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Yet India is still a tiny tiny exporter 
China’s reliance on exports poised to fall below that of India
China’s GDP has grown very fast so its share of exports to GDP has dropped a lot, said one economist. Photo: Reuters
Drop-off means Beijing may be better able to withstand trade tariffs threatened by Trump
PUBLISHED: 4:00 AM, JANUARY 23, 2017
BEIJING — China, commonly seen as the “workshop of the world”, is set to fall behind India in terms of its reliance on exports this year for the first time since it opened up to the world in 1979.
The shift highlights the growth in the domestic economy, which could make Beijing better able to withstand trade tensions under President Donald Trump, who has threatened to hit the country with punitive tariffs.
China exported US$1.65 trillion (S$2.35 trillion) of goods and services in the first three quarters of 2016, a 7.2 per cent fall from the same period a year before. During the same period the country’s ratio of exports to gross domestic product fell to just 20.2 per cent, compared with a 2006 per cent peak of 38.6 per cent, according to FT calculations.
Its export intensity is now a fraction above that of India, which had a comparable figure of 19.4 per cent in the first nine months of 2016, and which is tipped to overtake China, possibly as early as this year. If so, this would be the first time China’s export intensity has fallen below India’s since 1979, shortly after Deng Xiaoping began the deconstruction of Chairman Mao Zedong’s legacy with a call for reform in December 1978. Then, China’s exports amounted to just 6.4 per cent of GDP.
“Since 1991 China has had a phenomenal rise in terms of the integration of its manufacturing sector in the global economy, but even before the global financial crisis that picture started to change,” said Mr Louis Kuijs, head of Asia economics at Oxford Economics, who believes India could forge ahead this year, although his central forecast is that it will not do so until 2020.
“It’s not that since then we haven’t seen any export growth, but global trade is growing significantly slower than China’s own economy. In our medium-term forecasts, India’s ratio stabilises and China’s continues to fall.”
Mr Mark Williams, chief Asia economist at Capital Economics, who believes India could overtake China this year, said: “It’s not so much that China has done so much worse than other parts of the world, but its GDP has grown very fast so its share of exports to GDP has gone down a lot.”
Although many smaller countries already have higher export ratios, it would symbolise a major shift in the global economy if China — a country widely perceived as an export powerhouse with a large current account surplus — fell behind India — commonly seen as a relatively closed economy beset by a current account deficit — given that India’s population of 1.33 billion is comparable to the 1.38 billion of China.
China’s rise as an exporting powerhouse was driven by a concerted push to develop a low-cost manufacturing sector, integrate it into the global economy and grab global market share. However, Mr Kuijs argued that now China has built up a significant market share in many sectors, it has become ever harder to increase it still further.
Meanwhile, China’s government has been attempting to reorient the country away from export-led growth and towards domestic consumption.
“China launched a huge and sustained stimulus effort at the end of 2008,” said Mr David Lubin, head of emerging markets economics at Citi. “Domestically-driven demand for capital goods replaced what had previously been an externally-driven demand so the economy came to have a more domestic bias.”
“(In contrast,) India has struggled to develop a big manufacturing sector, which all of the really successful Asian economies have used to generate lasting economic growth,” said Mr Williams.
Instead, said Mr Kuijs: “India had a really impressive increase (in exports) on the services side,” with industries such as business services and information technology becoming integrated into the global economy in the manner China’s manufacturing sector was a decade earlier.
India’s service sector exports were about 7.4 per cent of its GDP in 2016, estimates Mr Kuijs, almost three times the 2.5 per cent notched up by China last year.
Partly as a result, India’s export-to-GDP ratio surged from 5.4 per cent in 1986 to 25.2 per cent in 2013, before falling back a little.
Mr Kuijs argued that India is now facing a similar problem to China, in that it has a sizeable market share in the sectors in which it specialises, constraining its attempts to export more still.
However, India may be better placed than China to increase the value of its exports this year, potentially allowing it to pull ahead of China for the first time in nearly four decades. India’s largest export, accounting for a fifth of its merchandise revenues, is petroleum. With the International Monetary Fund this week forecasting that oil prices, on average, will be 20 per cent higher in 2017 than 2016, the dollar value of these exports should rise smartly.
