifts in US imports accounted for most of the changes in Mexican exports growth. China and the real exchange rate played a minor Mexican exports growth. China and the real exchange rate played a minor role.role.

In 2000-2003, Chinese exports displaced a larger amount of Mexican In 2000-2003, Chinese exports displaced a larger amount of Mexican products. However, most of the reduction is captured by the error term, products. However, most of the reduction is captured by the error term, which is followed by the negative impact of the fall of US imports.which is followed by the negative impact of the fall of US imports.

Sector:Sector: Machinery and Transport Equipment Machinery and Transport Equipment

-200

4,800

9,800

14,800

19,800

24,800


-171.0

16,483.7

-217.5

6,689.9 22,785.1

-10,000

-8,000

-6,000

-4,000

-2,000

0


-660.3

-3,165.2

533.5

-5,566.5-8,858.5


Accumulated Variation 2000-2003Accumulated Variation 2000-2003(Million dollars(Million dollars of 2002of 2002))


Real Exchange Rate ( ) Total US Imports ( )

CH

RER

US

-0.9-0.8-0.7-0.6-0.5-0.4-0.3-0.2-0.10.00.1

Jun-

99

Jul-9

9

Jun-

00

Jul-0

0

Jun-

01

Jul-0

1

Jun-

02

Jul-0

2

Jun-

03

Jul-0

3

Jun-

04

Jul-0

4

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jun-

99

Jul-9

9

Jun-

00

Jul-0

0

Jun-

01

Jul-0

1

Jun-

02

Jul-0

2

Jun-

03

Jul-0

3

Jun-

04

Jul-0

4 0.20.40.60.81.01.21.41.61.82.0

Jun-

99

Jul-9

9

Jun-

00

Jul-0

0

Jun-

01

Jul-0

1

Jun-

02

Jul-0

2

Jun-

03

Jul-0

3

Jun-

04

Jul-0

4

Sector:Sector: Other Manufactures Other Manufactures This sector displays the most This sector displays the most negative elasticity with respect to negative elasticity with respect to Chinese exports growth. This effect Chinese exports growth. This effect has increased throughout most of the has increased throughout most of the sample.sample.

The real exchange rate does not have The real exchange rate does not have a significant impact on exports.a significant impact on exports.

The positive elasticity with respect to The positive elasticity with respect to US imports is high but experienced US imports is high but experienced slight a decline in early 2003.slight a decline in early 2003.

-1,000

0

1,000

2,000

3,000

4,000

5,000


-123.9

4,130.7

-75.2-245.5

3,686.1

-1,000

-800

-600

-400

-200

0


-723.5

-148.3

-51.2

752.0-68.6



In 1998-2000, Chinese exports had a minor negative impact on Mexican In 1998-2000, Chinese exports had a minor negative impact on Mexican exports growth, which is explained almost entirelyexports growth, which is explained almost entirely by growing US imports. by growing US imports.

In turn, Chinese exports affected Mexican exports considerably in the In turn, Chinese exports affected Mexican exports considerably in the period 2000-2003. This effect was worsened by a reduction of US imports. period 2000-2003. This effect was worsened by a reduction of US imports. Both effects were compensated by positive effects not captured by the Both effects were compensated by positive effects not captured by the control variables.control variables.

Sector:Sector: Other Manufactures Other Manufactures

-10,000

-9,000

-8,000

-7,000

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0


-1,369.5

-3,475.1

594.3

-5,028.5

-9,278.8

-5,000

0

5,000

10,000

15,000

20,000

25,000

30,000


-321.1

21,945.2

-280.5

6,425.5

27,769.1



Total Variation of Exports of ManufacturesTotal Variation of Exports of Manufactures

Fast growing US imports of manufactures account for the Fast growing US imports of manufactures account for the expansion of Mexican exports in 1998-2000. expansion of Mexican exports in 1998-2000.

In 2000-2003, the main causes for the low performance of Mexican In 2000-2003, the main causes for the low performance of Mexican exports were US imports and other factors captured by the error.exports were US imports and other factors captured by the error.

Decomposition of the Yearly AverageDecomposition of the Yearly AverageFall of Exports 2000-2003 Fall of Exports 2000-2003

(Percent)(Percent)

The results help to answer two questions:The results help to answer two questions:

1.1. What proportion of the yearly average fall of exports of What proportion of the yearly average fall of exports of manufactures in 2000-2003 is explained by each factor?manufactures in 2000-2003 is explained by each factor?

