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BRICs remain world growth engine
By John Ross |
January 10, 2012, Tuesday
|
Print Edition
Print Edition
China's growth has become a decisive factor not only for its own economy but for world markets. In the three years following the start of the international financial crisis, China contributed one third of total global market growth - four times as much as the United States. While final data for 2011 is not yet in, it is clear that China's market last year expanded by over US$1 trillion - twice as much in dollars as the US despite US growth having resumed. No other market approaches China in terms of annual expansion.
Therefore, it is a key question whether China will continue the same scale of market growth in 2012. The answer is "yes" and because of the issue's importance, the reasons should be clearly outlined. In an interlinked development, BRIC economies (Brazil, Russia, India and China) will between them again dominate world growth.
The first feature determining China's dominant position in market expansion, but one frequently overlooked, is that as China's economy becomes larger, a similar percentage yearly growth turns into an increasingly large annual absolute market increase - in inflation-adjusted terms, China's economy expanded by 2.3 trillion yuan (US$365 billion) in 2008, 2.4 trillion yuan in 2009, and 3.1 trillion yuan in 2010.
But even frequently-cited constant price RMB growth figures underestimate the expansion of China's position in the world market. Actual sales use real money which is affected by exchange rate shifts and inflation - further figures in this article therefore use current market exchange rates and prices. In 2009, when China froze the yuan's exchange rate due to the international financial crisis, China's economy grew by US$469 billion, compared to a US contraction of US$353 billion. In 2010, when China allowed the yuan's exchange rate to rise, annual economic expansion rose to US$935 billion and the figure will be around US$1.1 trillion in 2011 - roughly twice US market expansion.
Developing economies
The second reason China's market will continue rapid expansion is that world growth is now dominated by developing economies and China is their most important trading partner.
China accounted for 33.4 percent of global market expansion in 2007-2010. Second was Latin America - constituting 17.3 percent of world growth, with Brazil accounting for 58 percent of this. China and Latin America together accounted for the majority of world market growth during the period.
Among other developing economies, South Asia contributed 7.9 percent to world growth, with India accounting for 84 percent of this. Developing East Asian economies, excluding China, accounted for 7.0 percent of world growth - Indonesia constituting 54 percent of this. The Middle East and North Africa accounted for 6.1 percent of world growth with no dominant country. Developing countries in Europe and Central Asia accounted for 4.5 percent of world growth - of which 55 percent was Russia. Sub-Saharan Africa grew rapidly, but due to its low starting point, it only contributed 2.1 percent of world growth.
Turning to developed economies, Japan illustrates the importance of currency shifts for changes in markets in dollars. Due to the yen's sharp exchange rate rise, Japan contributed 14.9 percent of the dollar expansion of the world market despite Japan's economy contracting in inflation adjusted terms. North America contributed 10.2 percent to world growth, despite the US not having grown in constant price terms, due to the dollar rising against other currencies,
The "disaster area" for world markets was the developed European economies with a decline of US$668 billion - equivalent to subtracting 9.2 percent from world growth.
It is already clear 2012 will show no fundamental change in this pattern. Developed European economies will again be the worst performing region - suffering a recession. The US should expand but slowly. Developing economies will continue to dominate world growth - the large developing economies are slowing but still growing far more rapidly than developed ones.
Golden BRICs
The dominance of the developing economies market growth since the start of the international financial crisis is overwhelming - they accounted for 78.6 percent of world growth, compared to 21.4 percent for developed economies. Market expansion in developing economies was therefore almost four times as great as in developed economies. China already carries out the majority of its trade, 54 percent, with developing economies - 49 percent of exports and 60 percent of imports.
It is clear from this pattern why BRIC economies continue to dominate world growth - in 2007-2010, they contributed 52.5 percent of world market expansion. Not only are the BRICs the largest developing economies, but each is the center of a major regional economic area.
The implications for China's markets are clear. China accounts for half of BRIC growth. China has not only the world's most rapidly expanding domestic market, but is the single biggest trading partner for the world's rapidly expanding economies. This year will therefore see a further growth of world markets dominated by the BRIC economies in general and China in particular.
