China Powers “Two World” Economy
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China Powers “Two World” Economy

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“We are moving away from a U.S. – or Europe-led world to a world led by China,” writes Stephen King, Chief Global Economist at HSBC in a report released on Wednesday.

HSBC’s Emerging Market Index for the last quarter of 2012 tells investors to think of the global economy in terms of “two separate narratives.” The first is the “old world” consisting of the U.S. and Europe, which continue to experience an ongoing deleveraging. The second is the “new world” consisting of the “structurally dynamic” emerging markets in general, but China in particular.

In fact, HSBC projects that “China will make its biggest-ever contribution to global growth in 2014.”

Part of this is attributable to a slight improvement in China’s economy, which HSBC expects will grow by 8.6% in 2013, up from 7.8% in 2012. Although this is more robust than the 5.4% growth rate HSBC expects from the emerging markets as a whole, it is still a slower rate of growth than China experienced in the pre-financial crisis era.

Still the slower rate of growth is not as consequential as one might expect, at least in terms of China’s impact on the world economy. This is because the Chinese economy is much larger than it was when it was growing by double digit growth rates. “As a result,” King writes, “although its own growth rate may have slowed, its contribution to global growth is on the rise.”

King illustrates this trend by pointing to the increase many countries have experienced, in terms of the percentage of their GDP that comes from their exports to China. This is especially true for countries located near China and, to a slightly lesser extent, commodity producing economies. For example, whereas South Korea’s exports to China amounted to just 3.5% of GDP in 2000, 12% of Seoul’s GDP came from its exports to Beijing in 2012.

It was hardly alone. In fact, a HSBC report from November of last year noted that every country in Asia except for India had seen its export exposure to China—exports to China as a percentage of a country’s total exports—increase between 2006 and 2011. The increase was especially striking in Australia, given its location and commodity production. According to Saul Eslake, chief economist at Bank of America’s Merrill Lynch division in Melbourne, Australia ships about 28% of its exports to China and Beijing indirectly sets the price that other countries pay for another 30% of Australia’s exports.

HSBC also singled out Malaysia and Singapore as other Asian nations whose export exposure to China has grown in recent years. Not surprisingly, non-Asian countries that have seen the largest increase in their exposure to exports to China are typically commodity producers, the report said, explicitly listing Chile, Kazakhstan, Saudi Arabia, and Angola. Angola is a particularly interesting case. With a GDP of U.S. $101 billion in 2011, Angola has become China’s fourteenth most important source of imports, the report says, ahead of countries like France, Canada, Italy, the UK, and even India, which borders on China and boasts an economy over 18 times as large (U.S.$1.85 trillion) as Angola’s. In light of this, HSBC concludes that, “the lack of trade between India and China must count as one of the great missed opportunities of recent years.”

But if India’s paucity of trade with China makes it an outlier in Asia, it would be quite at home in the “old world” nations in North America and Europe.

“The ‘old world’ has yet to catch the China express,” HBSC writes. Indeed, U.S. exports to China are only 0.7% of Washington’s GDP, with Canada, France, and Italy roughly equivalent. On the other hand, the U.K.’s exports to China are even lower, making up just 0.4% of London’s gross output. Germany’s far better than other members of the EU in this (and most other) regards, with about half of EU exports to China coming from Germany, according to the European Council on Foreign Relations (ECFR).  The same ECFR report, published in May of last year, estimated that just under 7% of German exports go to China, making it Germany’s third largest export market after the EU and the U.S.

Still HSBC cautioned against putting too much stock into this, noting that: “Germany’s heightened trade relationship with China has been absolutely swamped by an even bigger increase in its dependency on the rest of Europe.”

Thus is the reality of a two world economy.

Zachary Keck is assistant editor of The Diplomat. He is on Twitter: @ZacharyKeck.