2.2. What proportion of the yearly average change in exports of What proportion of the yearly average change in exports of manufactures is explained by each factor, if we compare 1998-manufactures is explained by each factor, if we compare 1998-2000 and 2000-2003?2000 and 2000-2003?

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0


-14.8

-36.9

6.3

-53.4

-100.0

-100

-90

-80

-70

-60

-50

-40

-30

-20

-10

0


-1.7 %

-71.5 %

2.0 % -28.8 %

-100.0 %

Decomposition of the Yearly AverageDecomposition of the Yearly AverageChange in Exports GrowthChange in Exports Growth1998-2000 vs. 2000-2003 1998-2000 vs. 2000-2003

(Percent)(Percent)

Exports Recovery in 2004Exports Recovery in 2004

-1,000

0

1,000

2,000

3,000

4,000

5,000


-978.0

3,701.9 107.1

1,419.6

4,250.7

-6,000

-5,000

-4,000

-3,000

-2,000

-1,000

0


-2,369.1

226.8

576.2

-3,462.1

-5,028.1

In 2004, the negative effects of Chinese expansion continued. However, In 2004, the negative effects of Chinese expansion continued. However, the rebound of US imports had a strong positive impact on Mexican the rebound of US imports had a strong positive impact on Mexican exports.exports.

However, the accumulated effects of Chinese expansion since 2000, However, the accumulated effects of Chinese expansion since 2000, along with other factors that have affected exports growth, have not along with other factors that have affected exports growth, have not been compensated by the recovery observed in 2004.been compensated by the recovery observed in 2004.

Accumulated Variation 2004Accumulated Variation 2004(Million dollars(Million dollars of 2002of 2002))


16






IndexIndex

98-00 00-03 04 98-00 00-03 04 98-00 00-03 04

MANUFACTURES:

Leather, Leather Manufactures - - - + + + + +Rubber Manufactures - - - + + + + +Cork And Wood Manufactures - + + + + + +Paper, Paperboard, and related Articles - - - + + + + +Textile Yarn, Fabrics, Made-up Articles - - - + + + +Nonmetallic Mineral Manufactures - - - + + + + + +Iron and Steel - - + + + + + +Nonferrous Metals - + + + - - + + +Manufactures Of Metals - - - + + + + + +

MACHINERY AND TRANSPORT EQUIPMENT:

Power Generating Machinery and Equipment - - + + + + + +Machinery Specialized For Particular Industries - - + + + + + + +Metalworking Machiner - - + + + + + +General Industrial Machinery And Equipment - - - + + + + +Office Machines and Data Processing Machines - - - + + + + + +Telecomm Sound Recording And Reproducing - - - + + + + +Electrical Machinery - - - + + + + + +Road Vehicles - - - + + + +Transport Equipment - - + + + - -

OTHER MANUFACTURES:

Prefabricated bldgs, plumbing, heat & lighting - - - + + - + + +Furniture and parts thereof - - - + + + + + +Travel goods, handbags and similar containers - - - - + + +Articles of apparel and clothing accessories - - - + + + + +Footwear - - - + + + + +Professional, scientific and control instruments - - - + + + + + +Photographic apparatus, equipment and supplies - - - + + + + + +Miscellaneous manufactured articles - - - + + + +

●: Close to zero.Note: Shaded signs are significant at 90%.

China X RER US M

Sub-Sector Level Estimation Summary

Dollar amounts (millions)00-03 04 00-03 04 00-03 04 00-03 04

MANUFACTURES:

Leather, Leather Manufactures -2.1 0.0 0.8 0.0 -12.4 0.0 3.1 -7.2Rubber Manufactures -12.5 -7.0 -2.3 1.7 -29.7 9.7 86.5 67.5Cork And Wood Manufactures 2.1 -0.1 -0.5 -0.1 -11.2 4.2 -60.8 13.1Paper, Paperboard, and related Articles -1.6 0.2 0.6 1.8 1.8 19.8 64.1 16.9Textile Yarn, Fabrics, Made-up Articles -52.2 -16.7 -4.2 -0.1 -96.0 27.8 68.2 22.9Nonmetallic Mineral Manufactures -1.7 0.8 -1.1 -0.2 -9.9 33.4 -61.0 45.4Iron and Steel -10.8 -0.3 -1.3 4.8 -231.1 111.5 236.2 367.0Nonferrous Metals 9.6 6.1 -8.8 -6.5 -14.2 20.1 -227.2 154.9Manufactures Of Metals -12.1 -28.1 11.7 0.0 20.5 98.6 7.9 163.3