John Ross is currently visiting professor at Antai College of Economics and Management, Shanghai Jiao Tong University. He was consultant to Fortune Global 500 companies and from 2000 to 2008 London's director for economic and business policy.
Therefore, it is a key question whether China will continue the same scale of market growth in 2012. The answer is "yes" and because of the issue's importance, the reasons should be clearly outlined. In an interlinked development, BRIC economies (Brazil, Russia, India and China) will between them again dominate world growth.
The first feature determining China's dominant position in market expansion, but one frequently overlooked, is that as China's economy becomes larger, a similar percentage yearly growth turns into an increasingly large annual absolute market increase - in inflation-adjusted terms, China's economy expanded by 2.3 trillion yuan (US$365 billion) in 2008, 2.4 trillion yuan in 2009, and 3.1 trillion yuan in 2010.
But even frequently-cited constant price RMB growth figures underestimate the expansion of China's position in the world market. Actual sales use real money which is affected by exchange rate shifts and inflation - further figures in this article therefore use current market exchange rates and prices. In 2009, when China froze the yuan's exchange rate due to the international financial crisis, China's economy grew by US$469 billion, compared to a US contraction of US$353 billion. In 2010, when China allowed the yuan's exchange rate to rise, annual economic expansion rose to US$935 billion and the figure will be around US$1.1 trillion in 2011 - roughly twice US market expansion.
Developing economies
The second reason China's market will continue rapid expansion is that world growth is now dominated by developing economies and China is their most important trading partner.
China accounted for 33.4 percent of global market expansion in 2007-2010. Second was Latin America - constituting 17.3 percent of world growth, with Brazil accounting for 58 percent of this. China and Latin America together accounted for the majority of world market growth during the period.
Among other developing economies, South Asia contributed 7.9 percent to world growth, with India accounting for 84 percent of this. Developing East Asian economies, excluding China, accounted for 7.0 percent of world growth - Indonesia constituting 54 percent of this. The Middle East and North Africa accounted for 6.1 percent of world growth with no dominant country. Developing countries in Europe and Central Asia accounted for 4.5 percent of world growth - of which 55 percent was Russia. Sub-Saharan Africa grew rapidly, but due to its low starting point, it only contributed 2.1 percent of world growth.
Turning to developed economies, Japan illustrates the importance of currency shifts for changes in markets in dollars. Due to the yen's sharp exchange rate rise, Japan contributed 14.9 percent of the dollar expansion of the world market despite Japan's economy contracting in inflation adjusted terms. North America contributed 10.2 percent to world growth, despite the US not having grown in constant price terms, due to the dollar rising against other currencies,
The "disaster area" for world markets was the developed European economies with a decline of US$668 billion - equivalent to subtracting 9.2 percent from world growth.
It is already clear 2012 will show no fundamental change in this pattern. Developed European economies will again be the worst performing region - suffering a recession. The US should expand but slowly. Developing economies will continue to dominate world growth - the large developing economies are slowing but still growing far more rapidly than developed ones.
Golden BRICs
The dominance of the developing economies market growth since the start of the international financial crisis is overwhelming - they accounted for 78.6 percent of world growth, compared to 21.4 percent for developed economies. Market expansion in developing economies was therefore almost four times as great as in developed economies. China already carries out the majority of its trade, 54 percent, with developing economies - 49 percent of exports and 60 percent of imports.
It is clear from this pattern why BRIC economies continue to dominate world growth - in 2007-2010, they contributed 52.5 percent of world market expansion. Not only are the BRICs the largest developing economies, but each is the center of a major regional economic area.
The implications for China's markets are clear. China accounts for half of BRIC growth. China has not only the world's most rapidly expanding domestic market, but is the single biggest trading partner for the world's rapidly expanding economies. This year will therefore see a further growth of world markets dominated by the BRIC economies in general and China in particular.
John Ross is currently visiting professor at Antai College of Economics and Management, Shanghai Jiao Tong University. He was consultant to Fortune Global 500 companies and from 2000 to 2008 London's director for economic and business policy.
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