Who wants to be a trillionaire (can China save the world)?(1)
By 2009-3-11 9:25:59
With America's Wall Street woes and no muscles in Brussels can
"Super Panda" save the global economy? Many commentators have looked
to Asia (and China in particular) with its vast pool of savings to
help out the global economy in the wake of the financial crisis in
the US and Europe. Is this feasible or desirable in the wake of the
global credit crunch?
So what role does China play in the global economy? It was often
assumed that China 'exported' deflation but supplying cheap goods to
the west ?particularly the USA in the manufacturing goods space.
With an artificially low exchange rate, China's low labour cost-base
produced trade surpluses at home, trade deficits in the USA, and
large pools of savings in China and the rest of Asia. For the most
part this scenario is good news for Australia, as China's industrial
expansion has fuelled strong demand for our commodity exports (like
coal, iron, liquefied natural gas (LNG)) whilst putting downward
pressure on prices for the manufactured goods that we mainly import
(toys, textile, clothing and footwear and other consumer goods and
materials). As a result Australia's 'terms of trade' ?the price of
exports as a ratio of the price of imports ?is at historical highs
therefore boosting real incomes.
But has this scenario changed? To some extent it has for a number of
reasons.
Firstly, China's export focus has been more concentrated on the rest
of Asia (through intra-Asian trade and regional industrial supply
chains) and on the European Union than the USA.
Secondly, other countries ?such as Vietnam, Thailand, India and
Indonesia ?have also played this role in some sectors as China
tries to moves up the value chain. For instance, Thailand's eastern
seaboard is becoming a focal point for the global automotive
industry and the southern region of India centred on Chennai and
Bangalore is doing similar things in information technologies and
communications.
Thirdly, to some extent China is moving away from being an exporter
(of deflation or other good and services for that matter) towards
domestic consumption and investment. As CLSA Economist Andy Rothman
has pointed out net exports are just the "froth" worth 1 to 2 per
cent percentage points on a double digit Chinese growth rate that is
primarily domestically driven. And as Beijing directs investment to
the western provinces and the second and third tier cities
(so-called 慶ountry towns' of 8 to 9 million people!) the processes
of urbanisation and industrialisation will see that domestic process
continue.
"Super Panda" save the global economy? Many commentators have looked
to Asia (and China in particular) with its vast pool of savings to
help out the global economy in the wake of the financial crisis in
the US and Europe. Is this feasible or desirable in the wake of the
global credit crunch?
So what role does China play in the global economy? It was often
assumed that China 'exported' deflation but supplying cheap goods to
the west ?particularly the USA in the manufacturing goods space.
With an artificially low exchange rate, China's low labour cost-base
produced trade surpluses at home, trade deficits in the USA, and
large pools of savings in China and the rest of Asia. For the most
part this scenario is good news for Australia, as China's industrial
expansion has fuelled strong demand for our commodity exports (like
coal, iron, liquefied natural gas (LNG)) whilst putting downward
pressure on prices for the manufactured goods that we mainly import
(toys, textile, clothing and footwear and other consumer goods and
materials). As a result Australia's 'terms of trade' ?the price of
exports as a ratio of the price of imports ?is at historical highs
therefore boosting real incomes.
But has this scenario changed? To some extent it has for a number of
reasons.
Firstly, China's export focus has been more concentrated on the rest
of Asia (through intra-Asian trade and regional industrial supply
chains) and on the European Union than the USA.
Secondly, other countries ?such as Vietnam, Thailand, India and
Indonesia ?have also played this role in some sectors as China
tries to moves up the value chain. For instance, Thailand's eastern
seaboard is becoming a focal point for the global automotive
industry and the southern region of India centred on Chennai and
Bangalore is doing similar things in information technologies and
communications.
Thirdly, to some extent China is moving away from being an exporter
(of deflation or other good and services for that matter) towards
domestic consumption and investment. As CLSA Economist Andy Rothman
has pointed out net exports are just the "froth" worth 1 to 2 per
cent percentage points on a double digit Chinese growth rate that is
primarily domestically driven. And as Beijing directs investment to
the western provinces and the second and third tier cities
(so-called 慶ountry towns' of 8 to 9 million people!) the processes
of urbanisation and industrialisation will see that domestic process
continue.
From austrade.gov.au