Sunday, March 8, 2009
China: export-led or consumption-deficient?
Back in Hong Kong, I had breakfast this morning with a very smart economist friend whose name and employer I will leave out since those were the terms of our discussion. We were talking about Asian economies (sounds dry, but it wasn't) and he made an excellent point that is relevant to today's debate about China: by the numbers, China's economic model has never been export-led. According to this economist, 40% of China's growth in recent years has come from investment (private and public - that's everything from building roads to putting equipment in factories). An equal amount has come from consumption. Only 20% of growth has come from net exports. That export share has risen since the turn of the century, and the "tentacles" of the export sector extend into other industries, but it's still hard to argue that China has been "export-led". A better way to describe China, by his argument, is "consumption-deficient". This is certainly something everyone agrees on, including the Chinese government. (Good news for Wal-Mart and Carrefour!) As we know, there are lots of reasons why Chinese people are big savers, but one comment from my most recent visit to rural China sticks in my mind: driving around on the back of a motorbike with this young guy who had opened a little restaurant in Foshan, outside Guangzhou, he told me that he prefers to shop in the cities. Why? It's more expensive to shop in the countryside. A coat that costs RMB100 in the city might cost him RMB180 in a rural store. Why is that? Is it just logistics and distribution costs?