Comparative advantage: Chinese boom hasn't come at the expense of U.S. economy - Julia F. o!

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C-./0 and its army of lo!-!age !or1ers laboring long hours are sometimes described as a giant vacuum cleaner suc1ing up 0merican 2obs3 0merican factories3 0merican dollars and ultimately 0merican prosperity. 4ut claims that U.S.-China trade is benefiting China at 0merican expense don't hold up on close examination. 5hile the 0ugust U.S. merchandise trade deficit !ith China reached a record 6)7.% billion--almost a third of the total U.S. merchandise trade deficit--that doesn't ta1e into account cross-border trade in services3 !here U.S. surpluses !ith China are steadily increasing. 0s China continues to develop3 it !ill spend more money in areas such as tourism3 insurance and business and financial services--all areas !here 0merican companies are highly competitive. .n addition3 distortions in the measurement of costs associated !ith shipping3 and the treatment of China's trade through -ong 8ong 3 systematically understate the value of U.S. exports to China and overstate the value of U.S. imports from China. 9a1ing these t!o factors into account3 some economists calculate that the true U.S.-China merchandise trade deficit is slightly less than :% percent of the official U.S. estimates. Some concerns about U.S.-China trade are legitimate3 and the U.S. government uses a variety of measures to deal !ith them. 9hese include safeguards against disruptive import surges3 restrictions on exports of militarily sensitive items and enforcement actions against illegal trade practices. For example3 !or1ing through the 5orld 9rade ;rgani<ation3 the United States recently prevailed on China to end its preferential tax treatment of domestically designed and produced semiconductors. 9he structure of Chinese export industries provides another reason for not !orrying about U.S.-China deficits. =ore than %% percent of Chinese exports consist of >processed> goods assembled from imported parts and components. 9he financial capital3 e?uipment and technological 1no!-ho! needed to produce these exports are mostly supplied by companies head?uartered in the United States3 Japan3 South 8orea3 @urope3 -ong 8ong and 9ai!an. =any of these companies moved their manufacturing operations to China from locations else!here in 0sia in order to ta1e advantage of lo!-cost Chinese labor. 4ecause a high percentage of the value of Chinese exports derives from imported parts and components3 much of the benefit from sale of these exports does not accrue to Chinese investors or !or1ers. @ven in cases !here import content is lo!3 high levels of foreign o!nership and investment in Chinese export industries mean that many of the profits are repatriated abroad. 0ll this suggests that trade bet!een the t!o countries represents a classic example of comparative advantage3 !ith China speciali<ing in lo!-value3 labor-intensive manufactured goods and the United States speciali<ing in high-value goods and services . Chinese products3 therefore3 do not generally compete !ith 0merican products either in U.S. mar1ets or abroad. 9his means that U.S. 2ob losses in manufacturing cannot be blamed on China. 9he idea of a Chinese menace gro!ing ever more po!erful dates bac1 to the )+th-century fears of an evil >Aello! Beril > threatening 5estern civili<ation . 0nd emotions run high !hen 0merican !or1ers see their 2obs disappearing and their employers opening factories in China. 4ut in deciding !hat trade policies ma1e sense for 0merica3 the nation's leaders need to ob2ectively research and analy<e the situation so they can determine the !isest course3 loo1ing at the long-term conse?uences of actions that may bring them short-term praise. .n trade bet!een the United States and China3 there need not be a !inner and a loser. 4oth nations and their citi<ens can be !inners. CCCCCCCCCCCCCCCCCCCCC.. )

