EconoMonitor

The Wilder View

Chinese trade: the rebalancing effect

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China released its April trade numbers, where the sharp decline in export growth will take the spotlight. On the flip side, though, import growth surged. Now, this could be driven by several factors – anything that might affect the real exchange rate; however, it does suggest that domestic demand may be improving. Furthermore, and in normal times, greater access to imports is good for efficiency, productivity, and growth.
Here is the headline story. From the NY Times:

Exports from mainland China slumped 22.6 percent in April from a year earlier, official statistics showed – a decline that was not only larger than economists had expected, but was also worse than in March, when overseas shipments had declined 17.1 percent.

The data served as a sharp reminder that much of the global economy remains in the throes of a deep recession, and that a string of recent figures showing the pace of decline easing in parts of the world by no means heralded an actual marked turnaround.

RW: To be sure, reduced export income will drag Chinese economic growth over the near term. However, if Chinese producers continue to gain access to less costly inputs to production, efficiency gains will result. This reminds me of an article from the Economist; it reports the findings of a paper that estimates the effect of increased import access (through reduced trade barriers) on productivity gains in India. The findings from the Economist:

They found that about 66% of the growth in India’s imports of intermediate goods after liberalisation came from goods the country had simply not bought when its trade regime was more restrictive. These new inputs caused the price of intermediate goods to fall by 4.7% per year after 1989. And detailed data linking inputs to final goods showed that the imports led to an explosion in the variety of products made by Indian manufacturers; the average firm made 1.4 products before liberalisation, but by 2003, this had increased to 2.3.

Of course, this transition would not occur tomorrow; but eventually (and eventually could be a long time off), China will reduce trade barriers, relax price controls, or allow the yuan to appreciate against its basket of currencies, and imports will rise. But is that such a bad thing?

Perhaps this cycle will mark a small structural shift in Chinese economic development – a rebalancing effect from export-driven growth to that of domestic innovation and productivity gains.


Originally published at the News N Economics blog and reproduced here with the author’s permission.

One Response to “Chinese trade: the rebalancing effect”

George HarterMay 15th, 2009 at 3:41 pm

Why is it that so few seem to recognize that China is due for some politically unstable times. Why is there any reason to believe China’s data on China??? Americans are blind to the fact that to China’s government statistics and numbers concerning the economy are often altered significantly for political purposes.Unemployment is a good example. How can anybody actually believe that only 30 million migrant workers are now unemployed??? I have seen that number for months. What? China’s unemployment rate has stabilized??? Has the US unemployment rate stabilized???NO and NO. Chinese unemployment MUST be significantly larger than stated by the Chinese government. The implicatioons for the near future are: savings draw down to stabilize livlihood, massive population movement results(very destabilizing), productivity may drop with workers seeing a bleak future, a large urban unemployed proletariat living in garbage dumps around wealthy city centers (countryside life is even worse), sharpening of class distinctions, government corruption increasing as large portions of stimulus money are robbed, etyc. etc.Many articles are based on the assumption that China is a Western society parked in East Asia. China is still VERY CHINESE, Thank You. The stimulus plan will work as long as THE GOVERNMENT MAKES UP NICE NUMBERS. I have lived there a number of times in the last 15 years, privately and for government. I see NO WAY that China will be an economic superpower soon; POLITICAL AND SOCIAL PROBLEMS THERE ARE SERIOUS. An economy does not operate in a vacuum. Even moving up to reserve currency status would require much more than the CHINESE GOVERNMENT IS WILLING TO DO.George HarterBaghdqadontheHudson, USA

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