Countries around the world are focusing on the implications of this renewed and apparently sustainable robust growth for global trade and investment flows, and wondering about the impact on their own backyards. China's role in global investment, global manufacturing, global commodity prices, global forex rates and global inflation/deflation trends is today greater than at any time in history. Not bad for a country that was effectively on no global radar screens at all as little as a decade ago.
It began with exports. For years, the world has been watching as manufacturers of all kinds close their factories and move to China production of items big and small, all now carrying that Made in China label. In Michigan, Madrid and Malaysia, it's as if there is a Chinese straw stretching into every corner of the global coconut and sucking out the productive capacity.
This phenomenon is now being felt in other areas as well. China is exhibiting an insatiable appetite for raw materials and commodities, to fuel both its export industries and also its booming domestic retail markets, and the sheer volume of its needs are pushing commodity markets around vigorously.
Critics who previously complained of China exporting deflation in the form of ultra cheap consumer goods are now warning that the country is causing global inflation. Commodity prices, especially metals prices, have soared globally, with China accounting for 95 percent of the growth in world steel demand since 2000, 99 percent of growth in nickel demand and 100 percent of the growth in copper demand over the same three years. A poor harvest season in China is currently creating a boom in grain prices. Oil and gas are being sucked up while infrastructure projects, real estate and the car sector generate high demand for raw materials such as steel, cement and rubber.
It is not only raw materials that are driving imports. With average urban-household incomes in China increasing 11 percent a year since 1999 and consumer credit becoming increasingly important (see page 14), consumption of domestic and foreign retail goods is taking up an ever larger share of GDP.
According to Chinese official estimates, 2003 total trade volume could exceed US$800 billion with imports expected to reach about US$395 billion, powering China past Japan to make it the world's third largest importer after the US and Germany.
There was a spurt of exports in October as traders tried to beat the reduction of export tax tariffs on January 1 but overall, China's trade surplus appears to be shrinking and could even become a deficit as early as next year on the back of this massive import growth. By contrast, three decades after it became an exporting behemoth and the whipping boy of protectionists everywhere, Japan STILL has a large trade surplus with the rest of the world.
China, in other words, is re-writing the rules. It is an aggregator of manufacturing capacity to the detriment of other economies, and also an ever-bigger purchaser of commodities. But what it is more than anything else is a major trading nation – exports AND imports.
The Asia-Pacific Economic Cooperation (APEC) conference in October saw President Hu Jintao steal the show with his promise that China's development would increase prosperity across the Asia-Pacific region. His promise is backed by figures that indicate the 10 member nations of ASEAN saw a collective rise of 50 percent in exports to China in the first half of this year while China's imports from Japan rose 42 percent year-on-year in September alone.
With the entire region apparently prospering on the back of China's growth, the cacophony of complaints over the undervalued RMB seems to have died down. But with an election year ahead in the US and China the easy scapegoat for the loss of American manufacturing jobs, this is not the last to be heard on the issue.
The noise from the US appears to be no more than that – loud complaints for the benefit of domestic voters with little will on the Bush administration's part to do anything as drastic as introduce tariffs or penalties on the fastest-growing economy in the world.
The Chinese government is beginning to learn the ropes. In the early 1990s, when Taiwan was being blamed for flooding the US with cheap products and politicians were lamenting a significant trade imbalance, it used to send high profile delegations to the States on buying missions to even up the scales. China is now doing the same. In December, Premier Wen Jiabao is planning a high profile 'shopping trip' to the US to buy, among other things, Boeing aircraft and part.