Connect with us

China

Why Rebalancing China has much to do with the trade slowdown

China and Chinese exports are moving up the value chain. For every unit of export that China is sending out to the world, it is importing less.

Avatar

Published

on

Indeed, a rebalancing China has much to do with the trade slowdown. While economic weakness in much of developed Western economies has curbed appetite for trade-intensive investment, the Chinese shift away from investment and towards consumption has hit global trade especially hard.

In a September 2016 report the World Trade Organization (WTO) said world trade will likely grow by 1.7 percent for 2016, a downgrade from earlier estimates of 2.8 percent. Not only is it the slowest trade growth since the 2009 global financial crisis, it is also the first time since China joined the WTO in 2001 that trade growth is less than expected global GDP growth, which is forecast at 2.2 percent.

“Investment is more import-intensive involving things such as steel, metals and other things that Asian economies produce as exports,” explains Santitarn Sathirathai, Head of Emerging Asia Economics at Credit Suisse.

“Consumption, on the other hand, is more service-oriented. The booming sectors in China now are online gaming and movie box offices, neither of which is import-intensive. That’s issue number one.

“Secondly, China and Chinese exports are moving up the value chain. For every unit of export that China is sending out to the world, it is importing less. China need not import as much as it did before from the likes of Singapore, Malaysia, Thailand, or South Korea and Japan.”

EXPORTING CONSUMER GOODS AND SERVICES TO CHINA

Sathirathai made those remarks at the recent SMU China Forum where he asked the question: Are Asian economies ready for the Chinese economic rebalancing?

The International Monetary Fund (IMF) expects New Zealand to be the only economy that will benefit, mainly because of the nature of its exports to China i.e. high end foods.

According to Sathirathai, for every one percent drop in investment that China experiences it gains one percent in consumption. Nett-nett, China’s GDP roughly stays the same but Asian economies that fail to adjust to the revised makeup of its economy stand to lose out.

“China and Chinese exports are moving up the value chain. China need not import as much as it did before from the likes of Singapore, Malaysia, Thailand, or South Korea and Japan.”

“In the past, China was the factory of the world and Asia, it’s a downstream player,” Sathirathai elaborates.

“Singapore, Malaysia, and South Korea produce the parts that get assembled in China, which then sends it to developed markets such as Europe and China. That has changed over time.

“The share of products that go into China and stays in China – meaning they go towards fulfilling demand within the country – has increased over time. The issue is, most of these goods and merchandise trade goes to fulfill most of the investment demand rather than consumption demand.”

Sathirathai concludes: “Most economies are still geared towards the old China of heavy industries and manufacturing. If China shifts towards consumption right now, most Asian economies would lose out and experience a slowdown in exports.”

One quick way to generate economic growth from China’s shift is tourism, which Sathirathai describes as a ‘service import’. With the exception of Thailand where tourism contributes to 10 percent of GDP, no other Southeast Asian country besides Cambodia relies on tourism as much. Yet, these countries need to cater to the demands of the average Chinese tourist, which one senior Chinese government likened to China’s plaza dancers –广场舞大妈.

“When I go travel, I am the plaza dancer,” says Lin Dajian, former Deputy Director-General, Department of International Cooperation, National Development and Reform Commission of China. “My tour guide tells me it’s people like us who are traveling across Asia,” referring to the legions of middle aged and elderly folks who while their time away dancing in plazas across China.

“I’m thinking: ‘How can Asian countries cater to people like us?’ Our spending power is enormous. People like us are all thinking about how to have fun and spend money. However, there aren’t too many activities that are catered to us. Countries in the region are very attractive to plaza dancers as a travel destination.”

Source link

Comments

China

Will Myanmar’s coup help China influence ASEAN?

The Myanmar crisis is becoming increasingly tragic, with the military’s use of lethal force now killing over 60 protestors.

Avatar

Published

on

On 16 January 2021, Chinese Foreign Minister Wang Yi concluded a visit to four ASEAN countries. One destination was Myanmar, the upcoming country coordinator of the ASEAN–China dialogue and now centre of international attention after the country’s military seized power.

Loading...
(more…)

Continue Reading

China

Rapid growth in China post-COVID makes it ripe for investment

Being “first in and first out” of COVID-19, China is the only country among the G20 that is thought by the Organisation for Economic Co-operation and Development (OECD) to have increased GDP in 2020.

Avatar

Published

on

China’s economy rebounded sharply.

In January 2020 as the world began to learn of COVID-19, many market observers predicted a challenging year for Asia. While there continue to be headwinds from the health and economic crisis, Asia, and China in particular, has demonstrated comparatively advantageous resilience.

Loading...
(more…)

Continue Reading

China

Mainland China is in no position to take Taiwan by force

Unlike his predecessors, Chinese President Xi Jinping has demonstrated greater intensity in the desire for reunification.

Avatar

Published

on

The situation across the Taiwan Strait has seemed to be on the brink of crisis since 2018. Beijing has sent numerous sorties of military aircraft to conduct exercises near Taiwan and frequently crossed the median line of the Taiwan Strait.

Loading...
(more…)

Continue Reading

Most Viewed

Subscribe via Email

Enter your email address to subscribe and receive notifications of new posts by email.

Join 13,980 other subscribers

Latest

Trending