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China’s Growth Juggernaut Comes With a Caveat, China's trade surplus again tops 10% of its GDP
By Chris AnsteyApril 29, 2023 at 6:45 PM GMT+8
China is often described—including by Chinese officials—as an engine for global growth. The International Monetary Fund in April said the nation will be the top contributor over the next five years, with a share double that of the US.
But this is misleading. Consider the equation, 6+4=10. Mathematically, six is doing more to make 10 than four is. But six isn’t doing anything for four.
Similarly, if China’s economy were completely cut off from the rest of the world, but its gross domestic product rose by the same amount as it has been, it would be the biggest “contributor” to global growth—but it wouldn’t be offering any help whatsoever to the rest of the world.
In fact, there’s evidence that China’s policies of seeking to replace foreign manufactured goods, to keep consumers spending at home rather than on overseas trips, and to dominate newly emerging markets—notably electric vehicles—even subtract from the rest of the world’s growth.
Despite having laid out plans years ago to steadily increase imports, China’s trade surplus climbed to a record $898 billion last year. The most recent monthly figures showed exports were up almost 15% in March from a year before, with imports down by 1.4%.
Imports of goods and services as a share of China’s GDP measured 17.4% in 2021, the latest year for which World Bank data are available. That was down from 17.9% in 2017, when President Xi Jinping at an international forum laid out his vision for a “new model of win-win cooperation,” that included a push to welcome imports.
There was plenty of buzz back then about China becoming an “import superpower.” Then-UK Chancellor of the Exchequer Philip Hammond called Xi’s initiative “truly groundbreaking,” while then-Pakistan Prime Minister Nawaz Sharif gushed that it would “tear down barriers to trade and commerce.”
The next year, Xi inaugurated an annual expo in Shanghai aimed at encouraging foreign imports into China.
But it’s the US that continues to be the true import superpower, at $3.2 trillion last year. China’s total of about $2.6 trillion may look comparable, but it’s distorted by products that go into items that are then shipped abroad for final consumption—in the US and elsewhere.
It’s also inflated by the surge in prices of commodities that serve as raw material for Chinese products. Looking at manufactured imports, those have shrunk as a share of China’s GDP, by about 5 percentage points since the country joined the World Trade Organization more than two decades ago, according to Brad Setser, a former US trade and Treasury official.
“China simply doesn’t import many [manufactured items] for its own use,” Setser said on social media this week. “This is true ‘deglobalization.’”
Having exceeded its competitors with industrial policies that support the development of electric vehicles, China’s trade surplus in manufactured items may widen further.
The EV advantage is also evident in China’s home market. Local-champion BYD is now China’s best-selling car brand for the first time, dethroning Volkswagen, Bloomberg reported this week. Displacement of overseas manufacturers could solve Germany’s “cluster risk” problem for it (Berlin’s concern about too much of its economic interests being centered in one country).
Chinese tourists used to help offset some of the country’s current-account surplus, with spending overseas driving a deficit in services trade. But Chinese officials for some time have been encouraging citizens to keep their spending at home.
French luxury-goods giant LVMH’s pivot towards mainland China is one piece of evidence of that shift. It’s all something to think about when considering headlines about China powering global growth.
China’s Growth Juggernaut Comes With a Caveat
China is often described—including by Chinese officials—as an engine for global growth. The International Monetary Fund in April said the nation will be the top contributor over the next five years, with a share double that of the US.
www.bloomberg.com
