Sunday, May 10, 2009

China's export-driven growth exaggerated

China has long been thought as export driven and heavily trade dependent. In my previous post, I told the story that China's trade sector, if measured by value added, only accounts for less than 10% of GDP and the importance of trade is overly exaggerated.

Also, according to Albert Kiedel at Carnegie Endowment, China's GDP growth is almost independent of US GDP fluctuations (see the chart below).

Now I made another interesting graph using the data from National Bureau of Statistics (NBS): the growth component of China's GDP growth--- how investment, consumption and export have contributed China's GDP growth historically.

(click to enlarge; source: my own calculation and NBS)

As you can see from the above graph, domestic consumption and investment have played a much larger role than net exports. In recent years, net exports' contribution to GDP growth was only around 20% of the total.

(note: the investment includes both private investment and government investment. I have to point out part of investment is surely export-related and the graph above does not capture the potential linkage between export and domestic investment. I will dig more in the future to find out).

But in any case, I tend to think of China as a large open-economy (in the case of open trade and FDI, not in the sense of capital control), similar to the US. Although trade plays a very important role in China, but because the country is so large that even trade was hard hit the economy can still manage to grow at a relatively fast speed. And don't forget China is still a relatively poor developing country; for poorer countries, faster growth came as no surprise because the strong catch-up effect often dominates.

Now watch this interview clip of an investment strategist at BNP Paripas Asia discussing China's recent rally and how China is not export-driven as the world thinks.

(click on the graph to watch the interview; source: FT)