China: rapid growth with trade deficit
By John Ross |
April 12, 2011, Tuesday
|
Print Edition
Print Edition
The significance of the announcement that China ran a trade deficit in the first three months of this year is not a single quarter's figures. China's trade balance is usually stronger in the second half of a year, and China will certainly run a surplus for 2011 as a whole. The significance is in the clear and strongly falling trend of China's surplus.
This is best seen by comparing the combined January-March trade figures for the last three years. In 2009, China's surplus was US$62.5 billion. In 2010, the surplus was US$13.9 billion. This year, there was a deficit of US$1.0 billion.
This trend has major implications for China's and the international economies, and factually settles a debate between analysts that has been taking place for two years.
Regarding the impact of China's trade, it is well-known that China is now the world's largest exporter. But it is not generally realized that China now matches the US as the world's most rapidly growing importer.
Still more impressive than the 32.6 percent year on year increase in China's imports in the January-March quarter is what this means in dollars. Averaging the last three months for which data is available for each country, US imports rose by a monthly US$27 billion and China's by US$33 billion.
The impact of the growth in China's import market is spreading through the world economy to a growing number of major countries. China has long been the largest export market for Japan and South Korea. But Germany now exports more to China than to the US. China has become the largest trade partner of Brazil and Russia.
It is also notable that the US deficit with China is larger than the whole of China's trade surplus - meaning China runs a net trade deficit with the rest of the world apart from the US.
Hardly surprising therefore that while some newspapers have made a great deal of noise about China's exchange rate, most countries have not taken serious action to support the US administration's complaints on this. After all, taken together the rest of the world is running a surplus with China, so it is content with the situation.
The sharp decline of China's trade surplus also settles debates about the trajectory of China's economy in a way that reinforces favorable estimates regarding its growth in the coming period.
Some analysts had argued that China's economic dynamic was only sustained by an "Asian growth model," allegedly dependent on large export surpluses. If this were true, then China's shrinking trade surplus would have led to a major economic slowdown.
But although China's trade surplus has been falling, its economic growth has not declined. China's economy grew last year by 10.3 percent - above the 9.9 percent average sustained since its economic reform started in 1978.
Even more strikingly, in the three years since the beginning of the international financial crisis, that is in 2008-2010, China's GDP grew by 30 percent. None of this was accounted for by an increase in the trade surplus - which fell. This was a definitive test showing China's rapid growth did not depend on exports but could equally be driven by domestic demand.
This year's GDP growth will doubtless slow from last year - the latter was above average. But it will be above the 7 percent projected in the new 12th Five Year Plan. The World Bank projects 9 percent growth in China this year, and the Asian Development Bank 9.6 percent.
The new trade data therefore confirms that China's economy is now being driven by domestic demand and will continue to expand rapidly.
Key Trends in Globalisation. (http://ablog.typepad.com/keytrendsinglobalisation/)
This is best seen by comparing the combined January-March trade figures for the last three years. In 2009, China's surplus was US$62.5 billion. In 2010, the surplus was US$13.9 billion. This year, there was a deficit of US$1.0 billion.
This trend has major implications for China's and the international economies, and factually settles a debate between analysts that has been taking place for two years.
Regarding the impact of China's trade, it is well-known that China is now the world's largest exporter. But it is not generally realized that China now matches the US as the world's most rapidly growing importer.
Still more impressive than the 32.6 percent year on year increase in China's imports in the January-March quarter is what this means in dollars. Averaging the last three months for which data is available for each country, US imports rose by a monthly US$27 billion and China's by US$33 billion.
The impact of the growth in China's import market is spreading through the world economy to a growing number of major countries. China has long been the largest export market for Japan and South Korea. But Germany now exports more to China than to the US. China has become the largest trade partner of Brazil and Russia.
It is also notable that the US deficit with China is larger than the whole of China's trade surplus - meaning China runs a net trade deficit with the rest of the world apart from the US.
Hardly surprising therefore that while some newspapers have made a great deal of noise about China's exchange rate, most countries have not taken serious action to support the US administration's complaints on this. After all, taken together the rest of the world is running a surplus with China, so it is content with the situation.
The sharp decline of China's trade surplus also settles debates about the trajectory of China's economy in a way that reinforces favorable estimates regarding its growth in the coming period.
Some analysts had argued that China's economic dynamic was only sustained by an "Asian growth model," allegedly dependent on large export surpluses. If this were true, then China's shrinking trade surplus would have led to a major economic slowdown.
But although China's trade surplus has been falling, its economic growth has not declined. China's economy grew last year by 10.3 percent - above the 9.9 percent average sustained since its economic reform started in 1978.
Even more strikingly, in the three years since the beginning of the international financial crisis, that is in 2008-2010, China's GDP grew by 30 percent. None of this was accounted for by an increase in the trade surplus - which fell. This was a definitive test showing China's rapid growth did not depend on exports but could equally be driven by domestic demand.
This year's GDP growth will doubtless slow from last year - the latter was above average. But it will be above the 7 percent projected in the new 12th Five Year Plan. The World Bank projects 9 percent growth in China this year, and the Asian Development Bank 9.6 percent.
The new trade data therefore confirms that China's economy is now being driven by domestic demand and will continue to expand rapidly.
Key Trends in Globalisation. (http://ablog.typepad.com/keytrendsinglobalisation/)
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