Importance of Exports to China

by Marc to Market

China is the world's largest exporter. It is also among the largest importers. This Great Graphic was posted on Business Insider, who took it from Societe Generale's new quarterly economic outlook.

Exports to China account for more than 1/5 of Taiwan's exports and about 1/8 of South Korea and Malaysia's exports. They seem to be exporting mostly semi-finished goods and parts for Chinese workers to assemble. This how China has injected itself into the global supply chains.

Australia is next. China accounts for a little more than 5% of Australia's exports. This is primarily raw materials, especially iron ore, from which China will produce steel. Further to the left on the chart is Russia and Brazil. They are also raw material producers. Russia with energy and Brazil, with soy and iron ore.

Japan's exports to China appear to fall into two main categories: semi-finished goods that are to be assembled, but also finished producer and consumer goods for sale. Germany, which is the world's second largest exporter and Europe's largest exporter to China, is shipping capital goods.

China's exports are still very import-intensive. The key to China's imports then is not just its own growth, which the current five-year plan anticipates and desires slower growth, but also world growth. Growth in the US is projected to be slower than 2012 and Europe is still contracting. Japan's growth the fastest in the G7, is fragile. China's "peaceful rise" was predicated on strong world growth and expanding world trade.

The yuan has been the strongest of the emerging market currencies this year, gaining about 1.5% against the US dollar. Officials have begun cracking down on capital flows disguised as trade flows. Continued appreciation of the yuan seems questionable. In a recent post, The Economist argues that the yuan is over-valued and suggests that perhaps, this over-valuation is a pre-condition to China opening up its capital account, which Prime Minister Li Keqiang, promised before the end of the year.

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