Negative and Positive Effects of Chinese Import Penetration

Nowadays the developing countries are viewing Chinese economic growth as a tale of both dark and light. This is because with trade, the Chinese economic growth enables consumers of Zimbabwe to enjoy lower prices but the domestic products of Zimbabwe are facing direct competition from the Chinese import. The low-cost competition from China threatens Zimbabwe suppliers in the industrial production of textile, wood and furniture, paper and chemical.

In Zimbabwe, the Chinese imports penetration impact on industrial production and overall inflation. It reduced the activities of local firms (Gebre-Egziabher, 2009). The Chinese imports penetration has heterogeneously affected the industrial sectors and summarizes the inflationary effect of Chinese imports. There is a negative relationship between Chinese imports and inflation as the increases in Chinese imports accompanied by a decrease in overall inflation. Hence, the Chinese trade is dampening inflationary pressures in Zimbabwe. Moreover, the relationship between different sectorial manufacturing production and Chinese imports is heterogeneity. The increase in Chinese imports is followed by a mild decrease in sectorial production. Paper and paper products proved to be defensive, as a distinctive positive relationship whereas on chemical products, no distinctive relationship can be discernible.

The Chinese imports penetration has a negative and significant impact on wood and furniture and paper industry. This is because of the domestic firms’ rigidity in design and dynamic inefficiencies coupled with failure to respond to diverse and ever-changing consumer needs. The Chinese imports penetration has a positive effect on the textile industry as most of the textile industries are facing stiff competition from cheap Chinese goods. On the contrary, Chemical industry has no evidence exists as Chinese imports have no impact on it. However, there is a negative and statistically significant effect on inflation is observed. Overall, Chinese import penetration is dampening inflationary pressure as the Chinese goods are lowly priced.

First and last, Chinese import penetration has a negative effect on wood and furniture, paper and paper products industries and a positive effect on textile. There is no effect of import penetration on the chemical industry. A benefit of import penetration is on the negative effect on overall inflation as the consumer are enjoying lower prices and thereby experiencing a lower cost of living.