The Story of China’s Imports

Tuesday, March 31, 2009 9:33
Posted in category The Big Picture
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A few weeks back while writing up the post on imploding February trade figures, I wrote about the fact that imports in my eyes were not an indicator of domestic consumption (i.e. Chinese consumers buying finished goods), but of domestic industry buying raw materials/ semi-finished goods to then be resold elsewhere.

It is an important distinction for me, as essentially the import figure becomes a leading indicator for recovery.. or at least of orders going forward.. and the recent UBS reports Who Is Most Exposed to China’s Domestic Economy? and China Exposure Chartbook have a couple great charts and a piece of analysis that I think goes to this point.

China Import Chart

China Import Chart

Taking a look at the charts, one can see on the left that Korea and Taiwan have just been hammered, an interesting note when seeing that 24% of all imports are electronic parts (a category that Taiwan and Korea are big exporters of), while at the same time seeing the the cliff diving Australian fall off … which is clearly tied to the 23% minerals category.

the piece of analysis that I thought was most suitable for the discussion was:

China imports two key categories of products from abroad, processing inputs that are mainly used for the
assembling of exports, and commodity and capital goods (machinery, equipments, metals products) used mainly
for domestic needs. The main exporters of commodity and capital goods to China include Australia, Brazil, the
EU, Japan and Korea (Chart 1), while the main exporters of processing components to China are mainly regional
economies such as Taiwan, Korea, Malaysia, the Philippines, and Thailand.

So, when lumping it together, and why I suggest you email me for a copy of the reports, is that while I was at one time saying that imports were a leading indicator of China’s rebound, I clearly failed to draw the complete line as the rebound in china’s imports will acutally be a sign that other economies are rebounding.

The question for me is who is the chicken and who is the egg.

If the US (let’s assume a recovery requires US demand side participation) were to start ordering, I am now of the opinion that China would really be second in line for a reound.  that while china’s factories would be in the dugout warming up, it will be Japan, korea, and Australia who see the initial orders for parts and have to fliop their industrial lights back on first.

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