from Follow the Money

Why are Chinese exports to the world growing faster than Chinese exports to the US?

September 16, 2006

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Floyd Norris notes this week that China is about to overtake the US and become the world’s second largest exporter.   

The graphics that go with his column are great.  Note the huge surge in Chinese exports to Europe started in 2003.   And that China (based on the Chinese data, which doesn’t reflect the final destination of Chinese exports to Hong Kong) now exports as much to Europe as to the US.   

That highlights a key point that hasn’t received enough attention in the debate over China – namely that the US has not been the primary driver of China’s export boom.  Chinese exports to the world have consistently grown faster than Chinese exports to the US.

us_imports_from_china

Presumably the RMB's depreciation against the euro since mid-2002 has a thing or two to do with the strong growth of Chinese exports to Europe.   And Chinese demand for commodities has a thing or two to do with strong Chinese export growth to many other regions.   I am one of those old fogeys who still thinks relative prices matter ...

The RMB/ dollar has been stable (in nominal and real terms) while the RMB has depreciated in real terms against the rest of the world while China’s real exchange rate must have fallen by over 30% against the euro since 2002 … Offsetting this huge fall in the RMB/ euro likely will take far greater flexibility than China has shown so far. 

I don’t think China should count on a rebound in the dollar – not so long as the US is running a 6% of GDP trade deficit even with the boost to US exports that came from the dollar’s fall v. the euro.

Chrysler, incidentally, seems to be considering marketing Chinese-made small cars in the US.  That might be one way that China can sustain its current pace of export growth off what is by now a very large base.  Indeed, I suspect the only way China can sustain 25% y/y export growth is if it emerges as an automotive assembly powerhouse, not just an electronics powerhouse.

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