Exports, exports, we all fall down
China’s manufacturing engine is sputtering, boding ill for other Asian exporters like Japan and South Korea. They’re counting on China to offset slowing demand from the United States and Europe. But much of what China imports goes into making its own exports. And even bona fide domestic demand left is likely to be affected by a trade slowdown.
China’s exports show signs of succumbing. Annual growth in monthly exports has slowed from 34 percent a year ago to 16 percent. Growth in China’s imports from the rest of Asia eased from 90 percent year on year in early 2010 to roughly 20 percent in October. Korea’s falling won has kept its exports growing, but Japan’s are shrinking.
Asia’s exports to China started booming after China joined the World Trade Organization in 2002, as the People’s Republic demanded components and machinery it couldn’t make. That made the rest of Asia a key part of China’s supply chain, but also made it more dependent on Chinese export demand.
How much is hard to tell. China’s exports of things made from imported bits are equivalent to 40 percent of its imports. Assuming generously that half of the value of those exports has been added by Chinese workers, it means up to one-fifth of Asia’s exports to China are destined for global markets. Then there’s the export-related stuff that goes into China but doesn’t come out, like equipment and machinery. Machinery and transport equipment, for example, accounts for roughly 40 percent of Korea’s exports to China.
The hope has been that China will consume an increasing share of its Asian imports at home. But domestic demand is unlikely to stand up to an export slowdown. Exports as a portion of GDP have been falling since 2006, but only back to where they were in 2003. And even a small change in exports can influence consumption and investment habits.
The past offers a guide: during the 2008 crisis, China’s exports fell 25 percent, and its imports from Asia halved. Then, gross exports were equivalent to 35 percent of China’s GDP. They account for 29 percent now. It’s hard to see how Asian imports will hold up if China’s export engine stalls again.