Other natural resources-based sectors, such as gems and jewellery, agricultural and allied products, and precious metals, account for a further 30 per cent of goods exports.
If commodity prices are markedly higher this year than last, “that will certainly be enough to lift India above China”, said Mr Williams.
India’s greater strength in services exports may also help it outperform China this year and, potentially, for some years to come, given signs that, at the margin, global consumption is shifting from goods to services. Mr Kuijs also argued that India should, in theory at least, have scope to increase its exports of manufactured goods, given that other low-wage south and south-east nations such as Vietnam, Cambodia and Bangladesh have been picking up much of the lower valued-added production being priced out of China by sharply rising labour costs.
However, he said he was not “super optimistic” that India will be able to pull that off, given the government’s failure to remove some of the “traditional stumbling blocks” preventing a faster expansion of manufacturing, such as ensuring a reliable electricity supply, reforming labour laws and easing land acquisition.
The sharp fall in China’s reliance on exports over the past decade also raises questions as to why the country is still widely perceived as a “bogeymen” in terms of global trade, not least in the eyes of Mr Trump.
Partly it is simply China’s size, given it is the world’s large exporter of goods. And despite the sharp fall in its export intensity, this still remains reasonably high. Among other large economies, Japan has an export/GDP ratio of about 17 per cent and the US 13 per cent, although Germany is way ahead, near 50 per cent.
Mr Williams argued that “like with a lot of these things, the common perception of China is stuck a decade back. Then it was fair to say that China had an economy that was significantly driven by exports”.
However, he added: “A lot of the stuff that China exports is very visible to us. A lot of consumer goods are made or finished in China.”
Mr Kuijs made a similar point, adding: “We have perceptions and we have reality. Perceptions on trade are often a little bit too much influenced by what’s going on in the goods sphere.”
THE FINANCIAL TIMES
http://www.todayonline.com/chinaindia/china/chinas-reliance-exports-poised-fall-below-india
China’s reliance on exports poised to fall below that of India
China’s GDP has grown very fast so its share of exports to GDP has dropped a lot, said one economist. Photo: Reuters
Drop-off means Beijing may be better able to withstand trade tariffs threatened by Trump
PUBLISHED: 4:00 AM, JANUARY 23, 2017
BEIJING — China, commonly seen as the “workshop of the world”, is set to fall behind India in terms of its reliance on exports this year for the first time since it opened up to the world in 1979.
The shift highlights the growth in the domestic economy, which could make Beijing better able to withstand trade tensions under President Donald Trump, who has threatened to hit the country with punitive tariffs.
China exported US$1.65 trillion (S$2.35 trillion) of goods and services in the first three quarters of 2016, a 7.2 per cent fall from the same period a year before. During the same period the country’s ratio of exports to gross domestic product fell to just 20.2 per cent, compared with a 2006 per cent peak of 38.6 per cent, according to FT calculations.
Its export intensity is now a fraction above that of India, which had a comparable figure of 19.4 per cent in the first nine months of 2016, and which is tipped to overtake China, possibly as early as this year. If so, this would be the first time China’s export intensity has fallen below India’s since 1979, shortly after Deng Xiaoping began the deconstruction of Chairman Mao Zedong’s legacy with a call for reform in December 1978. Then, China’s exports amounted to just 6.4 per cent of GDP.
“Since 1991 China has had a phenomenal rise in terms of the integration of its manufacturing sector in the global economy, but even before the global financial crisis that picture started to change,” said Mr Louis Kuijs, head of Asia economics at Oxford Economics, who believes India could forge ahead this year, although his central forecast is that it will not do so until 2020.
“It’s not that since then we haven’t seen any export growth, but global trade is growing significantly slower than China’s own economy. In our medium-term forecasts, India’s ratio stabilises and China’s continues to fall.”
Mr Mark Williams, chief Asia economist at Capital Economics, who believes India could overtake China this year, said: “It’s not so much that China has done so much worse than other parts of the world, but its GDP has grown very fast so its share of exports to GDP has gone down a lot.”
