Chinese GDP and Trade: Bad News for Australia?

The charts below are from ANZ Research. There is good chart coverage of the latest stats on the Chinese economy. Here are a few that I think show some problems ahead for the Australian economy.

The first show the slowing of growth in the Chinese economy. Michael Pettis argues that the rebalancing of the Chinese economy will probably mean that growth will slow to between 3-4 per cent.  While some have argued that there is a social stability rate of growth above 6 per cent, if the consumption increases (due to rising wages and transfers) while investment declines it is likely that this slowing rate of overall growth will not necessarily be bad for Chinese workers.

Contrary to some perceptions that China is an export-led economy, it is actually an investment-led economy. This means that if investment declines, in the short-term at least, growth will slow, because consumption will not be able to take up the slack in the short-term. The rebalancing of the economy away from increasingly unproductive investment to consumption is unlikely to be quick or smooth. As the chart below shows, consumption actually declined in recent times.

As investment slows and consumption increases in China, Australia may eventually be able to take advantage of China's growing middle class, but it won't see levels of demand to match recent years' demand for resources.

 

Import Share of China's Exports

I'm putting together my Course Guide for a subject called Power in East Asia and came across this - OECD/WTO TRADE IN VALUE-ADDED (TIVA) DATABASE: CHINA - in my list of new material.

Basically the data shows that Chinese exports include a large amount of foreign content reflecting the fact that China is often at the end of the value chain.

The main findings are:

The bilateral trade surplus with the US is about 25% lower in 2009 in value-added terms. Interestingly, a significant factor behind this is the relatively higher imports of US value-added.  

China is well connected to other economies as a hub in "factory Asia": gross exports incorporate a large share of foreign value-added and nearly half of all imported intermediates are used as inputs for exports.  

While China is strong in manufacturing industries, the role of services should not be neglected: 30% of Chinese gross exports correspond to value-added from services industries and in sectors such as electronic goods, 30% of the value exported also comes from services. 

If trade is measured on a value-added basis the US trade deficit is smaller because:

As a final assembler, China relies on intermediate goods and services that are for a significant share imported from the US or that incorporate value-added from the US. China has also moved upstream in some value chains and exports intermediate inputs used by third countries that export to the US.

In some industries as much as 40 per cent of exports are accounted for by foreign value-added content.

Many of China's imports are then exported. In several industries the share of imported intermediate inputs that are exported is greater than 50 per cent, with the average of all industries just under 50 per cent.  Over 80 per cent of textiles and apparel intermediate imports are exported and over 70 per cent of electrical equipment intermediate imports are exported.