A recent report by ANZ’s research division is offering further signs that macroeconomic winds are shifting towards the south.
The recent run-up on commodity prices has pushed up costs for export-manufacturing countries that gobble far more than their fair share: in a word, China. China accounts for only 10% of global GDP, but around 40-50% of the global demand for coal, steel, zinc, aluminum and copper.
When the price of commodities goes up, the relative losers are China and the four Asian tigers – Korea, Taiwan, Singapore and Hong Kong – where manufactured goods make up around 90% of exports. The relative winners (or less-losers) are India and ASEAN, where the proportion is more like 60%.
According to the ANZ report, this situation is leading to a transfer of income and purchasing power within Asia that isn’t reflected in GDP trends. However, the trend is obvious in gross domestic income (GDI), which is a measure of the purchasing power of all goods produced domestically. Between 2006 and 2010, China’s GDP grew 11.2%, while its GDI was up only 10.1%; India’s GDP grew 8.6%, but its GDI rose 9.5%.
These trends spell bad news for China’s goal of shifting towards a consumer-driven economy. Poorer terms of trade can reduce demand – that’s part of the reason why India’s overall consumption-to-GDP ratio is 68%, while China’s is only 50%.
Of course, this discrepancy may be offset somewhat by the ongoing shift of manufacturing from China to ASEAN countries. As for commodity price trends, the jury is still out on whether the multibillion-dollar IPO of commodities trader Glencore marked the beginning of a downturn; some analysts speculate that tighter monetary policy in China, the Eurozone and possibly the US will soon cause commodity prices to come back down to earth.