|We cannot be too optimistic on China’s exports, even though we think the country’s competitiveness is still strong. Image credit: scobleizer at Flickr under a Creative Commons license.|
An important part of the answer lies in the fact that the export performance differs markedly between sectors. Exports of light manufacturing products, such as textiles and toys, are by now lower than a year ago in real terms (see right hand figure below), while real exports of (higher value added) machinery and equipment are still growing by over 30 percent year-on-year. Exports of light manufactures have been hit by cost increases as well as weak overall foreign demand—which matters a lot because China now produces the bulk of global production in certain sectors, such as toys. On the other hand, China’s exports of machinery and equipment still occupy modest market shares globally, and China’s strong underlying competitiveness means that its exporters can continue to gain market share even in more challenging global circumstances.
These sharply differing performances illustrate the kind of upgrading of the production structure that we are starting to see, and of which we are likely to see much more in the coming years.
Unfortunately, exports are likely to fare worse in 2009 than in 2008. The World Bank is forecasting very weak total world imports next, expecting that they will shrink for the first time since 1982. This means that we cannot be too optimistic on China’s exports, even though we think China’s competitiveness position is still strong.
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