How Fast Is the Boat to China?
In our previous article we examined the Intra EU-27 trade during last decade and came to the conclusion that the most significant trend with respect to it has been the new EU member states gaining a significant share of the Intra-EU export pie as a result of their accession to the common market and gradual trade liberalization preceding it. Most of the EU-15 countries, on the other hand, have seen their share of the (growing) pie shrink while Germany and a few other countries have been able to maintain their Intra EU market shares roughly stable. We also quoted previous research claiming that Germany has been able to maintain its global export market shares during last decade primarily as a result of strong exports to fast growing economies and the complexity of its export basket while increasingly sourcing intermediate goods in the new EU member states.
In this post we take a closer look at exports from the EU to China. In 2011 the EU-15 countries still accounted for 95% of exports from EU-27 to China, thus we have excluded the new member states from this analysis. We also excluded from the detailed analysis Luxembourg, Greece, Portugal and Ireland due to the small absolute size of their exports to China in 1999. Finally, the Netherlands was not included because of its trade statistics being significantly distorted by its role as a logistics hub for Extra EU trade.
In the chart below you can see how the value of exports to China from the EU-15 countries has increased since 1999. The total value of exports has grown 6.7 times between 1999 and 2011. This should not be surprising given the impressive growth rates of the Chinese economy and the resulting increase in China’s economic mass in both absolute and relative terms. Although the EU has consistently had a substantial trade deficit with China and in 2011 the nominal value of EU-15 exports to China was still only about one half of the value of exports to the US, China has also become an important export market for the EU.
However, export performance has diverged considerably among the 10 EU-15 countries included in our detailed analysis. Germany has been a clear leader among them, although growth rates above the EU-15 average have also been achieved by Belgium and Spain. At the same time such countries as France, Finland and Sweden have seen the value of their exports to China grow at rates significantly below the EU-15 average.
In absolute terms exports from Germany are even more dominant. Its share of EU-15 exports to China has gone from 36% in 1999 to 50% in 2011 while the nominal value of its exports to China has grown from EUR 7 billion to EUR 64.6 billion. As can be seen below, in 2011 nominal goods exports from Germany to China accounted for 2.5% of GDP, by far the largest percentage among the EU-15 countries.
Furthermore, if we look at the largest broad category of goods in EU-15 exports to China, which as per SITC classification is machinery and transport equipment, the share of German exports in the EU-15 total is even larger – it has gone from 39% in 1999 to 61% in 2011 as the nominal value of machinery and transport equipment shipped to China from Germany went from EUR 4.9 billion to EUR 47.7 billion.
When it comes to entering the Chinese market, Germany is significantly ahead of most other EU countries. Taking into account the composition of EU-15 exports to China, Germany has apparently been very successful at capitalizing on the investment boom of the past decade in China. At the same time this success also means larger risks for the German producers of investment goods going forward. A hard landing in China would hit them particularly hard, and some observers are pessimistic about China’s future growth prospects. For example, Acemoglu and Robinson, in their book “Why Nations Fail” express skepticism about China’s ability to continue growing at extraordinarily high rates without major changes in their economic and political institutions.
Then again, access to the Chinese market allows German exporters to diversify away from the struggling Eurozone market.