From supplier to buyer - China’s impact
Jack Ma (chairman of Alibaba Group) writing in the Financial Times reminds us of an important shift in trade flows between China and the rich advanced nations. Although growth in the Chinese economy is slowing down her export growth will continue to remain strong because of fundamental comparative advantages - but supporters of protectionism often fail to look at the other side of the ledger - the very fast growth of import demand into the Chinese economy - China is becoming a powerful global buyer and not just of mineral supplies from other developing nations.
“While there is a lot of competition from cheaper alternative markets, such as India, Bangladesh and Vietnam, nothing can beat China’s vast choice of products and suppliers. Over the years, Chinese suppliers have redefined themselves beyond pricing and sharpened their advantage in terms of quick turnround, good infrastructure, speed to market and compliance with international standards…..China’s role as top supplier, and now a leading buyer, is causing a new economic phenomenon that should be embraced rather than feared.”
Plenty of room at the Beijing Inn
The long awaited financial bonanza for Beijing’s hotels during the forthcoming summer Olympic games seems less likely to materialise with the news that many 3 and 4 star hotels remain vastly under-occupied with the games just a few days away. It seems that the expected influx of nearly 500,000 visitors from overseas will prove to be an over-estimate - tourists appear to have been put off by the cost of travelling, fears over security and the time and expense of arranging visas. Domestic visitors from elsewhere in China seem to have been affected by the massive earthquake in south-west China and the snowstorms that struck the south in February.
The response of hoteliers when market demand turns out to be lower than forecast is a classic form of second degree price discrimination - reducing rack rates in a bid to increase the take up of unsold rooms. Given the travel distances involved, it would appear unlikely that the price reductions will have much impact in enticing people onto planes bound for Beijing this August. Most of the four or five star hotels will already be full of Olympic dignitaries most of whom wont have to pay a penny for their time at the Games.
Dancing with Dragons
One of my students, newly retired from the school Economics department, is venturing across China to experience first hand, the manifestion of China’s phenomenal economic growth - not to mention having a lot of fun too! Judging from his excellent blog from his journey across India last year, it should be a great read. Here is his travelogue / blog.
High oil prices threaten Asian trade model
Ambrose Evans-Pritchard is on good form in the Telegraph today looking at how the spike in oil prices is theatening the very basis of the Asian trade model. In a world where distance now costs money - ever-rising freight charges are acting like an import tariff for countries whose export-led growth has been built on mass volume manufacturing and the ability to transport these products in huge bulk around the world’s shipping lanes at a relatively low cost.
“The manufacturing revolution of China and her satellites has been built on cheap transport over the past decade. At a stroke, the trade model looks obsolete. Asia’s intra-trade model is a Ricardian network where goods are shipped in a criss-cross pattern to exploit comparative advantage. Profit margins are wafer-thin. Products are sent to China for final assembly, then shipped again to Western markets. The snag is obvious. The cost of a 40ft container from Shanghai to Rotterdam has risen threefold since the price of oil exploded….........globalisation has passed its high-water mark. The pendulum will now swing back from China to America. The mercantilists will have to reinvent themselves.”
The rest of the article is here
A View from China’s Middle Kingdom
Tom White has been in China in the last few days and I recommend his post over at the Business Studies blog. Here is the link.
Tariff taken to the cleaners
Tyler Cowen’s Marginal Revolution alerted me to this neat story about the unintended consequences and costs of import tariffs
read more...»China’s Inflation Problem
China’s inflation rate has climbed to a twelve year high with consumer prices 8.5 per cent higher than they were a year ago. Much of this is the result of the spiraling cost of food (22 per cent higher over the last twelve months).
read more...»Revision: China and the UK Economy
Events and developments in one country inevitably have spill-over effects onto others. Your economics revision should consider some of these inter-relationships wherever possible. It will certainly help your analysis and evaluation. In this revision note we look at China
Revision note:
Revision_China_Effect.pdf
Chart of the Day: China’s imports of primary goods
We often read about the size of the ‘China effect’ on the demand for and prices of primary commodities traded around the world. This over-simplification ignores the impact that other emerging market economies are having on the consumption of primary products – indeed a much greater proportion of global economic growth is being provided by the resource-intensive emerging economies. Added together, the emerging economies account for 23% of global GDP whereas the US accounts for around 29%.
