Bloomberg reports that Europe's trade deficit with China jumped 22 percent to a record in the first half of 2007 on a surge in imports. However, Andy Mukherjee thinks that it is a slowdown in China's own imports that may pose a problem.
Much of the analysis of China's bloated trade surplus focuses on exports, when it's the imports that deserve greater scrutiny.
In the first eight months of this year, China's exports grew 28 percent. That's less than the annual export growth of 35 percent recorded in both 2003 and 2004.
More importantly, the 20 percent increase in imports so far this year pales in comparison with the 36 percent expansion in 2004 and the 40 percent surge in 2003...
Chinese imports have decoupled from exports since 2005 because assembly lines in the country are increasingly purchasing intermediate parts from local suppliers, according to Li Cui, an economist at the International Monetary Fund.
The substitution of imports with locally produced components has important implications for the rest of Asia, which has become more and more reliant on Chinese factories to tap final demand in the U.S., Europe and Japan...
"As China begins to specialize in more parts of the production chain, its imports of intermediate goods from the region could start to fall," the IMF's Li says...
In the first eight months of this year, Singapore's non-oil exports to China grew 1 percent, slowing from 13 percent in the same period in 2006 and 27 percent for all of 2005.
A problem could arise if the region's economies remain coupled to a US slowdown but become decoupled from Chinese growth.
Having said that, Singapore's trade data cited in the article also show that its exports to China appear to be on a rebound, jumping 11 percent from a year ago in August, so we should be careful about extrapolating the trend.
Meanwhile, Asia's biggest economy continues to have difficulty generating domestic demand. From Bloomberg:
Demand for services in Japan fell in July as typhoons and declining wages kept shoppers away from stores and amusement parks.
The tertiary index, a gauge of money households and businesses spend on services ranging from phone calls to leisure, slipped 0.5 percent from June, the Trade Ministry said today in Tokyo, matching the median estimate of 27 economists surveyed by Bloomberg News.