According to unofficial data, China is now the world’s largest merchandise exporter, having exported a total of US$957 billion worth of goods in the first 10 months of last year. It was an inevitable development, given the country’s rapid export growth over the last ten years, and given that the economic downturn has hit China much less seriously than other countries.
Even in a downturn, people can afford the relatively cheap consumer products for which China is known. Germany, which now moves into second place as an exporter, has been less fortunate as industrial investment dried up worldwide, taking with it demand for German machinery.
As indicated by government announcements at the end of last year that China will continue stimulus policies aimed at export industries, however, exports of consumer goods remain weak overall. And as Germany’s example indicates, Beijing’s long-term plan of encouraging the development of manufacturing higher up the value chain won’t be enough to guarantee growth.
Beijing knows well enough that domestic demand and private investment are crucial to the long-term health of the Chinese economy. Acting on that knowledge is of course considerably harder – Germany is also said to struggle with finding ways to encourage its consumers to spend and support its service sector.
This challenge should not be forgotten by those who assume that Beijing will be able to find a quick fix – health care reform is a favorite example – to encourage less saving and more spending. These are not simple problems, and there are no simple solutions.