Has Developed Economies Become Less Dependent On Imports For Growth?

China's export growth is very sensitive to changes in global demand. Historically, a 1% increase in global demand will drive China's actual export growth by 4%. On the other hand, the rise in export prices will have a significant negative impact on the actual export demand. From this perspective, the real effective exchange rate of China appreciated by nearly 7% in the first eight months of 2013, which is really worrying.

Hugo introduces the articles on China's export situation:

Although global demand has recovered, it is still weak. There is overcapacity worldwide (including China). Therefore, we believe that exporters are unlikely to transfer all (or most) appreciation of the real effective exchange rate to export prices. The experience of the past few years seems to support this view. Accordingly, exporters' profit margins may be squeezed.

Considering the recovery of demand and the appreciation of the RMB, we believe that China's exports will still be positively affected in 2014. We expect that net exports will drive the economic growth of about 0.2 percentage points in 2014.

Has developed economies become less dependent on imports for growth?

Some people may point out that regression analysis is too dependent on historical information to identify the latest trends or structural changes. After the global financial crisis, developed economies began to solve their own economic imbalances, deleveraging the residential sector, fiscal contraction, and some economies also carried out labor market reforms. Do these adjustments make the growth of developed economies less dependent on imports?

The most striking change may be the continuous improvement of the trade balance between the United States and the EU in recent years. As far as the United States is concerned, the vigorous development of shale gas has obviously played a great role in narrowing the trade deficit, but the non oil trade balance has also improved significantly. In Europe, the improvement of trade balance obviously comes from the expansion of non oil trade surplus.

However, we cannot simply attribute these improvements to structural adjustment. Cyclical factors must also play a role. Affected by fiscal tightening and deleveraging of the residential sector, developed countries have experienced a long period of weak growth, which has curbed overall demand, including import demand. For example, although the proportion of EU exports to other economies in its total exports is rising, it is likely that compared with other economies, EU economies and their import demand are weaker.

Most market views believe that the demand of developed economies will recover in 2014, and their import demand should also improve.

But are there any structural changes suggesting that the impact of the growth of developed countries on their import demand has weakened? In the past two years, the import growth rate of developed economies is really not sensitive to the growth rate of domestic demand (replaced by the industrial added value of developed economies). Of course, industrial production may not well reflect the domestic demand of developed economies, so we have made a more direct analysis of the relationship between domestic demand and imports in the United States and the European Union, two major developed economies. These two economies accounted for more than 50% of China's export added value. In the past two years, the growth of imports in the United States has been slower than domestic demand, which is abnormal when the economy has not fallen into recession.

The EU's conclusions are less clear. Although the import performance of the EU is poor due to the weak economy, the overall import of the EU and its imports from other economies have been growing faster than domestic demand in recent years. However, even so, the recent improvement in EU domestic demand has not led to a similar improvement in imports. Although the proportion of EU imports from other economies in its total imports has risen steadily in the past decade, the proportion has almost stagnated in the past two years, and even declined in the past year. It may be too early to judge whether this trend will continue, but the real wage level of some marginal countries in the EU has declined significantly, their competitiveness has significantly increased, and their exports have shown an upward trend.

In general, cyclical factors such as fiscal integration and private sector deleveraging have helped developed economies improve their balance of payments. If deleveraging gradually weakens and fiscal policy constraints become loose, the improved domestic demand of developed economies should enable them to increase their imports to China and other emerging economies. However, due to some signs of structural changes in the EU (the export competitiveness of peripheral countries has increased) and the United States, we are still unable to determine whether the recovery of domestic demand can bring about an increase in import demand similar to that in the past.

Is China losing competitiveness?

The structural changes taking place in developed economies are important to all emerging markets, but in addition, is China's competitiveness declining relative to other emerging economies? Many people believe that China's competitiveness is declining, including the rising cost of labor and land in China, the appreciation of the RMB, and the relocation of factories from China to other countries. However, from a more macro or overall perspective, is China losing competitiveness?

Overall data show that China's share in global export trade has been rising in the past few years, but the growth has narrowed. In the two major export markets of the United States and the European Union, China's competitiveness seems to be weakening, and its market share even shows signs of loss. China's export market share in the United States remained high; In the EU, China's market share has declined in recent quarters. This means that China's market share in other developed and emerging economies (especially Asian countries except Japan) has increased in recent years, especially after the global financial crisis.

The overall trend of market share changes masks challenges at the industry level. Consistent with some empirical evidence, the market share of China's exports of light industrial products in the United States seems to be declining, which is mainly due to the fact that the exporters of Vietnam and other countries at lower prices spin Product clothing 、 shoes We have gained more shares in the export product market such as toys. On the other hand, after several years of rapid growth, the market share of China's mechanical equipment exports in the United States has remained stable in the past two years, while the market share of electronic products has continued to rise, which may reflect China's unique position in the global supply chain of these products. On the other hand, the export share of these products in the EU seems to have peaked recently.

In short, China's share in global trade is still rising, among which the rising share in emerging markets and other developed markets offset the loss of market share in the EU and the stagnation of market share in the United States. In other words, in the past two years, China's export growth may have become more sensitive to the economic growth of emerging markets. In this case, if the US economic recovery causes the Federal Reserve to reduce the size of QE, the positive impact on emerging market economies may also be less than in the past (the negative impact of reducing the size of QE will partially offset the positive impact of improved export demand), so the positive impact on China's exports may not be as great as in the past.