Competing with China in third markets

• China’s export growth is increasingly concentrated in advanced manufactur-ing sectors. Over the past two decades, China has expanded its presence not only in traditional industries but also in capital- and technology-intensive products, bringing it into direct competition with advanced economies in sectors where they have long specialized.

• Advanced economies have lost market share to China in third markets. Across a wide range of industries, China’s gains in market share have been mirrored by losses among advanced economies. The strongest effects are observed in rela-tively complex manufacturing sectors such as machinery, vehicles, chemicals, and other technology-intensive products.

• The impact of Chinese competition differs substantially across countries. Some advanced economies have adapted more successfully to China’s rise than others. While Germany, Japan, France, and the United Kingdom experienced sig-nificant losses in third markets, countries such as South Korea, Switzerland and the United States have maintained or even improved their position relative to oth-er non-Chinese exporters even as they lose market shares in absolute terms to China’s growth.

• China’s export expansion alone cannot explain all observed losses. For many advanced economies, actual market share declines exceed what would be ex-pected from China’s export growth alone. This suggests that part of the deteriora-tion reflects a loss of competitiveness relative to other exporters rather than dis-placement by China alone.

• Germany stands out as particularly exposed. Germany’s export structure over-laps strongly with China’s and it experienced some of the largest absolute losses in third markets. However, only around one-third of Germany’s market share de-cline can be mechanically attributed to China’s expansion, indicating that domes-tic and European competitiveness challenges also play an important role.

Kiel Institute Experts