MACHINERY AND TRANSPORT EQUIPMENT:

Power Generating Machinery and Equipment -45.3 -53.0 -0.9 10.4 -494.1 20.4 458.4 553.6Machinery Specialized For Particular Industries -10.7 0.6 3.2 0.4 -4.6 4.4 22.7 126.7Metalworking Machiner -1.2 -0.9 1.8 0.2 1.7 0.1 22.6 11.6General Industrial Machinery And Equipment -28.5 -10.9 -16.8 36.9 34.6 51.3 364.6 264.2Office Machines and Data Processing Machines -83.7 -48.3 48.2 -0.5 -204.2 13.5 -1,560.3 -53.1Telecomm Sound Recording And Reproducing -46.8 -89.3 6.1 0.0 -598.1 -10.2 -2,614.8 1,753.1Electrical Machinery -33.4 47.3 -27.0 7.8 -1,965.6 74.7 370.4 540.2Road Vehicles -74.0 -6.3 157.7 4.7 -396.0 -68.7 -1,741.2 -6.1Transport Equipment -11.2 -0.1 9.7 -0.3 19.2 -0.1 -420.9 -8.7

OTHER MANUFACTURES:

Prefabricated bldgs, plumbing, heat & lighting -96.3 -29.8 2.4 -2.7 132.8 50.0 105.3 11.4Furniture and parts thereof -125.8 -8.6 1.3 -1.3 69.1 -23.2 800.0 91.8Travel goods, handbags and similar containers -6.3 -2.4 -0.9 0.0 7.8 5.1 -73.7 -6.6Articles of apparel and clothing accessories -479.4 -178.1 8.6 -8.5 -81.8 292.0 -1,287.7 -483.2Footwear -22.3 -33.4 1.2 1.6 14.5 17.2 -84.7 -5.3Professional, scientific and control instruments -55.2 20.3 -3.9 10.7 64.6 54.8 1,044.2 -123.7Photographic apparatus, equipment and supplies -0.1 -2.5 -1.5 1.2 -30.4 3.6 -238.8 101.6Miscellaneous manufactured articles -108.8 -36.6 -16.0 2.0 234.2 92.3 159.0 94.2

China X RER US M Others

The largest negative effect of Chinese exports (in dollar terms) The largest negative effect of Chinese exports (in dollar terms) concentrated in the following sectors:concentrated in the following sectors:

Textiles, office and data processing machines, telecomm Textiles, office and data processing machines, telecomm and audio equipment, furniture, apparel, clothing,and audio equipment, furniture, apparel, clothing, and and footwearfootwear..

The US import slowdown translated into lower exports (in dollar The US import slowdown translated into lower exports (in dollar terms) in the follwing sectors:terms) in the follwing sectors:

Iron and steel, office and data processing machines, Iron and steel, office and data processing machines, telecomm and audio equipment, electrical machinery, telecomm and audio equipment, electrical machinery, andand road vehiclesroad vehicles..

The last four sectors were also affected considerably by other The last four sectors were also affected considerably by other factors.factors.

These four sectors account for 94% of the reduction in exports These four sectors account for 94% of the reduction in exports of manufactures in 2000-2003.of manufactures in 2000-2003.

Main ResultsMain Results

Road Vehicles Road Vehicles explain a large fraction of the exports fall in explain a large fraction of the exports fall in 2000-2003. This fall was caused by lower US imports and other 2000-2003. This fall was caused by lower US imports and other factors. One of these factors was a shift in US demand away factors. One of these factors was a shift in US demand away from GM, Ford, Chrysler vehicles. The majority of Mexican car from GM, Ford, Chrysler vehicles. The majority of Mexican car exports are mainly from such brands.exports are mainly from such brands.

