Transcript Document

Current International Trade In
Media Industry Between the
U.S. and China
—An Economic Explanation
Advised By Dr. Kevin Heffernan
Written By Daping Kuai
for CTV 6335
Fact sheet-1:
Late 2001, AOL Time Warner Inc announced
its CETV (Chinese Entertainment TV) would
be distributed to cable television subscribers
in the Southern region of the People's
Republic of China. According to Minister Xu
Guang Chun, Director of China's State
Administration of Radio, Film and Television
(SARFT), "this is the first time for a foreign
TV institution to be granted cable TV carriage
rights in Mainland China."
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Fact sheet-2:
Almost at the same time, China granted News
Corporation the right to air Star Satellite TV
to households in Guangdong in exchange for
News Corp beaming CCTV-9 to the United
States market via its network. In early March
2003, Murdoch's ambition to conquer the
mainland's television market moved a step
further, when a letter from the state
broadcasting regulator approving STAR
Group's plans to beam its Chinese-language
channel Star TV to select areas nationwide.
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Fact Sheet-3
In early 2003, Star TV expands landing
rights in Mainland China, enabling it to
be available nationally in three-star and
above hotels, and in foreign and
overseas Chinese compounds.
Phoenix InfoNews Channel receives
landing rights in Mainland China.
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Why did this happen?
Counter Points:
1.P.R.C. is a communist country, the gov.
controls the media as a propaganda and
foreign investment is still prohibited from
getting in this area.
2.Although China has entered WTO, the
agreement didn't push it to open its media
market in the near future (5-10 years) .
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Two Theories in International
Trade
1, Absolute Advantage As a
Basis for Trade: Adam
Smith’s Model
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Adam Smith developed the classical
theory of international trade in his
famous book The Wealth of Nations.
Absolute advantage means the ability of
a country to produce a good using fewer
productive inputs than is possible
anywhere in the world.
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Here is an example. Suppose Country A
and B are both producing goods S
(Soybeans) and T (Textiles) and they
both have fixed input/output ratios. In
particular, the numbers in the table
reflect the hours it takes to make 1 unit
of output of a certain good in a certain
country.
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Table 1^ Absolute Advantage as a Basis
for Trade
Country A Country B
Soybeans
3
12
Textiles
6
4
^Numbers in the table denote labor
require to produce one unit
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From Table 1, we can see that country A
can produce S in less time than country
B, so A is said to have an absolute
advantage. By analogous reasoning, in
this example B has an absolute
advantage in the production of T.
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Consider what happens if they follow this
track. Please refer to Table 2, one unit of
T reduced in A would free up 6 hours of
labor. Let them move to industry S, with
6 hours of labor, the output of S would
increase 2 units. Similarly, let’s move one
unit of S in country B to T industry, which
would lead to 3 units of T. For the world,
the output of S is increased by 1 unit and
T by 2 units.
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Table 2 Per Unit Gain from Specialization
When Country A Moves to Specialize in
Soybean (S), and Country B in Textile (T)
Per Unit Gain
In Production In Production
of S
of T
In A
3(+2)
6(-1)
In B
12(-1)
4(+3)
In World
+1
+2
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Thus, we see the benefits of an
international division of labor. Without
using anything new, we are better off!
This simply means that each country
should concentrate on the most efficient
goods.
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Comparative Advantage as a Basis
for Trade: David Ricardo’s Model:
A question may still be bothering you:
what if one country has absolute
advantage in both goods? As Ricardo
later pointed out, countries should
specialize where they have their
greatest absolute advantage. Consider
the example in Table 3; here we can
see country A has an absolute
advantage in both goods!
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Table 3 Comparative Advantages as a
Basis for Trade
Soybeans
Textiles
Country A
Country B
3
6
12
8
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However, these absolute advantages are
not identical. In particular, A is 4 times
more efficient in the production of S
while only 4/3 more efficient in the
production of T. Because A’s greatest
absolute advantage is in the production
of S, it is said to have a comparative
advantage in S. Likewise, because B’s
least absolute advantage is in the
production T, B is said to have a
comparative advantage in T.
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Thus, each country will move to the area
of its comparative advantage. Like what
we have seen before, 1 unit loss of T in
country A which is 6 hours’ labor will
lead to 2 unit of gain in S; while in
country B there will be extra 1.5 units of
T in the expense of 1 unit loss of S.
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Table 4 Per Unit Gain from Specialization
According to Comparative Advantage as A
Produces More S, and B Produces More T
Per Unit Gain
In A
In Production In Production
of S
of T
3(+2)
6(-1)
In B
12(-1 )
8(+1.5 )
In World
+1
+0.5
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2, The Heckscher-Ohlin
Theory in International Trade
Compared to the classical theory, the
HO theory seems to be more empirical
and easier to understand though it was
also perfectly proved in economics.
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Heckscher and Ohlin argues that a
country will be able to produce at lower
cost (and therefore have comparative
advantage in) those products whose
production requires relatively large
amount of the factors of production (also
known as factor endowment. e.g.
labor, land, capital, natural resources)
with which the country is relatively well
endowed.
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For instance, countries with relatively
large amount of land relative to other
factors (e.g. Australia) will have a
comparative advantage in producing
goods that require relatively large
amount of land for efficient production
(e.g. wheat).
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Questions after the theories:
Why would American media get into
China?
And why now? 10years pander the
party leaders
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Deduction to our case
1, US has the comparative advantage in
media production
Why?
More-skilled workers…
Assembly-line Production…
Implementation of high tech…
Scale of economy in this field…
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2, US is a capital-abundant country
while media production and distribution
is a capital-intensive industry so US
should export media goods to other
countries. 1990 US GDP is $5793.5
billion, while China is $387.7 billion.
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On the other hand, China has been
exporting labor-intensive goods to the
U.S. and the rest of the world for more
than 20 years because it is a relatively
labor-abundant country.
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Implications
Unlike other goods, media also have the
characteristics of aesthetics and social impact
besides commodity.
So because of different tastes and social
structure, the trade in media must be
different from other homogeneous products
such as coke and computers.
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Therefore, the key to survive for foreign
investors should be western
programming innovation (eg. Reality
Show), quick & reliable source (eg.
From FOX News & Sports), and
localization (such as Asian
entertainment elements).
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What can we predict for the
future?
Media inflow will get more dynamic because
of the inevitability of economics and China’s
ongoing reform
Harsher competition with the local media
outlets
Ups and downs depending on the volatile gov.
policy and other unpredictable factors such as
investment environment
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