The Impact of China on Low and Middle Income Countries’ Export Prices in Industrial-Country Markets

SummaryThis paper analyzes the unit prices of imports into the EU, Japan, and the US during 1989–2006 of manufactured products in which China specializes. It finds that imports from middle income countries are in close price competition with those from China and that there has been price competition between China and high-income countries in low-technology products. By contrast, the impact of China’s exports on low-income countries is not through price competition but through market expansion. China’s WTO entry had a once-for-all shock on the export prices of the high-income countries. The price competition effect of China’s exports weakened over the time period of 1989–2006, suggesting a gradual change in competition from price to nonprice factors such as quality and variety. If sustained, this trajectory poses an increasing competitive threat to high-income economies in the future.