Tuesday, February 26, 2008

China Trade and US Recession...

"If the US experiences a recession, might that not be good for China's exports? After all, China exports low-priced goods, and US households may consume more of these during a recession" - DuOo

You raise a good point. During a recession, consumption of luxury goods falls dramatically, while consumption of necessities may barely change. Thus depending on the kind of goods China is exporting, a US recession may not necessary hurt China's economy. I expect that a US recession will negatively impact on China, for two reasons:

1) There's a difference between low priced goods and necessities. Yes, demand for necessities is relatively resillient during a recession, but necessities are items like food and medicine. These are not the largest part of Chinese exports to the United States. Instead China's exports are mostly made up of consumer goods that, while (relatively) cheap, are not essential consumption items to US households.

2) China's exports are increasingly in the "luxury" and durable goods sector, which are highly vulnerable to the business cycle. There are very few cars, for example, that do not contain some parts that were made in China. An anecdote that I heard recently from a friend in the watch industry is that the mechanisms in nearly all "Swiss" watches are made in China. The watch is still assembled in Switzerland, so that it can still be claimed to be "Swiss" for marketing reasons, but much of the actual manufacturing is now taking place in China.

For these reasons, I expect that a US recession will negatively impact on China.

2 comments:

Anonymous said...

Dr.Yetman, due to your first point of view, I raise one question. Although the low-priced commodity is not equal to necessity, it is still the alternative to those items that are high-priced but with the same function. Large demand elasticity allows consumers to buy more cheaper goods instead of dear ones, I think it's reasonable. In this sense, it will not hurt China's export that much.
In contrary, the weak dollar will contribute to the narrowing of China's huge surplus as a result of 'dearer Chinese goods'.

francis said...

U.S. and China Achieve Some Progress at JCCT Meeting.Ministry of Railways issues RMB 20 bln bonds.CNPC raises stake in PetroChina.Jiangsu Shagang proposes to acquire Brazilian iron ore miner.HK stocks tumble 4% on Tue.Sinopec sees better outlook in bid for Tanganyika Oil. Shanghai index dips 1.56% on Tue.CIC launches official website.CITIC mulls bidding for Aquila's iron ore and coal assets.China solicits public opinion on new share repurchase rule.Regulations of the State Council on Standards for Declaration of Operators' Concentration.MOC to hold hearing on Coca Cola's takeover of Huiyun. Administration Measures on Import of Specified Old Mechanical and Electronic Products. Regulations of the People's Republic of China on Foreign Exchange Management. New SFDA Rules Cover Supervision over Catering, Health Food and Cosmetics. Administrative Measures for Sealing up and Detention in Entry-Exit Inspection and Quarantine. No Jobs for People without Temporary Residence Permit in Guangzhou. CSRC lifts requirements for refinancing. Public Announcement of the People's Bank of China and the General Administration of Customs. Measures on Implementation of Automatic Licensing for the Import of Electro-mechanical Products."Such an economic performance is almost as close as you can get to avoid the technical definition of a recession," economist David Shulman wrote in the latest UCLA Anderson Forecast, darkly adding, "Of course, when the economy slows to 1%, it runs the risk of falling into an actual recession just as when an airplane's velocity dips down to its stall speed and falls out of the sky."
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francis
Link Building