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Will China's 'Soft' Landing Be 'Hard' On Global Exporters?
China is best known as the world's export driver as the hopes of every exporting nation in the world are pinned on the eventual transition of the economy to domestic consumption and hence greater imports. While China has contributed most to Global GDP growth in the past few years, some argue that this growth is not as 'helpful' as US growth to other countries - since China does not import much other than commodities (and less steel now). However, as UBS' Tao Wang points out today, that claim is not quite as valid now as before the financials crisis. China's imports have far outpaced exports in the past 4 years, and trade surplus has shrunk from 9% of GDP in 2007 to 3.3% in 2011. China's 2011 import data shows two sets of information that should be common knowledge by now: 1) China imports a lot from East and Southeast Asian economies (and is the largest market for almost all major economies in the region); and 2) China imports a huge amount of energy and resources (metals and minerals) benefiting Australia and Brazil significantly. But exports to China have become increasingly important for developed economies such as Japan, Germany, and the EU in general and perhaps more concerning is the fact that large emerging market economies may find it increasingly difficult to 'decouple' from China. These two charts show just how large an impact any slowing in Chinese growth and demand will have on some of the largest and most 'decoupled' growth nations - it is clear the BRICs are increasingly self-reliant (and potentially self destructive).
UBS: China, The World's Importer
China is known as the world’s export machine. As for its importance as an importer, much of the world is supposedly still waiting for the country to reorient its economy to domestic demand and import more. Although China has contributed the most to global GDP growth in the past few years, many people would argue that China’s growth is not as “helpful” as US growth to other countries, since China does not import much other than commodities.
However, this claim is not quite as valid now as before the global financial crisis. For one thing, China’s imports have far outpaced exports in the past 4 years, and trade surplus has shrunk from 9% of GDP in 2007 to 3.3% in 2011.
Also, as the numerous stories in financial newspapers can testify, China has become an increasingly important market for investment goods and certain high end consumer goods.
China’s 2011 import data still show two sets of information that should be common knowledge by now. First, China imports a lot from East and Southeast Asian economies and is the largest market for almost all major economies in the region. However, as the region is highly integrated in the global supply chain, a large share of exports from economies like Taiwan, Thailand, Malaysia and Korea to China are processing components that will be assembled in China and re-exported. These economies’ exposure to China is largely an indirect exposure to developed markets. Second, China imports a huge amount of energy and resources (metals and minerals) mainly for its domestic use, which has benefited commodity exporters such as Australia and Brazil significantly.
We would like to highlight two additional points on China as the world’s importer.
First, exports to China have become increasingly important for some large developed economies such as Japan, Germany and the EU in general. For Japan, the case is pretty clear – exports to China account for about 23% of Japan’s total exports and about 3.5% of its GDP. For other large countries, although their exports to China are relatively smaller, they are the parts that are growing faster. German exports to China only account for 6% of its total exports, but because they grew faster, we estimate that exports to China have contributed to about 20% of German GDP growth in 2011. For the EU, again exports to China account for only 1.2% of its GDP, but they have contributed to about ¼ of one percent of GDP growth in 2011. Among the large economies, the US is an exception – we estimate that exports to China have contributed to only 0.1 percentage point of GDP growth in 2011, partly because overall exports as a share of US GDP are relatively small.
Second, some large emerging market economies may find it increasingly difficult to “decouple” from China. We have often heard from investors who are concerned about the sustainability of China’s growth that they prefer some other large emerging economies. However, trade data suggest that the correlations between other large emerging economies and China have increased. For a country like Brazil, it may be easy to see – we estimate that China’s import demand has directly contributed to about 0.9 percentage points of Brazilian GDP growth in 2011, not adjusting for any terms of trade effect. For Indonesia, another economy with a large domestic market, exports to China contributed to 1.3 percentage points of the 2011 GDP growth. For India, an even larger economy that is not known as a main commodity exporter, China’s domestic demand contributed to about 0.6 percentage point of its GDP growth in 2011, according to our estimate. For Korea, the direct impact is estimated to be about 1.2 percentage points.
