Column : Importing to export

Written by Amitendu Palit | Updated: Feb 21 2013, 07:27am hrs
Chinas emphatic dominance of world trade hides some interesting aspects of its economic relationship with different regions.

Chinas total merchandise trade was around $3.6 trillion in 2011. This comprised exports worth $1.9 trillion and imports worth $1.7 trillion. This left China with an annual trade surplus of around $200 billion. This is, of course, expected given its 10.4% share in world goods exports and 9.4% share in world imports. In services, China has a trade deficit of around $50 billion.

Chinas high share in world exports, which makes it the worlds top-most goods exporter, coupled with its sizeable goods trade surplus, gives the impression that it runs trade surpluses all across the world. However, it is not so. Indeed, Chinas position as the worlds top goods exporter has much to do with the unique trade relations it has with some regions and the trade deficits it runs with them.

China runs a trade deficit with Africa. This is surprising to many given that the common notion is that poor Africa laps up all Chinese goods and has hardly anything to offer in exchange to the prosperous Middle Kingdom. On the contrary, China had a deficit trade of around $20 billion with Africa in 2011, which was a sharp increase over $7 billion the year before. The largest deficits in Africa are with Angola, South Africa, Congo, Libya, Sudan and Zambia. While most of these deficits are produced by Chinas insatiable appetite for crude oil, they are also influenced by large purchases of raw material like wood and minerals like copper and nickel.

Chinas largest trade deficit is with the Asian continent. This is hard to believe for Indians given that India runs a large trade deficit with China. But the truth is that China ran a deficit of more than $100 billion with Asia in 2011. The individual deficits are scattered over West, Southeast, Northeast and Central Asia. The only part of Asia where China has trade surpluses with all countries is South Asia. It has large deficits with Iran and Saudi Arabia and runs relatively small deficit trades with Oman and Qatar. Kazakhstan and Turkmenistan are the two Central Asian republics running trade surpluses with China. Again, it is primarily oil and hydrocarbons that influence these trade deficits, like they do in Chinas trade with Africa. Coal and minerals are also responsible for Chinas large trade deficit with Australia and the overall deficit with the Oceania region and Pacific islands.

The mothers of all trade deficits for China lie in its immediate neighbourhood. Beginning from Taiwan with whom China has a trade deficit of $90 billion, it has deficits of $80 billion with South Korea and $46 billion with Japan. Among Southeast Asian countries, its largest deficit of $34 billion is with Malaysia. It has a deficit of around $13 billion with Thailand and runs small deficits with Indonesia and the Philippines.

The drivers of Chinas deficits in its neighbourhood are different from those in West Asia, Central Asia and Africa. Unlike oil and energy products, which are its main imports from the latter, Chinas biggest imports from Northeast and Southeast Asia are electromechanical items. Electromechanical products comprise more than 40% of Chinas total imports. More specifically, these are electronic parts and components to be beaten into shape for use in a diverse range of electronic, computer and communication equipment.

The processing trade in electronic parts and components marks a unique relationship that China has with some of its neighbours in the region. It imports large amounts of these products from these countries for processing and assembling in the mainland. The assembled products are re-exported to third countries. The largest re-export markets are North America and Europe. Chinas trade surpluses with these two regions are a whopping $205 billion and $125 billion, respectively. These surpluses outweigh the deficits it has elsewhere and make it a net exporter of goods with respect to the rest of the world. It has a small surplus of $2 billion with the Latin America and the Caribbean despite running fairly large deficits with countries like Brazil, Venezuela and Chile. These deficits again are produced by energy products and natural resources.

Chinas status as the worlds largest goods exporter has much to do with the imports it sources from neighbours, particularly Taiwan, South Korea and Japan. It has tacky political ties with all three. But China has been careful in not letting political differences reach levels where they threaten its economic synergies with these countries. And it wont in the foreseeable future also. After all, minuscule political gains on barren territories can hardly match economic gains that come from being the worlds largest exporter.

The author is visiting senior research fellow at the Institute of South Asian Studies in the National University of Singapore. He can be reached at isasap@nus.edu.sg & amitendu@ gmail.com. Views are personal