Week 7 lesson 2

Question 1

What was the purpose of China’s ‘reform and opening’ policy in 1992?

Answer 1

To boost economic growth through export-led development and foreign investment.

Question 2

What are Special Economic Zones (SEZs) and why were they created?

Answer 2

SEZs are specific areas with relaxed regulations and tax benefits, designed to attract foreign investment.

Question 3

What benefits did SEZs offer to foreign companies?

Answer 3

• • Exemption from import duties
• • fewer government regulations
• -mandatory export of final goods (While this might seem like a requirement rather than a benefit, it can ensure that the zone focuses on exports, which might attract companies seeking access to international markets)

Question 4

How many SEZs existed in China in 1991, and how many by 2010?

Answer 4

20 SEZs in 1991, expanded to 150 by 2010.

Question 5

What were the main goals of China’s trade-related reforms?

Answer 5

To emulate Japan, Singapore, and South Korea; allow foreign investment; lower trade barriers; and improve regulatory systems.

Question 6

What role did multinational corporations play in China’s export processing plants?

Answer 6

They managed global value chains and oversaw the assembly of imported products for export.

Question 7

When did China join the World Trade Organization (WTO), and why was it significant?

Answer 7

In 2001; it reduced trade uncertainty and gave China guaranteed access to WTO member markets.

Question 8

What was the impact of WTO accession on China’s textile and apparel exports?

Answer 8

It removed restrictions on textile and apparel exports, boosting China’s global market share.

Question 9

What comparative advantage did China have in global trade in the 1980s and early 2000s?

Answer 9

China had an advantage in labor-intensive industries like textiles and electronics.

Question 10

How did China’s comparative advantage shift in the 2010s?

Answer 10

China shifted towards less labor-intensive and more technology-driven exports.

Question 11

What caused the overall deceleration of economic growth in China post-reform?

Answer 11

Slower rural-to-urban migration, shrinking labor force, rising wages, and a more skilled workforce.

Question 12

What were the key impacts of trade reforms on productivity in China?

Answer 12

Increased import competition, better allocation of resources, and access to advanced foreign technology.

Question 13

How did trade reforms affect wages in China?

Answer 13

Wages increased as China moved towards higher value-added industries.

Question 14

What is the ‘China Shock’ in the context of US manufacturing?

Answer 14

It refers to the negative impact of Chinese imports on US manufacturing jobs and wages.

Question 15

How did the China Shock affect US manufacturing employment?

Answer 15

US manufacturing employment declined sharply, especially in sectors exposed to import competition.

Question 16

What regional impacts did trade shocks from China have on the US economy?

Answer 16

Regions dependent on manufacturing experienced higher unemployment and wage stagnation.

Question 17

Why did trade shocks have a prolonged impact on specific US regions?

Answer 17

Limited geographical mobility and slower adjustments prolonged regional economic shocks.

Question 18

How did trade shocks transmit between industries in the US?

Answer 18

Negative shocks in one industry affected upstream and downstream industries through economic linkages.

Question 19

What impact did trade shocks have on aggregate demand in the US?

Answer 19

Job and wage losses reduced overall demand for goods and services.

Question 20

How were wages and transfer benefits affected in trade-exposed regions in the US?

Answer 20

Wages declined, especially for low-income workers, while reliance on government benefits increased.

Question 21

What were the worker-level impacts of trade shocks in the US?

Answer 21

Workers faced lower earnings, job instability, and longer reliance on transfer benefits.

Question 22

How did low-earning and high-earning workers react differently to trade shocks?

Answer 22

High earners transitioned to non-manufacturing sectors with minimal earnings loss; low earners stayed vulnerable in manufacturing.

Question 23

What is the long-term significance of China’s shift from labor-intensive to high-tech industries?

Answer 23

It marked China’s transition to becoming a tech-driven global economic power.

Question 24

Longer answers: Explain China’s economic liberalisation and trade reforms

Answer 24

In 1992, China initiated economic reforms focused on export-led growth and foreign investment through Special Economic Zones (SEZs). These zones offered tax exemptions and regulatory benefits, attracting multinational corporations. Trade reforms emulated Japan and South Korea, lowering tariffs, relaxing migration rules, and allowing direct foreign imports. By 2010, SEZs expanded to 150 zones, cementing China as a manufacturing hub.

Question 25

Longer answer: Explain comparative advantage and structural shifts

Answer 25

China initially dominated labor-intensive industries like textiles and electronics due to its abundant low-cost labor force, peaking at a 39.2% global market share in 2013. However, rising wages, urbanization, and increased education levels in the 2010s shifted the economy towards high-tech and less labor-intensive industries, changing China’s comparative advantage.

Question 26

Longer answer: What impact did China’s integration into Global Value Chains and WTO accession have?

Answer 26

China became a central player in global value chains by managing export processing plants operated by multinationals from Hong Kong and Taiwan. Joining the WTO in 2001 reduced trade uncertainty, secured global market access, and removed restrictions on textile and apparel exports, leading to significant growth in export industries.

Question 27

Longer Answer: Impact of trade reforms on productivity, wages and Growth (China)

Answer 27

Trade reforms increased productivity through better resource allocation, competition from imports, and access to advanced foreign technologies. Rising wages reflected the transition to higher-value industries, while economic deceleration was driven by slower migration, a shrinking labor force, and increasing urban education levels.

Question 28

Longer Answer: The China Shock: Global and Regional Impacts

Answer 28

The ‘China Shock’ describes the disruptive impact of Chinese imports on US manufacturing. Regions heavily dependent on manufacturing experienced job losses, wage stagnation, and increased reliance on social benefits. Trade shocks transmitted through supply chains, reducing aggregate demand and amplifying regional economic disparities.