mportantly3 this !asn't 2ust rooted in !hat China !as doing rightH it concerned !hat =exico !as failing to do to 1eep up: from )++. =ore than t!o hundred plants closed last year3 and hundreds of thousands of 2obs !ere lost. . 9hat !as a sign that there !ould be trouble !hen boom-times burst. 9he first !hammy3 U. 4ut =a?uiladora exports have fallen !ith the U. =ost !ent to 0sia--primarily China.-#$$# =exico's Ilobal Competitiveness Jeport ran1ing fell seriously from EE to *% "%% in terms of micro-economic competitiveness3 or business environment&3 !hile China "despite fluctuations& moved from E.n several of these "the automotive cluster& and a number of others !here =exico's lead is far slimmer3 recent Chinese advances portend steep export gains in coming years. to EE.S. and other multinationals to come on do!n. China !ins on lo! labor costs and many other costs of doing business3 !hile ?uality control3 technology diffusion3 mid-level management s1ills3 and physical infrastructure are improving fast enough to impress even s1eptics and ma1e =exico's shortcomings in these areas more apparent. 0nd come they did. =a?uiladoras !ere a strategy for maximi<ing the comparative advantages and protecting investors from the disadvantages3 thus tipping the scales and ma1ing it attractive for U.com'p'articles'miDm#. =exico's comparative advantage lies in lo!er labor costs than the United States3 proximity to developed /orth 0merica3 and--for some industries--some!hat lo!er costs due to different regulations on areas associated !ith high per capita income economies such as environmental protection. mar1et is the remaining hope. China's reforms challenge =exico's comparative advantages head on3 and ma1e the disadvantages star1er. oo1ing at 9able ) again3 a saving of t!o !ee1s in shipping time "three !ee1s from China versus one from # . oo1ing at the comparative advantage data post-)++.-o! China is eating =exico's lunch: the =a?uiladora system's comparative advantage is being challenged head on http:''findarticles. 4ut as much as =exico !as changing3 China !as changing faster--and gro!ing its share of global exports in most of these same industries even faster "see 9able #&. economic !ea1ness3 has a built-in light at the end of the tunnel: there is a ?uestion of timing3 but the do!nturn in U.EE'isD#D):'aiD)$$%*%E$)'pgDE'FtagGcontentHcol) =exico's =a?uiladora system3 a darling of the )++$s and sometimes referred to as a template for special economic <one programs in other emerging economies3 suffered a double !hammy over the past t!o years.n the other hand3 comparative disadvantages include an intrusive bureaucracy that is sometimes corrupt3 sometimes simply hostile to the private sectorH poor utilities and transportation infrastructureH under-investment in human developmentH and a less than dynamic industrial structure reflecting imperfect financial intermediation and residual statism. 5hat is going on hereF =exico's comparative advantage over the !orld in its =a?uiladora-intense sectors3 as revealed by changes in share of !orld exports3 didn't erode in the years leading up to the recent troubles.S. Broximity as salvation presupposes either the criticality of 2ust-in-time timetables or else prohibitively high costs for shipping !eightier goods. 5hat's leftF =exico's proximity to the U.S. 4ut the second !hammy is competition from China3 and if there is light at the end of that tunnel3 it is more li1ely from raging !ildfires than soothing rays of daylight. >Clustering> of the right industries doesn't al!ays ta1e place3 and demonstration effects from vibrant ne! industries are too fe!3 despite successes. 0s a result3 direct investors are hesitantH speculators are pondering a bet against the peso that might pay off if exports and =exico-bound direct investment don't recoverH and financial officials are concerned about the bilateral and systemic ris1s that could eventuate if a turn-around doesn't come. recession and rising Chinese competition.S. 9oday there are E3#77 =a?uiladora plants in =exico employing over one million citi<ens3 and accounting for half of the country's exports "see 9able )&. .S. . =exico gre! its global export shares in most of these industries significantly in the late )++$s. demand from competitive export processors abroad !on't last forever3 and somebody !ill be a !inner on the ups!ing.3 there are a handful of sectors !here =exico stayed ahead of both the !orld and China: television receivers3 engines3 various vehicle categories3 vehicle parts3 meters and control systems3 and medical instruments.

