Tuesday, September 18, 2007

China Trade is Changing....

According to this story, the structure of Mainland China trade is changing. In the past, China imported intermediate goods from the rest of Asia, assembled them into final goods, and exported the final goods to the Western world. Thus China ran a massive trade surplus with the US, while running a trade deficit with most of Asia.

This appears to be changing, with China importing more raw materials and constructing the intermediate goods within its borders. If this process continues, China's continued growth will increasingly come at the expense of the rest of Asia, who will no longer assured of a large market for their intermediate goods.

However, an exploding trade surplus is neither efficient nor optimal for China in the long run. If China continues on its current development trajectory, I expect Mainland demand for finished goods imports to grow rapidly, as consumers demand access to the vast range of goods and services available elsewhere. The beneficiaries from this process will be final goods producers (such as Japan, Korea, and Europe), rather than the less developed intermediate goods producers who have done so well off China's growth to date.

See the full story here.

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