Wednesday November 4, 02:14 AM

Source: Indian Express Finance

How the world trade with China stacks up

By Manab Majumdar
Trade frictions with China continue to make headlines. Much has been said on USA levying 35% tariff on Chinese tyres, or anti-dumping duty imposed by EU on China-made fastners, or how US stocks slide as its trade tensions escalate with the far-eastern country. However, one earlier report did not get the attention it deserves: in H-1 of 2009 China for the first time has overtaken Germany and become the world s largest exporter. China s spectacular ascent as a trade superpower is reflected in the massive eight-fold jump in its trade turnover from $324 billion in 1998 to $2.6 trillion in 2008. Export from China significantly improved its share in worldwide total from 3.4 to 9%, while its rank among leading exporters raced from 9 to 2 in the same period. Import of China as a proportion of global total also moved up from 2.5 to 7% with its world rank going up from 11 to 3. Post-entry into the WTO, China s trade recorded over 26% average annual growth and quadrupled in 2002-2008. Share of select partners in China s total trade (%) In the backdrop of such an amazing growth story, it would be interesting to see how the direction and structure of China s trade has changed in recent years. China now trades with 200-plus countries. In 2002-2008 several non-traditional partners like Africa, Latin America, Australia and BRI(C) countries have made their presence felt in China s overall trade, as the pre-eminent position of USA, Japan and Hong Kong shrank. Europe now occupies a higher share while expansion in China s trade with ASEAN and South Korea has remained relatively subdued in this period. China-ASEAN trade was up by 14% and reached $231 billion last year. Substantial opportunities for further enhancing the trade volume would arise as the free trade area between the two economies becomes operative from 2010. The China-ASEAN FTA will create a combined GDP of nearly $6 trillion and cover a population of 1.9 billion, and become the world s third largest FTA. Success in diversification of export Diversification of China s export markets is quite striking. Concentration ratio for top-3 export destinations decreased from 54.4% in 2002 to 39% in 2008. Number of countries accounting for over 1% share of China s total exports rose from 16 to 22 in this period. Among the major trading partners, China s export dependence on USA, Hong Kong (China) and Japan came down steeply, while that on EU, South Korea, ASEAN, UAE and Australia went up. In contrast to the falling share of North America, China s export to Europe as a whole increased considerably from $58 billion (18% share) to $342 billion (24% share) between 2002 and 2008. Least developing countries are steadily emerging as important markets for China s export which registered nearly six-fold increase from $4.3 billion to $25.3 billion in the period under review. Each of the BRI(C) partners witnessed substantial rise in share of China s export. Russia now buys 2.3% of global export from China (up from 1.1% in 2002), while for India and Brazil the corresponding figures are 2.2% (up from 0.8%) and 1.3% (up from 0.5%). Moderate diversification of import On the other hand, China s imports have undergone comparatively less diversification of source-countries with a moderate decline in the top-3 concentration ratio from 37% to 30.4% between 2002 and 2008. As in the case of export, share of Japan, USA and Hong Kong (China) in China s total import dipped from 18.1, 9.2 and 3.6% respectively in 2002 to 13.3, 7.2 and 1.1% in 2008. However, unlike the export scenario, Europe s contribution to China s import fell from 17.6% to 14.8%. The importance of other top import partners such as South Korea, Australia, Saudi Arabia and Iran has gone up in varying degree. Among ASEAN members, in 2008 Malaysia, Singapore and Indonesia accounted for lower share of total import into China as compared with 2002, while the position of Thailand, Philippines and Vietnam improved. Of BRI(C) countries, China s import from Brazil and India surged by 9-10 times from $3 to around $30 billion and from $2.3 to $20.3 billion respectively in 2002-2008. Thus, share of both the countries in China s global import more than doubled. Russia s performance has been less impressive with its share reduced to 2.1% from 2.8%. China stepped up its import from Middle East from less than $10 billion to $80 billion in 2002-2008, and consequently, share of the latter in Chinese total is more than doubled to 7.1%. Flourishing trade with Africa & Latin America China s proliferating demand for commodities, spurred by high growth over the years, is one of the factors driving its trade with Africa and Latin America. The upswing in Sino-African trade has been remarkable and it hit an all time high of $106.8 billion last year, 45% rise over 2007. In fact, China-Africa trade which was a mere $10.5 billion in 2000, has been growing at a healthy 30% per year since then, and breached the $100 billion mark two years ahead of target. China s export to and import from Africa moved up from $6.9 and $5.4 billion respectively in 2002 to $50.8 and $56 billion in 2008. As a result, Africa s share has improved from 2.1% to 3.6% for China s export and from 1.8% to 5% in China s import. In 2008 Angola emerged as China s biggest trade partner in Africa followed by South Africa. The number of African countries whose trade turnover with China exceeded $1 billion was 20 in 2008, up from 14 in 2007. China s trade with Latin American & Caribbean countries (LAC) has also followed roughly similar pattern and surpassed $100 billion in 2007, much ahead of the 2010 schedule. China-LAC trade increased at an average annual rate of 30% since 2001, rising from $15 billion to over $143 billion in 2008. In terms of proportion in China s global total, share of LAC shot up from less than 3% to 5% for export and 6.4% for import in the same period. Changing structure and composition The structure of China s trade is showing sure signs of fundamental change with rising domestic production capacity in recent years. With the augmented domestic supply capability, China s processing trade is shifting away from simple assembly of imported materials to those with greater scope for using domestically produced inputs. Share of processing trade with imported materials in exports declined from 43% in 2003 to 39.7% in 2008. Such factors have also led to significant change in China s export basket as discussed in the following. Share of major product groups in export 2008 As regards product composition, share of manufactures in China s total export stood at 93.1% in 2008 as against 88% in 2000. The rising prominence of manufactured goods is mirrored in the shrinking share of agri-products to 3% from 6.6%. Export of manufactures from China recorded 25% annual growth in 2000-08 and commanded nearly 13% share of worldwide export in 2008, up from less than 5% in 2000. The opposite trend is observed for import. Share of manufactures in China s total import was lower at 65% in 2008 , while that of fuels and minerals spurted to 15% (from 9.2%) and 12.2% (from 6%) respectively. This reflects China s accelerated quest for raw materials and energy security. However, share of agricultural products came down marginally from 9 to 8% in this period. The author is assistant secretary-general, FICCI. Views are personal