by Daniel H. Rosen, Peterson Institute for International Economics
Posted in the China Real Time Report, Wall Street Journal
May 5, 2010
© Wall Street Journal
In my entry last week I talked about China's property policies and whether they would "tank" GDP growth rates. I answered in the negative. The other China GDP risk factor, beside property-investment growth, is net exports. In light of the Greek crisis and possible contagion, here are my thoughts on the net-export side of China's growth.
China's net exports were about $300 billion in 2008 and $200 billion in 2009. In 2007 net-export growth contributed 2.6 of nearly 13 percent GDP growth; in 2008, 0.8 of 9 percent; and in 2009, negative 3.9 of 8.7 percent growth. The 2010 GDP outlook for China—with median expectations of 9.9 percent growth, and a high/low of 11 percent/9 percent—is predicated on net exports coming out flat: near-zero growth or only a slight decline. After a modest net-export performance in the first quarter of 2010, China's Ministry of Commerce (MOFCOM) extrapolated that net exports would fall to $100 billion this year—which would be a big drag on real GDP growth. For such a scenario to eventuate, MOFCOM must be presuming that the United States and Europe double dip and experience flailing growth the rest of this year; otherwise, something like flat net-export performance is far more likely for China.
The seriousness of China's property pullback is sinking in. This is expected to reduce China's imports and hence push up net exports. However, I don't think there will be an across the board real estate dip, as non–high end real estate will be promoted at the same time as high-end property cools off—this was my point last week. But what about a double dip in Europe, arising from the Greek debacle? Is MOFCOM's gloomy extrapolation likely after all? Figure 1 below reminds us that Europe has surged over less than a decade to compete neck and neck for the title of China's biggest surplus trade region, and thus a major EU import pullback would be painful for China.
Figure 2 below shows the evolution of China's monthly exports to the European markets most at risk of crisis and contagion: Greece, Italy, Spain, Portugal, Ireland (the PIIGS), Poland, and Latvia. On the right-hand axis is the sum of these exports as a share of all Chinese exports. Certainly this grouping has been growing as a destination for China's exports and $5 billion a month for the bunch is not too shabby. But consider the dark gray line: this risky group of PIIGS and friends is only 4 to 5 percent of China's total world exports. Europe is 22 percent or so, so this set is less than one-fifth of Europe.
The modest decline in China's imports, arising from property correction and hence natural resource import volumes and values, and the modest decline in EU-bound manufactured goods exports arising from Greece would likely offset one another. From where we stand today, I see no reason to mark down full-year China GDP expectations below the 9 to 10 percent consensus range due to the troubles in Europe's PIIGS. Greece alone is trivial; for this whole discussion to even be worth having, one must consider the spillover scenario, but even that is not reason to panic over China's exports.
Instead, I think the most important indicator of macro China problems that would get us below that growth outlook remains the other pigs—the ones that oink and that still portend considerable consumer price index inflation just over the horizon—which could compel further cooling off policies from Beijing, including interest rate hikes that would slow GDP and impair corporate and household mortgage debt repayment.
Policy Brief 14-21: Is China's Property Market Heading toward Collapse? August 2014
Policy Brief 13-16: Preserving the Open Global Economic System: A Strategic Blueprint for China and the United States June 2013
Working Paper 12-19: The Renminbi Bloc Is Here: Asia Down, Rest of the World to Go?
Revised August 2013
Policy Brief 12-7: Projecting China's Current Account Surplus April 2012
Book: Sustaining China's Economic Growth after the Global Financial Crisis January 2012
Book: Eclipse: Living in the Shadow of China's Economic Dominance September 2011
Op-ed: For a Serious Impact, Tax Chinese Assets in the United States October 13, 2011
Op-ed: Taxing China's Assets: How to Increase US Employment Without Launching a Trade War April 25, 2011
Op-ed: Why the World Needs Three Global Currencies February 15, 2011
Policy Brief 10-26: Currency Wars? November 2010
Testimony: Correcting the Chinese Exchange Rate September 15, 2010
Policy Brief 10-20: Renminbi Undervaluation, China’s Surplus, and the US Trade Deficit August 2010
Testimony: China's Exchange Rate Policy and Trade Imbalances April 22, 2010
Policy Brief 10-7: The Sustainability of China's Recovery from the Global Recession March 2010
Testimony: Correcting the Chinese Exchange Rate: An Action Plan March 24, 2010
Paper: Submission to the USTR in Support of a Trans-Pacific Partnership Agreement January 25, 2010
Paper: China Energy: A Guide for the Perplexed May 2007
Book: US-China Trade Disputes: Rising Tide, Rising Stakes August 2006
Working Paper 11-14: Renminbi Rules: The Conditional Imminence of the Reserve Currency Transition September 2011
Testimony: A Muscular Multilateralism to Engage China on Trade September 21, 2011
Peterson Perspective: Legislation to Sanction China: Will It Work? October 7, 2011