Saturday 21 Jul 2018 | 21:41 | SYDNEY
Saturday 21 Jul 2018 | 21:41 | SYDNEY

Exports and China: Feeding the dragon


Mark Thirlwell

14 July 2009 14:04

In my previous post I noted that, although Chinese demand can't fully substitute for weaker developed country demand, China will continue to grow in importance as an export market for the rest of emerging East Asia. 

This will happen anyway as a natural result of China’s growing economic weight and development. But if policymakers listen to the proponents of a new development model for the region, and if Beijing successfully switches to a greater relative focus on domestic demand, this might accelerate the process. What would a more domestic-demand-driven Chinese economy mean for trade prospects for the rest of the region? 

As the World Bank argues in its latest regional economic outlook, the economies most likely to benefit from such a shift would be those with a comparative advantage in resources, capital goods, and (over time) more sophisticated consumer products. That means prospective wins for regional commodity exporters and for the producers of capital goods. We have already seen evidence of this process in action with the impact on resources of China's stimulus package, with its emphasis on infrastructure investment.

On the other hand, countries that have until now specialised in the export of components to China for assembly before sale on to final markets in the developed world are less likely to see any benefit from a shift in China’s model, and could well see some loss in existing export markets as Chinese companies seek to increase the amount of domestic value added in their production and consequently reduce their reliance on imported components – a development that some observers had anyway detected before the onset of the GFC and the latest iteration of the debate about changing growth models. 

How might such broad trends translate into prospects for individual regional economies? One interesting attempt to identify potential winners comes from two Citigroup economists. They look at the combined impact of the extent to which each regional economy has an export mix geared to meeting China’s domestic demand, the importance of China as an export market in each case, and the importance of exports overall to the economy. 

Different countries score well on different aspects. So, for example, Indonesia and Vietnam (and India) benefit from having a large share of commodities in their exports to China, but on the other hand have a fairly small share of their total exports going to China. On the other hand, China is a more important overall export market for Korea and Taiwan, but a large share of these exports are judged to be linked to supplying China’s export sectors, rather than targeted at China’s domestic demand.

Photo by Flickr user axelfoley, used under a Creative Commons license.