Tuesday, May 12, 2009

Chinese trade: the rebalancing effect

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.

Rebecca Wilder


  1. April crude oil imports grew by 13.6% in April to 3.93 mb/d from the year previous, or roughly 470 kb/d. The avg price for Apr--roughly using WTI, not the regional benchmark--was $49.95/b. 30 days in Apr = an additional $704.3 million. Chinese importers are likely getting a cheaper price than the avg front month futures price on NYMEX, but not incredibly cheaper. I can't find the exact number for imports, but how much of that recovery in imports looks likely to be due to oil?

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