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China needs to export more to Africa and LatAm
By Chris Leung |
August 7, 2012, Tuesday
|
Print Edition
Print Edition
IT is difficult to project an optimistic medium-term outlook for Chinese exports. The trade surplus has been falling ever since it peaked at 7.6 percent of GDP in 2007, reflecting persistent economic weakness of major trading partners.
The fall continues in 2012. Year-to-date export and import growth are 8.7 percent and 6.7 percent respectively, down significantly from 20.3 percent and 24.9 percent for the full year of 2011.
Geographically, exports to the European Union have fallen since March, while those to the US offer some hope. Even though China is trying to rebalance the economy toward domestic consumption, the export engine cannot be entirely relegated to the back burner.
To reduce reliance on Western markets, where growth has stalled, China has strengthened ties with Africa and South America. Growth of exports to Africa and South America topped 29.3 percent and 33.1 percent in the last decade respectively versus 25.7 percent for the EU and 20.5 percent for the US.
Developing markets have also gained prominence. In 2011, 11 percent of China?s exports went to Africa and South America combined, more than double from just 5 percent a decade ago and exceeded the 9 percent destined to the Association of Southeast Asian Nations (ASEAN).
Assuming exports to the EU and US markets grow annually at their 10-year average rate minus 2 percent, and exports to Africa and South America grow at their 10-year average rate, the share of the EU and US markets combined in 2020 would fall to 32.8 percent from 35.9 percent in 2011 and the share of African and South American markets would rise to almost 20 percent from 10.3 percent. And this is about equal to the current share of exports going to the EU. Clearly, the new markets? present importance and future potential are immense.
Steady escalation
China?s steady escalation on the value-added chain creates opportunities in these markets. By skill level, Chinese exports of high and medium-skilled technology manufactured goods as a share of total exports to Mexico, South Africa and Nigeria have been on an uptrend in the last decade, while exports share of labor intensive and low skilled technology manufactured goods have been on a downtrend. More than 70 percent of China?s exports to Brazil and Mexico have involved high and medium skilled technology in recent years.
By product category, manufactured goods exports (as opposed to primary commodities) accounted for over 90 percent of total exports to the developing markets highlighted. Exports of machinery and equipment accounted for more than 30 percent of manufactured goods exports in 2010 to the developing markets highlighted. In Mexico, as much as 54 percent of manufactured goods exports were machinery and equipment.
That said, it is worth exploring exactly what sort of machinery and equipment China has been exporting to these markets. From a trend perspective, the export share of general electrical machinery has fallen the most in Africa and South America, while the export share of other transport equipment (excluding road vehicles) has climbed quickly in recent years in Africa.
In both markets, telecommunication and sound recording apparatus make up the largest share of machinery and equipment exports. For example, listed company ZTE Corp, a developer of mobile communication systems and data communication devices, derived one-third of its revenues from Africa over the fiscal year 2007 through 2011.
China has quite a sizable trade deficit with Brazil as well as South Africa. In fact, the deficit with Brazil has deepened every year in the last decade, while the deficit with South Africa has jumped threefold since 2008. Exports to and imports from Brazil grew at just about the same rate on average over 2001-2011, with the growth of imports from Brazil mainly driven by primary commodities and precious stones.
Over 93 percent/65 percent of imports from Brazil/South Africa were primary commodities and precious stones in 2010. The deficit with South Africa deepened quickly over 2008-2011, driven by much quicker average import growth (55 percent) over export growth (18 percent).
Different from Brazil, the growth of imports from South Africa was driven by a mix of manufactured goods and primary commodities, differing from year to year.
From a political standpoint, there are reasonable justifications to push for more balanced trade going forward.
Trade imbalance has been a point of contention between China and Brazil, but thankfully both sides have underlined the need to increase the value-added component of bilateral exports at the G20 meeting in Los Cabos, as means of relieving the imbalance.
Closer ties
On the sidelines of the Rio+20 environmental summit, China and Brazil agreed on a US$29 billion currency swap agreement.
Most recently, on the last stop of his South America tour, Premier Wen Jiabao said China and South America should combat protectionism and develop closer economic ties. These moves show that China is not sitting on its hands with regards to reviving export growth.
Dwelling on the problem does not help the situation. China must quickly formulate a strategy to boost net exports to complement its rebalancing grand plan.
