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People's Republic of China

Remarks at China Development Forum: Linking global value chains - A new trade regime

 

Remarks by Angel Gurría,

Secretary-General, OECD

19 March 2016

Beijing, People’s Republic of China

(As prepared for delivery)

 

 

Distinguished Guests, Ladies and Gentlemen:

 

The global economy is once again showing signs of slowing down. The OECD’s Interim Economic Outlook anticipates global economic growth of only 3% in 2016– its slowest pace in five years! 

 

A prolonged and worrisome slowdown in trade – the engine of global GDP growth – is one of the main culprits behind this outlook. World trade volumes grew by only 2% in 2015 and, as many of you will be aware, signs are already emerging that this has continued into 2016.

 

And the outlook is not brighter in other areas. Investment remains weak, productivity growth is stalling, and the diffusion of machine‑generating technology and innovation spill-overs from frontier firms does not seem to be working as it should. Continued inequalities, in terms of incomes, outcomes and opportunities – in developed and developing economies alike – is threatening a re-emergence of protectionism.

 

Here in China, growth too has slowed, as the economy rebalances from manufacturing to services, and from export- and investment-led growth towards consumption-led growth, with substantial implications for global trade and investment. But while consumption-led growth has been an important driver of trade growth in other countries, it has not yet picked up the slack left by lower investment in China, as saving rates remain high.

 

China’s 13th Five-Year Planshows that the right policy tools are in place to tackle these challenges. And in parallel, efforts such as the Made in China 2025 initiative can breathe new life into the diffusion machine, helping Chinese firms to upgrade and catch up with frontier firms.

 

Open markets matter

 

Many of the policies embodied in the 13th Five-Year Plan seek to integrate China further into the global economy, not only “abroad” through increased outward FDI; but also “at home” through investments in people, skills and innovation. It is noteworthy that China’s investment in R&D (at 2% of GDP), surpassed that of the EU in 2014. 

 

These policy efforts are consistent with the lessons we have learned over the past few years from the OECD’s pioneering work on TiVA, which has helped to decode the “trade genome”. We now know that open markets matter, and capitalising on global value chains (GVCs) requires a “whole-of-the-supply-chain” approach to policymaking. Some of these policies are horizontal in nature and should be strengthened, such as: flexible labour markets, a business-friendly environment, access to credit, innovation, macroeconomic stability, and good infrastructure and connectivity. Other policies are more pointed and need to be re-examined, such as tariffs and other trade restrictions, subsidies, local‑content or export-performance requirements, and restrictions on foreign exchange.


Reducing barriers to trade is necessary for moving up GVCs

 

Tariffs and other restrictive measures impose unnecessary costs, not only on foreign suppliers each time a good or service crosses the border, but on domestic producers as well. As our joint work with the World Bank for the G20 has shown, trade costs fall disproportionately on SMEs, preventing them from participating fully in GVCs. And with 4.4 million new firms created in China last year alone, this matters perhaps more here than in many other countries, where start-up rates are significantly lower. Let’s be clear – the benefits of action are substantial. For example, OECD analysis shows that fully implementing the Trade Facilitation Agreement could reduce these costs for Chinese firms by up to 15%.

 

Other barriers to trade are faced long before products ever reach a border – such as those arising from burdensome regulations or poor infrastructure, which affect both domestic and foreign firms alike. This is especially the case for services sectors, which are not only needed to ensure a co-ordinated flow of GVCs, but are also essential for the competitiveness of manufacturing sectors.

 

Services comprise just over half of China’s GDP and account for only 20% of imports and 11% of exports. Although some signs are pointing to a growing contribution of upstream domestic services, China’s future specialisation, competitiveness – and crucially, its capacity to move up GVCs – will depend on the depth of reforms of its services sectors.


GVCs also support jobs

 

Upgrading GVCs is not only important for trade and growth in China. It’s also important for jobs! In 2011, 35 million workers in China were engaged in GVC jobs. Nearly one-third of these jobs depend on imports from the EU, and over 40% on partners in “factory Asia”, which includes Japan, Korea, and ASEAN. China’s exporting prowess also sustains jobs abroad: nearly 3 million workers in ASEAN; 700,000 workers in Europe; and almost 300,000 workers in the United States hold jobs that rely on Chinese exports. And of course, we shouldn’t overlook the jobs supported by Chinese consumers, who, for example, sustain half a million jobs in Germany alone!

 

Ladies and Gentlemen:

 

No country has achieved sustained growth and improved living standards without significant opening to trade and investment. Trade and deeper market integration, combined with policies to protect and promote inclusiveness, can drive economic growth, increase productivity, create better jobs, increase wages, and improve working conditions.

 

I look forward to discussing with you how China can harness the potential of GVCs to boost global trade and deliver more sustainable, inclusive, and greener growth.  

 

Thank you.