Although many smaller countries already have higher export ratios, it would symbolise a major shift in the global economy if China — a country widely perceived as an export powerhouse with a large current account surplus — fell behind India — commonly seen as a relatively closed economy beset by a current account deficit — given that India’s population of 1.33 billion is comparable to the 1.38 billion of China.
China’s rise as an exporting powerhouse was driven by a concerted push to develop a low-cost manufacturing sector, integrate it into the global economy and grab global market share. However, Mr Kuijs argued that now China has built up a significant market share in many sectors, it has become ever harder to increase it still further.
Meanwhile, China’s government has been attempting to reorient the country away from export-led growth and towards domestic consumption.
“China launched a huge and sustained stimulus effort at the end of 2008,” said Mr David Lubin, head of emerging markets economics at Citi. “Domestically-driven demand for capital goods replaced what had previously been an externally-driven demand so the economy came to have a more domestic bias.”
“(In contrast,) India has struggled to develop a big manufacturing sector, which all of the really successful Asian economies have used to generate lasting economic growth,” said Mr Williams.
Instead, said Mr Kuijs: “India had a really impressive increase (in exports) on the services side,” with industries such as business services and information technology becoming integrated into the global economy in the manner China’s manufacturing sector was a decade earlier.
India’s service sector exports were about 7.4 per cent of its GDP in 2016, estimates Mr Kuijs, almost three times the 2.5 per cent notched up by China last year.
Partly as a result, India’s export-to-GDP ratio surged from 5.4 per cent in 1986 to 25.2 per cent in 2013, before falling back a little.
Mr Kuijs argued that India is now facing a similar problem to China, in that it has a sizeable market share in the sectors in which it specialises, constraining its attempts to export more still.
However, India may be better placed than China to increase the value of its exports this year, potentially allowing it to pull ahead of China for the first time in nearly four decades. India’s largest export, accounting for a fifth of its merchandise revenues, is petroleum. With the International Monetary Fund this week forecasting that oil prices, on average, will be 20 per cent higher in 2017 than 2016, the dollar value of these exports should rise smartly.
Other natural resources-based sectors, such as gems and jewellery, agricultural and allied products, and precious metals, account for a further 30 per cent of goods exports.
If commodity prices are markedly higher this year than last, “that will certainly be enough to lift India above China”, said Mr Williams.
India’s greater strength in services exports may also help it outperform China this year and, potentially, for some years to come, given signs that, at the margin, global consumption is shifting from goods to services. Mr Kuijs also argued that India should, in theory at least, have scope to increase its exports of manufactured goods, given that other low-wage south and south-east nations such as Vietnam, Cambodia and Bangladesh have been picking up much of the lower valued-added production being priced out of China by sharply rising labour costs.
However, he said he was not “super optimistic” that India will be able to pull that off, given the government’s failure to remove some of the “traditional stumbling blocks” preventing a faster expansion of manufacturing, such as ensuring a reliable electricity supply, reforming labour laws and easing land acquisition.
The sharp fall in China’s reliance on exports over the past decade also raises questions as to why the country is still widely perceived as a “bogeymen” in terms of global trade, not least in the eyes of Mr Trump.
Partly it is simply China’s size, given it is the world’s large exporter of goods. And despite the sharp fall in its export intensity, this still remains reasonably high. Among other large economies, Japan has an export/GDP ratio of about 17 per cent and the US 13 per cent, although Germany is way ahead, near 50 per cent.
Mr Williams argued that “like with a lot of these things, the common perception of China is stuck a decade back. Then it was fair to say that China had an economy that was significantly driven by exports”.
However, he added: “A lot of the stuff that China exports is very visible to us. A lot of consumer goods are made or finished in China.”
Mr Kuijs made a similar point, adding: “We have perceptions and we have reality. Perceptions on trade are often a little bit too much influenced by what’s going on in the goods sphere.”
THE FINANCIAL TIMES
http://www.todayonline.com/chinaindia/china/chinas-reliance-exports-poised-fall-below-india
