Exports and Imports: The Chicken and the Egg

While Hu Jintao has pledged to boost imports to offset weakening global demand for Chinese exports and the sharpest cutback in in manufacturing since the 2008 financial crisis, a New York Times report warns that other Asian economies shouldn’t hope for a rescue from domestic Chinese demand:

Asia’s exports to China started booming after China joined the World Trade Organization in 2002, as the country demanded components and machinery it couldn’t make. That made the rest of Asia a crucial part of China’s supply chain, but also made it more dependent on Chinese export demand.

How much is hard to tell. China’s exports of goods made from imported materials are equivalent to 40 percent of its imports. Assuming generously that half of the value of those exports has been added by Chinese workers, it means up to one-fifth of Asia’s exports to China are destined for global markets. Then there’s the export-related stuff that goes into China but doesn’t come out, like equipment and machinery.

Machinery and transport equipment, for example, accounts for roughly 40 percent of Korea’s exports to China.

The hope has been that China will consume an increasing share of its Asian imports at home. But domestic demand is unlikely to stand up to an export slowdown. Exports as a portion of gross domestic product have been falling since 2006, but only back to where they were in 2003. And even a small change in exports can influence consumption and investment habits.

Yesterday, the Organization for Economic Co-operation and Development (OECD) predicted that China’s economic growth would slow to 8.5 percent in 2012 from 9.3 percent this year, opening the door for more supportive policy steps in addition to the recently-confirmed $1.7 billion spending plan.

See also CDT Money’s coverage of the Chinese economy and other signs of a slowdown, including a new relaxation on real estate sales limits in Beijing that signals official concern over the effect of tumbling Chinese real estate prices.