.*# E*+ %E3%7E )*# #E3E)% #%.ndia has pennies-an-hour laborers3 but is not directly threatening =exico&. Slight tax reductions enacted thus far are trivial in light of the evolving economics. 5hat are the implications of China's competitive challenge for the pesoF For one thing3 don't expect the Chinese currency3 the renminbi "J=4&3 to be revalued this year or next.=exico& is not alone going to rescue many =a?uiladora plants. dollar peg for the time being3 and has the !here!ithal to bac1 it up. 904 @ ) =exico's =a?uiladora .S.f =exico ta1es the course of esche!ing bold restructuring appropriate to the challenges--and the peso flounders as a result in the face of diminished expectations--then please: don't blame China. =exican officials tal1 of needing to get one step ahead of China on the value-added spectrum3 as 9ai!an has sought to do3 but that is no small feat and must be built on a higher s1ills human resource profile that ta1es years of broader social reform to achieve. 4ut foreign investment into =exico3 !hich in turn drives exports "as is the case in China as !ell&3 !as robust fight through the peso appreciation of the late )++$s and into #$$$3 and should be a more fundamental driver of export gro!th than exchange rate fluctuations. So China is eating =exico's lunch3 but more due to the =exican inability to capitali<e on successes and induce broader reform than to China's lo!er !age !or1ers per se ".3E7# E :) 77.S. =exican politics !ill not easily permit bolder business-friendly steps. =ore than t!o hundred plants closed last year3 and hundreds of thousands of 2obs !ere lost. 9he Chinese government is committed to the stable J=4-U.S.3. Contrary to some reports3 the U. recession and rising Chinese competition.ndustry 9oday B 0/9S Food-related products Clothing3 textile products Shoe3 leather products Furniture3 !ood K metal products Chemical products 0ssembly of transport e?uipment @=B . =exico is flush !ith initiatives to counter the competitiveness trends.f China !ere not attracting factories from the =exican border and capturing ne! investments before they happen3 then other countries probably !ould be. Further3 the peso effectively devalued against the J=4 by falling against the dollar since #$$#3 and this should provide a modicum of export edge for the short term.3$EE . .S. =a?uiladora exports have fallen !ith the U. government is not leaning on 4ei2ing to revalue.f =exico fails to achieve deeper regulatory reform--the real determinate of peso strength--then the diversion of direct investment and manufacturing by reform-minded China could !ell be the proximate reason for another peso crisis.3$$$ !or1ers still in that sector3 there is serious trouble ahead. government estimates: for the #: percent of =a?uiladoras and ##. . 4ut =exico has nearly 6%$ billion in reserves to employ in staving off currency crisis !hile the country finds its !ay to redouble domestic reform. -igh-!eight items more expensive to ship may be more important3 although Chinese multinationals li1e -aier have set up manufacturing in /orth 0merica precisely to compete in segments "such as refrigerators& !here long-distance shipping is too costly.nvestments in infrastructure and human development3 especially health and education3 are !ell conceived but ta1e time to pay off. *# . ##. 0nd besides3 China is becoming the next semi-conductor boomto!n--this is no longer a challenger 2ust in plastic toys and cheap under!ear.A@@S +3*%+ ##. Some =exican commentators have suggested an undervalued J=4 is to blame for !ea1 =exican exports. 5ith the phase-out of global textile and apparel constraints over this decade3 as much as 7% percent of global manufacturing in that sector may end up in China3 according to U.. .

$3*7) Source: 0fter @conomist . 0ssembly of toys3 sports items *+ )$3*E7 Services ##+ E.ctober and January.3*#: 0ssembly of electrical articles ).3 )#% $$$ !or1ers !ere laid off. =a?uiladoras: =anufacturing Luring a Jecession =ay #+3 #$$+ ' http:''portalfornorthamerica.ntelligence Unit3 4usiness3 atin 0merica3 based on . Furthermore3 the factories have not been faring !ell during the do!nturn3 struc1 by the same malaise that has been affecting the =exican economy as a !hole.) ). 9hey are infamous for their lo! !ages3 long hours3 poor labour standards and ?uestionable environmental record. CCCC. =ore recently3 production in China has become so cheap that =exico has seen further losses to its competitive advantage.nstituto /acional de @stadistica3 Ieografia e .0ssembly'repair of tools3 machinery . 7$$ $$$ 2obs !ere created in these factories bet!een /0F90's entry into force in )++* and #$$)3 the pea1 period for these industries3 ho!ever bet!een #$$)-#$$. 9his threat largely did not materiali<e3 ho!ever neither did the expected gains in the =exican manufacturing sector. 5hile :$$ $$$ ne! 2obs !ere created3 their impact on the /orth 0merican economy !as not as significant as initially feared "by Canadian and 0merican authorities& or hoped "by =exican officials&. 9otal E3#77 )3$. 5hen /0F90 !as signed in )++*3 there !as considerable concern that =exico's significant comparative advantage in labour !ould result in massive 2ob losses in Canadian and 0merican manufacturing sectors3 as these states could not compete !ith the labour standards prevailing in the ma?uiladora sector. .3#E$ @lectric3 electronic parts3 materials %EE #E.3E$$ .7 7. CCCCCCCCCCCCCCCCCCCCC * .37*.n response to a decrease in international demand3 particularly from 1ey mar1ets in the United States and @urope3 .ther %$# )#737#. Some companies3 including Sony3 have closed plants entirely3 !hile others are operating at reduced capacity.) $$$ ma?uiladora employees lost their 2obs bet!een ..org'spotlight'#$$+'$%'ma?uiladoras-manufacturing-during-recession =a?uiladoras have long been a contentious issue in /orth 0merican trade politics.nformatica3 #$$#. 9hese factories3 !hich largely operate in the =exican border cities3 such as =exicali3 9i2uana3 Juare<3 Chihuahua and Saltillo3 exist !ithin special export processing <ones3 !hich allo! them to import component parts and then export the finished products "ranging from electronics to textiles& duty-free3 giving firms a considerable comparative advantage. 9he situation is expected to continue until al least the first ?uarter of #$)$.