So while everyone's expectations for a nirvana-like Chinese soft landing and US decoupling remain 'priced in', with last night's iron ore demand (and implicit Chinese growth expectations) along with our earlier comments on the overstated nature of US growth that perhaps once again traders (and economists and extrapolators) have got a little ahead of themselves with this self-sustaining we-don't-need-no-QE recovery.
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Somewhat related: anyone notice that 1 min candle on AAPL that dropped to 570 before rebounding?
iChart
This is the advantage of having a consumer economy - We are not exposed to variations in foreign demand. Our role is pure and simple: to support the Chinese export economy by consuming Chinese goods. In this symbiotic relationship, Americans get to consume cheap Chinese goods and build a retail based service economy domestically while the Chinese get safe-haven dollars in return for their exports. It's a win-win for America and China!
And there you have it folks. Now, coming up next on CNBC...
A consumer economy in a world with finite resources. So short sighted.
Epic winning for China and the USA!
China gets dollars that buy 10% to 90% less the next year and the USA gets products that fall apart 10% to 90% faster than the previous year's failures.
I can't applaud loud enough at this amazing symbiosis!
... what's a /sarc ?
Silly countries building their economies on the export model. Look at the risk. If they had only followed the anglo-saxon lead of making nothing except casino markets they could all be day-trading on their iPads right now without a care in the world. Who needs exports?
India is already getting smacked. The RR has been lowered twice (50 & 75 basis points) without any lowering of interest rates. Not helping..
In January, Japan’s exports to China took a 20% dive compared to last year, recording the fourth straight month of decline...
iLanding
i do not know if we will see a hard or soft landing in china ... what i know is that the consensus gdp12 of around 8,5% is too high ...
Who knows what China's numbers are. Their Govt always lies about every number coming out. Great story on how China said that there economy was booming at the height of the economic crisis, and then another number came out at the same time saying their electrical usage was down, this coming from a country that has a notorious electricity supply problem. They lie worst then the US Federal Govt, and that is saying something...
Q: How do you know the Chinese Gov't is lying?
A: Their (R)ips are moving...
Yu soe racist. China no lie - wee report, yu decide.
What's up with AAPL, stock went to $570 then back up
When it's on sale, you gots to buy it.
That was GS dumping shares - just after setting a higher price target.
aard randing
What's taking so long? Almost an hour into the day and Dow is still red. i'M scared.
All America 'exports' is counterfeit money...
Not true. We export CDS's, toxic wate, sophisticated financial products, toxic waste, militarized weaponry, toxic waste....
We're also running a weekly special on pink slime...
You have got to love the FT and their central planning tendency...
"Given that central banks can’t “print commodities”, or for that matter release commodity inventories into the market — direct influence on commodity expectations would otherwise only be achievable via the futures market. But even here it would be hugely imprudent for banks to sell commodity futures if they didn’t have access to underlying inventories. That said, there’s no reason why central banks couldn’t start buying commodity futures so as to anchor inflation expectations pre-emptively instead. Once a large position on the futures market was acquired, central banks could then tweak supply and demand — a.k.a buy and sell — in such a way that commodity price expectations could begin to be centrally managed."
FT = FCUK THAT!
Once a large position on the futures market was acquired
Sooo... this will skyrocket the price of that comodity, aside of the general inflationary effect of buying stuff with newly printed money, right?
Sounds good. I bet it will do wonders for the average man's spending power /s
So how do we measure China's imports and exports, in USD? Given the number of deals now being done in local currencies, could this indicator be completely bogus?
Understanding Market Emotion As China Fear Jumps http://www.traddr.com/profiles/blogs/understanding-market-emotion-as-china-fear-jumps
A Stock Market Bottom At The End Of This Decade
http://stockmarketbottom.com