Sonntag, 8. März 2009

China's exports

Just how export-dependent is China? (This is a follow-up on a discussion over at Brad Setser's blog)

China's exports are roughly 35-40 % of GDP.

However, China uses a lot of foreign-sourced components, as well as foreign-sourced raw material in its exports. Therefore, it becomes important to identify the value-added component of China's exports.

Broadly speaking, China's exports fall in three categories:

- Electronics exports have grown very fast; these products use a very large amount of foreign-sourced components from Taiwan, Korea and Japan. Though some have argued that the value-added of this sector, while still low, has increased over time as more and more components are being produced in China.

- Labor-intensive consumer goods (e.g. cloths, shoes, toys); these products use comparatively few foreign-sourced components; the growth of this sector has slowed, as more and more of it has been moved to places like Indonesia, Vietnam, etc.

- Heavy Industry (Steel, ships, etc.); these products use foreign-sourced commodities (e.g. iron ore), but have a comparatively high domestic value-added

Opinions differ as to the overall value-added of China's exports. Estimates are as low as 10 % for electronics and 25 % overall, but several academic studies have come to the conclusion that 45-50 % is more realistic.

45-50 % value-added on 35-40 % exports/GDP leaves us with 15-20 % of export value-added in % of GDP.

This also sounds reasonable based on a plausibility check:

The value-added must be the sum of current account surplus and imports for domestic use. Let's see:

- Current account surplus has been 5 % of GDP or more in recent years
- Commodity imports (oil, iron ore, etc.) should have been at least 5 % of GDP as well
- Imports of capital-goods and consumer goods can be expected to make up another 5 % of GDP

=> Sum total is at least 15 %, probably more

In other words: If demand for Chinese exports drops by 10 %, this translates into 1.5-2.0 % less GDP growth (assuming the drop in export demand is similar over all sectors of the export industry; if the drop is more pronounced in electronics, the drag on GDP would be lower).

Compared to the US, China's export dependency is higher: The US export value-added is roughly 10 % of its GDP.

Compared to Germany, it is lower: German exports are roughly 40 % of GDP. I don't have any solid numbers for value-added, but my guess is that 30 % is a reasonable estimate. Anything lower than 25 % would definitely be unrealistic (it has been argued that the importance of foreign-sourced components has increased dramatically over the last 10 years, due to extensive sourcing from Eastern Europe and Asia; Hans-Werner Sinn even wrote a book about what he considered the hollowing-out of German industry and its transformatio to a trading-based "bazaar economy"; however, many key sectors such as cars still rely to a very large extent on a locally-clustered supplier network).

1 Kommentar:

  1. Ascertaining the input cost for commodity based industries is difficult for China. In the steel industry, its metallurgical coal is sourced locally. The prices paid are usually a fraction of market prices, and coal producers are not allowed to export it. Some iron ore is obtained from North Korea in exchange for arms. Making it difficult to value. One must also put a value on the cost of its export incentives.

    As always, getting a clear picture on China's economy is difficult.