Given China?s multi-decade-long reliance on Western markets, it is the right time to forge closer trade ties with South America and Africa, even though they may look inconsequential now. We have shown clearly enormous potential lies ahead in these markets. Policymakers probably have already caught on this.
The fall continues in 2012. Year-to-date export and import growth are 8.7 percent and 6.7 percent respectively, down significantly from 20.3 percent and 24.9 percent for the full year of 2011.
Geographically, exports to the European Union have fallen since March, while those to the US offer some hope. Even though China is trying to rebalance the economy toward domestic consumption, the export engine cannot be entirely relegated to the back burner.
To reduce reliance on Western markets, where growth has stalled, China has strengthened ties with Africa and South America. Growth of exports to Africa and South America topped 29.3 percent and 33.1 percent in the last decade respectively versus 25.7 percent for the EU and 20.5 percent for the US.
Developing markets have also gained prominence. In 2011, 11 percent of China?s exports went to Africa and South America combined, more than double from just 5 percent a decade ago and exceeded the 9 percent destined to the Association of Southeast Asian Nations (ASEAN).
Assuming exports to the EU and US markets grow annually at their 10-year average rate minus 2 percent, and exports to Africa and South America grow at their 10-year average rate, the share of the EU and US markets combined in 2020 would fall to 32.8 percent from 35.9 percent in 2011 and the share of African and South American markets would rise to almost 20 percent from 10.3 percent. And this is about equal to the current share of exports going to the EU. Clearly, the new markets? present importance and future potential are immense.
Steady escalation
China?s steady escalation on the value-added chain creates opportunities in these markets. By skill level, Chinese exports of high and medium-skilled technology manufactured goods as a share of total exports to Mexico, South Africa and Nigeria have been on an uptrend in the last decade, while exports share of labor intensive and low skilled technology manufactured goods have been on a downtrend. More than 70 percent of China?s exports to Brazil and Mexico have involved high and medium skilled technology in recent years.
By product category, manufactured goods exports (as opposed to primary commodities) accounted for over 90 percent of total exports to the developing markets highlighted. Exports of machinery and equipment accounted for more than 30 percent of manufactured goods exports in 2010 to the developing markets highlighted. In Mexico, as much as 54 percent of manufactured goods exports were machinery and equipment.
That said, it is worth exploring exactly what sort of machinery and equipment China has been exporting to these markets. From a trend perspective, the export share of general electrical machinery has fallen the most in Africa and South America, while the export share of other transport equipment (excluding road vehicles) has climbed quickly in recent years in Africa.
In both markets, telecommunication and sound recording apparatus make up the largest share of machinery and equipment exports. For example, listed company ZTE Corp, a developer of mobile communication systems and data communication devices, derived one-third of its revenues from Africa over the fiscal year 2007 through 2011.
China has quite a sizable trade deficit with Brazil as well as South Africa. In fact, the deficit with Brazil has deepened every year in the last decade, while the deficit with South Africa has jumped threefold since 2008. Exports to and imports from Brazil grew at just about the same rate on average over 2001-2011, with the growth of imports from Brazil mainly driven by primary commodities and precious stones.
Over 93 percent/65 percent of imports from Brazil/South Africa were primary commodities and precious stones in 2010. The deficit with South Africa deepened quickly over 2008-2011, driven by much quicker average import growth (55 percent) over export growth (18 percent).
Different from Brazil, the growth of imports from South Africa was driven by a mix of manufactured goods and primary commodities, differing from year to year.
From a political standpoint, there are reasonable justifications to push for more balanced trade going forward.
Trade imbalance has been a point of contention between China and Brazil, but thankfully both sides have underlined the need to increase the value-added component of bilateral exports at the G20 meeting in Los Cabos, as means of relieving the imbalance.
Closer ties
On the sidelines of the Rio+20 environmental summit, China and Brazil agreed on a US$29 billion currency swap agreement.
Most recently, on the last stop of his South America tour, Premier Wen Jiabao said China and South America should combat protectionism and develop closer economic ties. These moves show that China is not sitting on its hands with regards to reviving export growth.
Dwelling on the problem does not help the situation. China must quickly formulate a strategy to boost net exports to complement its rebalancing grand plan.
Given China?s multi-decade-long reliance on Western markets, it is the right time to forge closer trade ties with South America and Africa, even though they may look inconsequential now. We have shown clearly enormous potential lies ahead in these markets. Policymakers probably have already caught on this.
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