Comments
16
phil
January 15, 2013 at 11:55

Hi Bernard and John, how's the "50 cent" club is doing? You both were already on defensive mode? Don't need to be upset over an article from BBC
 

Davidake
January 21, 2014 at 21:00

your comments show how mean and low you are. Instead of blaming others as “50 cent”, write something more worth to read, will you?

phil
January 15, 2013 at 11:53

Hi Bernard and John (hmm all western names eh?) , how's the "50 cent" club is doing? You both were already on defensive mode? Don't need to be upset over an article from BBC

Jaques666
January 14, 2013 at 19:00

This article is almost believable…but then you realise that the idea of a "two world" economy is absolute nonsense.  China runs a massive net trade deficit. It is only helping overall global growth, not net growth. In net terms, China is actually depressing growth in other countries.
 
This decoupling theory from sell side HSBC analysts is pointless. YOu can't claim there are two world economies and then conveniently forget the massive trade deficits that tie them together. China might well run trade deficits with countries upstream in the supply chain, but without China's exports and surplus partners, such deficits would rapidly diminish or evaporate.  
 
Bad fuzzy thinking. Total lack of understanding of international supply chains – eg as China end exports more and more to the "old world" the "new world" countries in the supply chains are squeezed out and end up shipping partial components to China, also failure to acknowledge the fact that EU and US and Japan have moved their own companies to China (so that you can hardly claim they are not involved – even if it doesn't show up in the balance of payments) much more than "commodity producer" countries. Poiontless and irrelevant facts about Germany etc.
 
HSBC's report was weak. An article taking it as anything more than sell-side analysis is even weaker. A bunch of morons commenting about how somehow this equals a shift in global economics when China is still running huge net trade deficits (especially its bilateral deficit with the US) is even worse.

No 50 centers here
January 13, 2013 at 22:59

China's current economic dash has been largely the result of some highly unintended consequences of WTO policies that were originally enacted to enable the west to become master of the globe. For China, WTO membership made greatly suitable the marriage of dengism and global capitalism but now the time has come to put an end to it. China's economic success has never been acknowledged by the west as (one of) mankind's supremely crafted achievement of the modern era. Instead, it earned only scorn, derision and huge envy from the west and now is time for China to STOP serving as the global locomotive but to shift itself to a defence-based economy that operates largely or solely for its own benefit just like what the U.S. economy has become today. Self-preservation is the new mantra .

anti-Dengist & anti-west
January 13, 2013 at 07:10

China's present economic rush has been much too quick mostly as a result of some unintended consequences of WTO policies which were originally aimed at making the west the economic ruler of the globe. This rush brought along with it huge benefits as well as some very high costs many of them long-term in nature. The marrriage of dengism and global capitalism produced an economic miracle that has remained (almost overwhelmingly) unheralded by the west. Instead it received very unprecedented scorn and scrutiny. Now is the time for China to abandon this unholy marriage and concentrate on a defence-based economy just like what the U.S. has become today !

anti-Dengist & anti-west
January 13, 2013 at 07:07

China's economic rush has been much too quick mostly as a result of some unintended consequences of WTO policies which were originally aimed at making the west the economic ruler of the globe. This rush brought along with it huge benefits as well as some very high costs many of them long-term in nature. The marrriage of dengism and global capitalism produced an economic miracle that has remained (almost overwhelmingly) unheralded by the west. Instead it received very unprecedented scorn and scrutiny. Now is the time for China to abandon this unholy marriage and concentrate on a defence-based economy just like what the U.S. has become today !

Dan
January 13, 2013 at 03:53

Just let your RMB float freely on the open market like the Dollar & other currencies in the world, then  it'll be the 'global reserve currency' immediately! Talk less, do more, comrade Bankotsu!

John Chan
January 13, 2013 at 03:40

@phil,
The rest of world is armature and midget comparing to the USA and its lackeys’ black information network in terms of sophistication on propaganda; manufacturing consent, brain-washing thru entertainment, etc. are just a glimpse of the prowess of the USA’s propaganda machinery, they make you live in their propaganda like every bit of air you breathe.
 