read more...»Chart of the Day: $6m per minute - hot money flows into China
The Chinese stock market is down and property prices have been falling in many of the major cities and the Chinese trade surplus is starting to diminish. But short term capital flows are surging into the Chinese economy at the moment - according to research from HSBC Global Economics,
read more...»Currencies hit the Headlines
Two currency movements are in the news today. Firstly the pound has fallen to an eleven year low against the Euro with one Euro now worth eighty pence. The second currency hitting the headlines is the Chinese renminbi which has appreciated beyond Rmb7 to the US dollar for the first time since 1994.
read more...»The Decoupling Debate
The D word - ‘decoupling’ - is at the heart of the debate regarding global economic prospects for 2008 and beyond.
The term refers to the shift by developing economies - and newly industrialising countries in particular - away from dependence on strong demand in the West for their products.
read more...»Too hot to handle? China’s new export - inflation!
Much of the terrific economic growth of China over the last decade has been export driven. Double-digit annual increases in the volume of goods and services sold to the US and Europe and more recently to the rest of Asia has enabled China to grow it’s real GDP by more than 11% for the last 3 years. Cheap manufacturing exports from China drawn from using it’s enormous pool of low cost labour has allowed the global economy to benefit as this additional supply of low cost products has helped to bring down world inflation. But now the tide is turning and the massive container ships being loaded in ports around the country might well be sending us a unwelcome rise in cost-push inflation.
read more...»China’s economy at boiling point?
When is an economy over-heating? We hear this phrase a lot especially during a boom when we are told are growth is becoming unsustainable, unbalanced, excessive - sometimes all three! There is little danger of the UK economy over heating at present, if anything the risks of growth are firmly on the downside. But what about China? Deutsche Bank’s latest macroeconomic research hints that the rubicon has been crossed and that we can now describe China as an economy where boiling point has been reached.
read more...»Shopping in China
With continuing concerns in the UK, USA and other European economies such as Germany, the debate rumbles on as to whether countries such as China can provide the global demand necessary to keep world economic growth strong.
This week in The Economist, From Mau to the Mall examines prospects for the Chinese economy, and in particularly the balance of imports versus exports. China’s trade surplus is legendary, but data shows that imports (demand in China) are beginning to grow faster than exports (supply from China).
The significance of all this is that although China’s headline GDP growth is widely tipped to slow to 9-10% in 2008, if a bigger chunk of this growth comes from domestic consumption and investment, then in absolute dollar terms China could well contribute more to global demand this year than in 2007.
The full article can be found here.
What does China Think?
Whilst listening to the recent podcast of Start the Week, my attention was drawn to a book published at the end of the week entitled What does China Think by Mark Leonard. This looks a fascinating read, one I will try and squeeze in before next half of term kicks off! I was particuarly drawn to the random fact that because Shanghai is growing so rapidly maps of the city have to be changed every 2 weeks!!
read more...»An Evening with an Inspirational Economist
Halfway through Jim O’Neill’s talk to the Keynes Society last night I realised properly for the first time in several years why I teach economics. There are few subjects that happen in real time, in internet time – and few where there are so many constantly changing issues to confront and events and trends to make sense of. We live in utterly fascinating times, and lying just beneath the surface of so many of the critical economic and geo-political debates is a seismic shift in the global economy’s Teutonic plates. The rise of the BRIC economies and the Next eleven (N-11) was the subject of an inspiring talk by the Managing Director & Head of Global Economic Research at Goldman Sachs.
read more...»Minerals - the lifeblood of economic development
This is a takeover battle worthy of anyone’s attention. The world demand for metals has made the ownership of mining companies a vital economic and political issue and now the world’s biggest mining group BHP Billiton has made a formal offer for rival firm Rio Tinto in a bid worth $147bn.
read more...»Chinese engine marches forward
Chinese powerhouse continues
Another year and yet another stellar growth performance from the booming Chinese economy! Although the data itself is at risk of a major revision at some point in the future, it cannot be disputed that the Chinese economic engine was working overtime last with real GDP estimated to have grown by 11.4 per cent, the fastest pace of expansion in 13 years. But 2008 promises to pose serious macro-economic challenges for the Chinese.
read more...»
