Here is the headline story. From the NY Times:
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:
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.
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.