4ut it seemed possible that the benefits of increases in the prices of commodities3 such as alcohol and steel3 !ere spreading to all sectors. 9he increase in 4ra<ilian agro-business exports has been extraordinary. 0nd yet3 the proportion of manufactured exports as a percentage of total exports is more than +$ percent in China and around :$ percent in .ndia. 4ra<ilian agricultural exports are so important "despite the small share of value added from agriculture in ILB& because the country has a comparative advantage in agriculture. Urbani<ation is more advanced in 4ra<il than in China or .ndia. 4ut the comparative advantages of the three countries are very different.com'latam-monitor'#7)'bra<ilDchinaDandDindiaD-DcomparativeDadvantages 5hy do some countries gro! and others notF . From the beginning of #$$. 9he recent volatility and decline of commodity prices have brought bac1 old ?uestions.s 4ra<il excessively dependent on the behavior of commodity pricesF 0s these prices fall !ill gro!th evaporate in #$$7F CCCCCC.rgemonitor. 9he first half of #$$: loo1ed li1e a promising moment for 4ra<il.ndiaF 9he three countries experienced an acceleration of ILB after )++E.ndia3 but barely reaches %$ percent in 4ra<il.n contrast3 an authentic industrial revolution lies behind Chinese gro!th3 !hile in .r more specifically3 !hy does gro!th in 4ra<il remain lo! compared to China and . Comparing these metrics across the three countries points to distinct comparative advantages and this is reflected in the composition of their exports. 9oday3 the participation of agriculture in 4ra<ilNs ILB is % percent compared to )E percent in China and )7 percent in . to mid-#$$:3 industry created more 2obs than other sectors.ndia3 it is !orth noting the composition of ILB. 9his is the result of abundant !ater3 vast extensions of arable land3 an efficient system of large scale production and research organi<ations that disseminate methods for achieving t!o crops a year. 0s a conse?uence3 the 4ra<ilian commodities exporting sector has led gro!th follo!ing the positive trade shoc1 that began in #$$*.ndia .Comparative 0dvantages ' @liana Cardoso M 0ug #*3 #$$: " atin 0merica @cono=onitor& http:''!!!. . Loes that matter for gro!thF 9o grasp an important difference bet!een 4ra<il3 China and . Such expectations and the recent export boom have led to income gro!th.nvestment in agrobusiness and minerals !as follo!ed by investment in the industrial sector and in the rest of the economy. % . . 4y #$#$ international trade in biocombustibles is expected to be #% times larger than today. .ndia the informatics revolution O both soft!are development and the provision of services O is the big star that attracts investment and defines the corporate profile of the country.t seems that3 in all three3 the increase in gro!th !as lin1ed to export performance. 9his !as due3 in part3 to its relative si<e and to the fact that the industrial sector is more labor intensive than agriculture. .4ra<il3 China and .

