CESEE and the Impact of China and Russia
Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 11: Opportunities and challenges – the impact of Chinese competition on Hungarian manufacturing
The rapid development of China is reshaping the dynamics of the global economy and has contributed to significant restructuring in both emerging and developed economies. As a result, traditional manufacturing exporting countries are facing a complex situation. Some companies and sectors can take advantage of new growth opportunities, while others are facing severe competitive threats. Gains arise in terms of additional exports to and growth opportunities within China, and cost savings from utilizing Chinese supply chains, contributing to enhanced competitiveness. But these gains are partially mitigated by the loss of domestic and traditional export markets to Chinese competitors. In this chapter we investigate the impact of China’s rise from different angles. On the positive side, Hungary has benefited from growing Chinese demand for capital equipment. Hungary specializes in supplying parts and appliances for large capital-equipment-exporting countries, first and foremost for Germany. On the other hand, China has fuelled spectacular growth in commodity prices. Although Hungary is a net exporter of agricultural products, the benefits from rising agricultural prices were more than offset by the deterioration in the terms of trade, due to oil and other commodity price hikes. We apply a GVAR (global vector auto regressive) methodology to quantify these effects. The results illustrate the intensifying trade linkages with China and confirm that stronger trade brings net gains in terms of output. On the other hand, the impact of growing Chinese demand on global inflation is more intense in Hungary than in the developed countries. This can be explained by lower energy efficiency of production, but it also highlights that inflation expectations are less firmly anchored in Hungary.
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