Exports

How China’s current account surplus will evolve in the coming years is one of the key questions on the economic outlook, both for China itself and for the global economy. China’s increasingly competitive manufacturing sector will continue to power ahead, to expand exports and to gain global market share. At the same time, China’s domestic economy should continue to grow rapidly, thereby drawing imports. However, how this will on balance play out with regard to the current account surplus is less certain. It will largely depend on how much progress is made with rebalancing the economy.

China’s export volumes have continued to rise very rapidly in recent years.An increasing array of manufacturing sectors is becoming more competitive internationally, including many types of machinery and equipment. Competitiveness is boosted by technological catch up, movement up the value chain, and economies of scale as well as by traditional strengths such as infrastructure and the business climate. Reflecting these factors, labor productivity growth in manufacturing has remained solid, thus helping containing unit labor costs despite respectable wage growth.

Some have argued that China is losing its competitive edge because its export prices are rising. However, that is an incorrect inference. Higher raw commodity prices mean export prices are rising all over the world—not just in China. Prices of US imports from China are now rising at the same pace as those of US imports of manufactured goods from developed countries. But those of US imports of manufactured goods from other emerging markets and developing countries are rising faster. On this price metric, the most we can say is that China’s competitiveness is improving at a slower pace than before.

To a tourist visiting Cambodia, or to a French consumer living in Cambodia (whose food habits require a complement of pasta and potatoes), rice will mainly mean the stunning landscapes of rice fields, yellow at harvest time, bright and liquid during the rainy season, with shades of green meanwhile. But to a Cambodian consumer and to a Cambodian farmer, as well as to their Government (and to the French economist), rice is the staple crop, a possible “white gold” as the Prime Minister once put it, and a major part of a poverty reduction strategy.

On August 17, 2010, the Prime Minister launched a “policy paper on the promotion of paddy production and rice exports” (see announcement). This is a good and promising example of a cluster approach to Cambodia's growth strategy.

Cambodia is an important but still small rice exporter. Cambodia has been an exporter of rice since 2004, but a large part of the exports was unprocessed (paddy) or even smuggled through the border. Yet Cambodia has abundant land and sits in a region that is both fertile for and in high demand of rice (see Chapter 1 of our report on growth).

So far the potential comparative advantage for rice was diluted by various costs, official (e.g. electricity) or unofficial (e.g. illegal check points). Poor coordination of public and private actors was also undermining the potential. For instance weak land titling systems and weak sanitary controls were a constraint that led to limited access to finance, itself contributing to limited value addition. However the significant increase in price in 2008 - and again a rebound in the past few weeks - has drastically changed the economics of the sector.

Image courtesy of Caitfoto through a Creative Commons license

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Following the very successful earlier engagements of a Khmer palm reader and a celebrity turtle-shell fortune teller, the Thailand economic team has recently hired the forecasting star of the moment to divine the future of the economy. I am not talking about Professor Nouriel “Dr. Doom” Roubini, but Octopus Paul, who had to escape Germany in a hurry to avoid becoming “pulpo a la Gallega”. For a hefty fee of a five shrimps, the wise cephalopod spent a few hours in our offices sharing his prognosis for the Thai economy.

We just released our China Quarterly Update. For us (the economics unit in the World Bank’s Beijing office), this is a good disciplinary device to go through the data, look at what has happened, think about what the economic prospects and policy implications are, look in some more detail into some issues, and write it all down.

In addition to the usual topics, this time we focused a bit on two macro risks that have caught the attention of analysts: a property bubble and strained local government finances. In this blog I summarize our current understanding of the general economic outlook and what it means for policymaking. In a separate blog post, I will soon discuss the issues on local government finances.