17.0

17.117.4

17.8

17.5

16.6

16.8

17.0

17.2

17.4

17.6

17.8

18.0

1999 2000 2001 2002 200327

1999 2000 2001 2002 2003

13

14

15

16

17

18

19

20

21

22

23

24

General Motors

Ford

DaimierChrysler

Cars and Light Trucks Sold in the USCars and Light Trucks Sold in the US(Millions of units)(Millions of units)

US Market ShareUS Market Share(Percent, GM and Ford on the left axis)(Percent, GM and Ford on the left axis)

21






IndexIndex

22

In 2004, manufacturing and In 2004, manufacturing and maquilamaquila exports have reflected exports have reflected mainly the recovery of US imports. Also, imports of intermediate mainly the recovery of US imports. Also, imports of intermediate goods anticipate future growth of industrial activity.goods anticipate future growth of industrial activity.

11.4

11.8

12.2

12.6

13.0

13.4

13.8

J-0

2A

-02

J-0

2O

-02

J-0

3A

-03

J-0

3O

-03

J-0

4A

-04

J-0

4

ma

nu

f. e

xp

. (b

illi

on

s o

f d

lls

) .

6.2

6.4

6.6

6.8

7.0

7.2

7.4

7.6

ma

q.

ex

p.

(bil

lio

ns

of

dll

s)

.

ManufacturingExports

MaquilaExports

Source: INEGISource: INEGI

ExportsExports(SA data)(SA data)

ImportsImports(SA data)(SA data)

Source: INEGISource: INEGI

10.0

10.5

11.0

11.5

12.0

12.5

13.0

J-0

2A

-02

J-0

2O

-02

J-0

3A

-03

J-0

3O

-03

J-0

4A

-04

J-0

4

inte

rme

dia

te (

bil

lio

ns

of

dll

s)

.

4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

ma

qu

ila

(b

illi

on

s o

f d

lls

) .

IntermediateGoods

Maquila

23

GDP Growth by SectorsGDP Growth by Sectors

The recovery of the manufacturing sector complements the The recovery of the manufacturing sector complements the dynamism of other industrial and non-industrial activities. In dynamism of other industrial and non-industrial activities. In 2004.II, GDP grew 3.9% in real annual terms and 1.2% over the 2004.II, GDP grew 3.9% in real annual terms and 1.2% over the previous quarter.previous quarter.

Q1.2004 Q2.2004 GDP 3.7 3.9Agriculture 4.6 5.1Industrial 3.2 3.8 Mining 6.4 2.4 Manufacturing 2.8 4.0 Construction 4.9 4.4 Elec., gas & water 1.4 0.8Services 4.1 4.1

Source: INEGI

Annual(%)

Source: INEGI.Source: INEGI.

Mexico: GDPMexico: GDP(Real annual % change)(Real annual % change)

-5.6

-1.8

2.0

5.8

9.6

I1999

II IIIIV I2000

II IIIIV I2001

II IIIIV I2002

II IIIIV I2003

II IIIIV I2004

II

Manufacturing GDP

Non Manufacturing GDP

Lower exports in 2000-2003 are explained by the fall in US Lower exports in 2000-2003 are explained by the fall in US imports and other factors not captured by the analysis. imports and other factors not captured by the analysis. Among these, there may be shifts in demand for Mexican Among these, there may be shifts in demand for Mexican products and competitiveness losses in some sectors.products and competitiveness losses in some sectors.

The negative effects of lower US imports and other factors The negative effects of lower US imports and other factors concentrated in four sectors (office and data processing concentrated in four sectors (office and data processing machines, telecomm and audio equipment, electrical machines, telecomm and audio equipment, electrical machinery, and road vehicles). These sectors account for 94% machinery, and road vehicles). These sectors account for 94% of the fall of exports in 2000-2003.of the fall of exports in 2000-2003.

Chinese exports had a second-order effect. However, Chinese exports had a second-order effect. However, increased competition from China has become a permanent increased competition from China has become a permanent and growing challenge for Mexican exports.and growing challenge for Mexican exports.

Final RemarksFinal Remarks

China’s Effects on Mexican China’s Effects on Mexican ExportsExports

Alejandro M. WernerAlejandro M. Werner

October 2004October 2004

Cbm37 229

Lifestyle

Transcript of Cbm37 229