The anti-China blogs is at least 10 times more than those defending China blogs on this site, it proves you are distorting the fact and employing a technique taught at the Dick Cheney School of Imperialism.

John Chan
January 13, 2013 at 03:19

@DN,
Please spare us your cold war babbling, every nation has security machinery to watch its citizens and everybody else in the nation to behave within the confines tolerated by the ruling elites. Barbed wire camps, courts, emergency task forces, etc. are there to make sure China FDIs behave properly.
 
All multinationals like Google, Microsoft, GM, GE, etc. all carry USA government’s mandate overseas, showing flags, changing local policies in the name of FDI, etc. are part of their jobs, it is called soft power.
 
You prefer your fellow citizens suffering from unemployment instead of letting China’s FDI creating jobs for your fellow citizens, you are more redneck and moron than commie.    

Bernard Vaugh
January 13, 2013 at 02:08

This Troll is obviously speaking for the US. Its what Washington does best – smears and slanders – but always ascribing to others what it itself is grossly guilty of.  What a hypocrite.  Its dishonesty never ends as best exemplfied by its forever lying bullsh*tting trolls. 

phil
January 12, 2013 at 22:39

 
Regarding China CCP 50 centers! My only comments, what we are suspecting  is confirmed and China would 20-30 times bigger

http://www.bbc.co.uk/news/world-asia-20982985

Excerpt: (read rest of the story for more)
"Vietnamese propaganda officials have admitted deploying people to engage in online discussions and post comments supporting the Communist Party's policies.
The party has also confirmed that it operates a network of nearly 1,000 "public opinion shapers".
They are assigned with the task of spreading the party line.
The tactic is similar to China's model of internet moderators who aim to control news and manipulate opinion."

DN
January 12, 2013 at 15:03

I would support FDI from China if it was private capital whose objectives would be purely economic, however much of capital from China is state capital with political overtones.
 
Contrary to what Mao says religion is not posion, it is Chinese politics which is posion – just look at the case of brain washing of Chinese students on the nine-dash line, or the cultral genocide of Tibet by the CCP.
 
So China can keep its posion fruit on its shore, the US and its partners are too well fed and smarft enough to only take sanitised Chinese capital in the form of monetary debt rather then offering the CCP equity in the real economy.

Bankotsu
January 12, 2013 at 14:30

The sooner the world gets rid of dollar hegemony the better. I am hoping that day will come soon. The future of the multipolar world depends on it.

James the Australian
January 12, 2013 at 11:13

The sooner, the whole world realised that the USA is of no consequent to world trade, the better off we will be.
America contribution over the last decade has been one of instability and upheaval to the world financial market and its influence is way beyond its actual size.
America GDP may be the largest but its trade with the rest of the world is very minimal and were mostly based on weapons exports, passenger jets and financial derivatives that were cooked up and served to unsuspecting customers.
Expects more quantitaive easing or money printing out of thin air, as their politicians quarrel among themselves and lacked the determination and gut to tackle their horrendous, uncontrolled debts.
It is sad that, a once great nation, has been so blinded by their military might, that they do not understand,the trillions of dollars of money that was wasted fighting wars, instead, if spent on invigorating their manufacturings, infrastructures and nation building would have made America a much better nation, a nation with an energetic industry and renewed infrastuctures with jobs a plenty. Instead, it has becomes a nation where even its federal government is  staring at bankruptcy with no means to pay its employees.
Washington is in a state of anarchy where politicians squabble over trivial matters and where talk of tackling the national debt is just too sacred to mention and to discuss. So expect more paralysis!!!

John Chan
January 12, 2013 at 08:24

If the USA and its partners are not carrying their imperialist glory past on their shoulders and blocking China’s FDI in them, it is totally unnecessary for the 99% of their citizens to miss out the fruit of China’s economy growth. The 99% of the USA and its partners pays heavily for the paranoid of their 1%.
 

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