0lthough nations follo!ing the >comparative advantage> strategy can export more than countries adopting the >catch-up> strategy3 it's not !ise to confuse a >comparative advantage> strategy !ith an export-led strategy. 9he export process is much easier for these products. Second3 the big trade surplus also has something to do !ith the United States. 0ctually3 comparative advantages come from comparison. 9his is the case in China3 since reform and opening up. 5ithout government interference3 industries !ith and !ithout comparative advantages !ill respectively account for half of the foreign trade sector. .htm Since adoptingP the reform and opening-up policy in the late )+:$s3 China has constantly expanded its foreign trade by giving full play to its comparative advantage in production cost. @xternally3 China is faced !ith pressure on the yuan's appreciation resulting from the trade surplus3 as !ell as trade frictions !ith the United States and the @U.China .n a recent intervie! !ith #)st Century 4usiness -erald3 Brofessor Justin Ai-fu in from China Center for @conomic Jesearch3 Be1ing University3 !ho !as the first person to introduce the concept of >comparative advantage> to China3 responds to the many doubts people have about the theory. 9hus3 inevitably3 a trade surplus !ill result in some other countries. gross domestic product3 but no! it has risen to more than .b2revie!.S. 0ctually3 during this period of time3 Japan and Iermany also sa! a sharp increase in trade surplus.t indicates that the U.S. mar1et has a large demand3 !hich !ill inevitably lead to a rise in the trade deficit. . .com. . 5hy does China have such a large surplus in foreign tradeF . 0re these inevitable results of the >comparative advantage> strategyF Justin Ai-fu in: 0ccording to the >comparative advantage> theory3 products short of comparative advantages must be imported3 !hile industries !ith comparative advantages can attract more capital and other resources and thus can develop ?uic1ly.n the mid-)++$s3 trade deficit only made up ) percent of the U. percent.s it because of the export-oriented strategyF 9here are several reasons for the current huge foreign trade surplus.n accordance !ith the >comparative advantage> strategy3 a country's imports and exports !ill reach a balance. .Comparative 0dvantage /ot Cause of 9rade Surplus. -o!ever3 no!adays3 problems previously camouflaged by high ILB gro!th have begun to emerge from the !ood!or1. .nternally3 the problem is excess li?uidity due to over 6) trillion in foreign exchange reserves3 coupled !ith a si<<ling stoc1 mar1et and sharply rising housing prices. @xcerpts: #)st Century 4usiness -erald: 9he >comparative advantage> strategy is credited !ith driving China's economy over the past #$ years after the reform and opening-up policy !as initiated3 but no!adays3 more and more people are beginning to feel suspicious of this strategy3 believing that China's export-oriented development mode is responsible for the imbalance in economic structure and increasing trade surplus. 0s !e 1no!3 0mericans have a lo! savings rate and there is a fiscal deficit. First3 it is the overheated investment3 !hich has led to overcapacity. 9he United States is the !orld's largest economy3 accounting for one third of the !orld total. 9here are several reasons for the current huge foreign trade surplus ' http:''!!!. -o!ever3 to import or export is decided by the factor endo!ment structure3 and never intentionally increased by anyone.cn'?anda'txt'#$$:-$7')E'contentD:#*.7D#. 9herefore3 if a nation develops its economy by strictly 1eeping to the >comparative advantage> strategy3 although it !ill more depend on trade than countries follo!ing the >catch-up> strategy3 its exports and imports must be in a balance and3 if not3 the imbalance must be a temporary phenomenon resulting from industrial structure ad2ustment. .

. .9hird3 capital-intensive products from some developed economies3 especially the United States3 should target the Chinese mar1et3 but apart from airplanes3 these countries bloc1 the export of such products to China. 9he gro!th rates of import and export volumes are almost the same. Speculators believe that the yuan !ill be appreciated by #$-E$ percent.n line !ith the >comparative advantage> strategy3 the Chinese economy !ill become very competitive3 !hich !ill of course be very stable. 9he impact of China's ever increasing export volume is much bigger than the reaction caused by the export-oriented strategies of the Four 0sian 9igers. 5hen the exchange rate begins to rise sharply3 this !ill happen in any country !here the capital account is restricted.: billion. 0ctually3 since #$$E3 there has been mounting pressure on the revaluation of the Chinese currency.E# billion and 6%. Since the yuan is not convertible under the capital account3 some businesses have exaggerated export value !hile underreporting import value3 hoping to increase their foreign currency reserves in order to profit from the supposed appreciation. 9here is some difference3 ho!ever. -o! should China deal !ith the relationship bet!een the domestic mar1et and international tradeF 5hen an economy ta1es the >comparative advantage> strategy3 it !ill base its development on fully tapping into the international mar1et. 0s a result3 !e can't get !hat !e hope to import. 