The US-China Economic Relationship in Pictures

This from the US-China Business Council ... Well worth a read to break down a few myths about US-China relations.

Firstly, US exports to China have grown  at a far greater rate than US exports to the rest of the world.

 The next biggest growth market is Brazil, which has grown at 180% compared to 542%.

Not surprisingly Canada is a far more important export market for the US, followed by Mexico. See geography does still matter, despite the guff written about the "end of geography" in the 1980s. 

To prove its point about the continuing domination of the US economy, the authors use the USD exchange rate measure of economic weight. As I argue in How Big, How Rich and How Developed? The State of Play in the World Economy:

How we measure economies matters. To get a clearer picture of the world economy we need to look not only at size, but wealth, development and distribution. But even when measuring the size and wealth of economies, the method of measurement we choose will have a big impact on the outcome. ...

There are two ways to measure the size of economies. Firstly, we can convert the value of a country's gross domestic product (GDP) into US dollars and compare it to the GDP of other countries whose currencies have been converted into US Dollars also.  ... When exchange rates do vary considerably over time, such as the dollar–yen exchange rate after the 1970s, this method may cause distorted measures of size. ...

Such discrepancies have led to the increased use of an alternative method of measuring the size of economies based on the concept of purchasing power parity (PPP). Statisticians measure purchasing power within individual economies and then make comparisons on that basis. PPP measures GDP adjusted to reflect different costs of living and production within different economies. As most travellers know, goods and services and production costs are considerably lower in some countries than they are in others.

One should be very cautious about this projection, which seems to animate Australian policy-makers as well. It could turn out to be true, but before 2020 China is likely to suffer a big slowdown in growth, which might make these "middle class" growth projections come unstuck.

This is the one that would surprise most people. Although value-added measured via purchasing power parity would show a significantly different result I would think. Other analysts argue that the Chinese manufacturing sector surpassed the US manufacturing sector in terms of value-added late last decade. Remember too that value-added is just one way to measure the size of the sector (although it is perhaps the most important measure). China does a good deal of assembling still, but as wages increase these assembling operations will increasingly shift to elsewhere in Asia and perhaps Latin America.

Given the still very large US manufacturing sector it is not surprising that US companies' manufacturing assets are located mainly in the US itself.

 

Chinese foreign direct investment (non-bond investment) in the US has grown rapidly in recent years, but to put the level of Chinese FDI in the US into context, it is roughly the same as Chinese FDI in Australia.

As The Heritage Foundation reports: "The leading recipients of Chinese non-bond investment since 2005 have been Australia and the U.S. Other major recipients are Canada, Brazil, Britain, and Indonesia. In 2012 alone, Canada topped the list, thanks to the Chinese CNOOC's $15.1 billion acquisition of Nexen, the largest outbound investment to date. The U.S. was second: After a weak 2011, Chinese investment here shattered the old annual record with over $14 billion spent (including a $4.2 billion acquisition late in the year). North America drew a full 40 percent of Chinese non-bond investment in 2012."




Perhaps the most controversial and widely misunderstood aspect of the US-China economic relationship is the issue of Chinese purchases of US Treasury securities, with many commentators arguing that it represents a Chinese advantage over the US.  As Hillary Clinton said: "How do you deal toughly with your banker?"  Fortunately for the US, this 'problem' is overblown. Indeed, reduced Chinese purchases of US Treasury securities would be good, rather than bad, for the US. As the graphic makes clear most Treasuries are held by Americans anyway. For an explanation of China's Reserves see here and here. 

China is King of Coal

China is doing well in the production of renewable energy, but it's not doing well enough to make a serious dent in its pollution problems. (click each word for some seriously scary pollution photos).

One of the problems is the growing consumption of coal to fuel its massive manufacturing sector and its incredible infrastructure development.

As the chart below shows, the growth in Chinese coal consumption and its increasing percentage of total global consumption is more than making up for reductions in coal use elsewhere, especially in the developed world.

As the US Energy Information Administration points out:

Coal consumption in China grew more than 9% in 2011, continuing its upward trend for the 12th consecutive year, according to newly released international data. China's coal use grew by 325 million tons in 2011, accounting for 87% of the 374 million ton global increase in coal use. Of the 2.9 billion tons of global coal demand growth since 2000, China accounted for 2.3 billion tons (82%). China now accounts for 47% of global coal consumption—almost as much as the entire rest of the world combined.

Robust coal demand growth in China is the result of a more than 200% increase in Chinese electric generation since 2000, fueled primarily by coal. China's coal demand growth averaged 9% per year from 2000 to 2010, more than double the global growth rate of 4% and significantly higher than global growth excluding China, which averaged only 1%.

As these graphics show (you'll need to go here for the animations!) Asian coal consumption dwarfs the consumption of the rest of the world and Chinese consumption dwarfs that of the rest of Asia. Only Europe and the former Soviet states have reduced their consumption of coal.

The huge increase in global gas supply in recent years, which will grow even further in coming years, may eventually make a difference, but don't count on it happening soon. Without wishing to downplay the importance of renewables, they also are not going to make much difference in Asia for some years yet.  

US gas exports are restricted and the US domestic gas glut is providing a fillip to US manufacturing, which suddenly appears more competitive than it has for many a year. 

The EIA provides some basic facts on Chinese energy production and consumption.

 Electricity

• China had the most installed generating capacity in the world in 2011, at 1,073 gigawatts, slightly higher than the United States.
• About 80% of China's electricity generation came from conventional thermal sources, primarily coal, in 2011.
• Both China's electric generating capacity and its electricity generation doubled between 2005 and 2011. 

Coal

• China was the largest producer and consumer of coal in the world in 2011, and accounted for almost half the world's coal consumption.
• China became a net coal importer in 2009 for the first time in over 20 years.
• China has the third-largest coal reserves in the world.

Oil

• China was the world's second-largest consumer of oil and liquids in 2011, as well as second-largest oil importer (trailing the United States in both categories).
• China's total oil consumption is slated to continue increasing; EIA forecasts that growth in China's demand for oil will represent 64% of projected world oil demand growth during 2011-2013.

Natural gas

• China was the fourth-largest global consumer of natural gas in 2011.
• Use and production of natural gas in China is rapidly increasing; natural gas production more than tripled over the last decade.
• Consumption of natural gas in 2011 was nearly 50% higher than in 2009.

Nuclear

• Nuclear power made up only 2% of total electricity generation in 2010. As of mid-2012, China had 15 operating reactors, with a total capacity of nearly 13 gigawatts, and 26 new reactors under construction, with a capacity of about 29 gigawatts.

Renewables

• While renewables made up a small fraction of the country's total electricity generation, China was the world's leading producer of hydroelectric power in 2010, and the second-largest producer of electricity from wind power.

Chinese demand for energy is driven by its continually expanding economy.

Slowing growth in 2012, plus lower energy intensity should see some declines in this rapid growth in coming years, but of course this will have a negative effect on Australian exports. China's pollution problem, it seems has been beneficial for Australia (at least in the short term!).

In the meantime, not to worry, you can always buy a can of fresh air or look at a screen of a beautiful blue sky with fluffy white clouds!