Monday 26 Feb 2018 | 03:01 | SYDNEY
Monday 26 Feb 2018 | 03:01 | SYDNEY

Can China save Asia's export model?



14 July 2009 09:38

One hope in the rest of emerging East Asia is that the Chinese economy – now forecast to grow at more than 7% this year – might be able to substitute for lacklustre rich world demand in the next few years. Proponents of this view note that, in recent years, the change in the value of Chinese imports has exceeded that of the US:

Source: World Bank East Asia and Pacific Update April 2009.

They also emphasise that emerging Asia’s trade exposure to China has grown, even as its exposure to the US has fallen:


Source: IMF World Economic Outlook April 2007.

Unfortunately, these comparisons exaggerate China’s ability to act as a substitute for the US, let alone other developed economy markets, since much of the region’s trade with China comprises intermediate products that are ultimately shipped to final markets in the rich world. 

As this research paper from the Hong Kong Monetary Authority explains, once the effect of such indirect exports are taken into account, US consumers still accounted for more exports from East Asian economies than Chinese consumers, and there has been no dramatic increase in the share of exports consumed by China relative to the share consumed by the US, Japan and other developed economies. 

This point is true for intra-regional trade more broadly, with the Asian Development Bank noting a couple of years back that more than 70% of intra-Asian trade comprised intermediate goods used in production, of which half was driven by final demand outside Asia.


Source: Asian Development Bank Uncoupling Asia: Myth and Reality.

Indeed, even as the reported share of direct regional exports going to the US has fallen, the increased importance of the trade in components means that the correlation between intra-regional Asian trade and US imports has actually increased in recent years.

Source: IMF Regional Economic Outlook Asia and Pacific May 2009.

In the near term, then, China will be unable to provide a complete substitute for weaker demand in the region’s traditional markets. That said, much of this analysis is backward looking, and China will become an increasingly important destination for regional exports, so this story will change over time – of which more in a future post.

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