5hile !e are exporting labor-intensive products3 !hat !e import are capital-intensive products3 that is to say3 China's exported products can offer relatively more employment opportunities than imported products. =oreover3 from the perspective of domestic demand3 comparatively spea1ing3 to develop the economy in accordance !ith comparative advantage3 the domestic demand !ill also rise. : .s it possible for China to copy the model of the Four 0sian 9igersF oo1ing bac1 at the #7 years since China adopted the reform and opening-up policy3 in )+:+3 China's export volume !as 6)E.n one hand3 China has a large domestic mar1etH on the other hand3 China is facing increasing trade frictions. billion and the import volume !as 6)%.. 0s a result3 the government does not need to protect and subsidi<e enterprises that are trying to overta1e others but can't survive by themselves. .#E billion in #$$*. 9his situation is not created by China. 0n inevitable assumption for the >comparative advantage> theory is the free flo! of commodities among different countries3 but this is not the case in reality.. 0s long as its products have comparative advantages3 they !ill be competitive in both domestic and international mar1ets. 9he numbers respectively 2umped to 6%+E.). . . 0lthough China's rising exports are providing competition for other countries3 the rising imports are also opening a big mar1et for the rest of the !orld.f !e try to overta1e other countries3 the economic circle !ill change sharply. 4et!een )+7% and )+7:3 Japan greatly appreciated its yen3 !ith the rapid gro!th of current account surplus and foreign exchange reserves.nstead3 the government can put more public finance into social security3 education and health. Fourth3 the speculation on yuan appreciation results in an absurdly high trade surplus.t !as only in #$$% that trade statistics began to lose their accuracy because of expanding speculative capital.n a stable economy3 people tend to be more confident about future earnings and spend more. 0s !e 1no!3 the rich are not much inclined to spend money3 so !hen the !ealth is controlled by a small number of rich people3 the !hole society !ill tend to spend little. . . .f China ta1es the >catch-up> strategy3 the !ealthy !ill invest in the capital-intensive industries and these industries !ill provide relatively limited 2obs3 !hich ma1es it impossible for many poor people3 !ho ma1e money by !or1ing as laborers3 to participate in the economy and en2oy the fruits of economic development..

/evertheless3 from the perspective of comparative advantage3 innovation is still necessary. 9o sum up3 !hat ma1es China competitive is not a high technological level but lo! production cost. . 5ith rapid innovation3 the capital return rate can remain at a relatively high level.. 0s long as there is the possibility of comparison3 the advantage !ill remain indefinitely.f !e continue to do so3 !e have to offer subsidies3 but !hy do !e subsidi<e enterprises that do not have comparative advantagesF 9he 1ey no! is ho! to further improve the mar1et economy. -o!ever3 if they only depend on themselves for technological research and development3 the chance of success is lo!. 0fter developing countries catch up !ith developed countries in terms of factor endo!ment structure3 industries3 technologies and income levels are li1ely to 1eep up !ith developed countries'. 9he ?uestion is that since !e have more capital than Qiet /am3 should !e still continue labor-intensive industriesF . 7 . Luring the period of capital accumulation3 if there is no technological progress or the progress is slo!3 capital return !ill slo! do!n3 together !ith capital accumulation. Iiven the above t!o points3 in developing countries that follo! the >comparative advantage> strategy3 the upgrading of the factor endo!ment structure !ill be faster than it is in developed countries. Second3 after capital is accumulated3 upgrading of the industrial structure is in urgent need.f technology imports are possible3 of course !e should do it3 as this !ill save more costs than if !e do the research and development !or1 by ourselves. China is paying more attention to independent innovation3 !hat steps should be ta1en !hen dealing !ith technology imports and independent innovationF . For example3 the labor force in Qiet /am is cheaper than that in China3 and some are afraid that China's advantage of cheap labor force !ill be overshado!ed by Qiet /am. 0gainst the bac1drop of globali<ation3 developed countries are al!ays at the high-value-added end of the industrial chain3 in the international labor division system3 !hile the vast ma2ority of developing countries are relegated to the lo!-value-added end. For example3 technologies imported from developed countries are often of high automation level3 so they do not necessarily suit the situation in China and must be read2usted accordingly.ndustries that rely on the advantage of labor costs and resources usually fall into the lo!-threshold category and thus !ill attract the attention of more businesses3 regions and countries. 5ill China's comparative advantage decline or even disappear in this scenarioF Comparative advantages are felt through comparison. 9he reasons are as follo!s: First3 as developing countries have relatively limited capital3 the return rate !ill rise and this !ill promote accumulation of capital. CC. 0s long as !e have a !ell-developed mar1et economy3 mar1et competition !ill drive enterprises to continue industrial and technological upgrading.f all countries tend to manufacture products of comparative advantages3 is it possible that !hile the original advantages !ill be continuously strengthened3 developing countries !ill never catch up !ith developed countriesF From the perspective of comparative advantage3 it's completely possible for developing countries to catch up !ith developed countries. Leveloping countries3 ho!ever3 have opportunities to largely copy and import technologies from developed countries3 !ith lo! cost in innovation.