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US exports to China up 330 per cent
24-06-2010
May 2010 ATI Online Magazine
BETWEEN 2000 and 2009, United States exports to China rose 330 per cent, while US exports to the rest of the world rose by only 29 per cent, says Andy Rothman, CLSA's chief China strategist. China is the third-largest export market for US products, after Canada and Mexico.
Rothman argues that China is not
stealing American jobs. Far from it. American consumers benefit from an undervalued yuan, which has helped keep US inflation low — and has increased the purchasing power of US households.
Writing in his weekly Sinology note, Rothman says RMB appreciation will not solve America's economic problems, or reduce US unemployment. He says that between 2001, when China joined the World Trade Organisation, and 2009, the minimum wage in one export centre — Shenzhen — was raised by 74 per cent. In March this year, the minimum wage in Guangdong, the province that produces about one-third of all Chinese exports, was raised by more than 20 per cent.
"We recognise that saying China is not export-led sounds counter-intuitive, since almost everything you buy appears to be made in China. But, in reality, most of these goods are merely assembled in China, with very little valued-added created there," he says.
Citing as an example the 30 gigabyte video iPod, which went on sale in 2005 with a US retail price of US$299, he says that when an iPod leaves China, it has a factory cost of US$150, but only US$7.50 of that value was created in China. Globally, workers received US$1.6 billion in earnings from iPod-related jobs, but Chinese workers received only two per cent of the global pay cheque per unit sold.
Rothman says about half of all Chinese exports are processed or assembled products, such as the iPod. On average, only four per cent of the export price of these goods represents value created in China — and only that small share contributes to China's GDP.
He points out that, far from being an export-led economy, despite a sharp drop in exports, China's economy grew 8.7 per cent last year. Net exports delivered a "minus 44.8 per cent" contribution to GDP growth, and this is "clear evidence" that China is driven primarily by domestic investment and consumption.
According to CLSA estimates, household consumption rose from 30 per cent of GDP to 39 per cent in 2009. "And by some metrics, household spending is growing faster in China than in the US,” Rothman says.
China is one of 60 countries that peg their exchange rates to the dollar and, in doing so, do not violate either IMF or WTO rules.
Rothman points out that, in the three years to mid-2008, the RMB appreciated by 21.2 per cent against the dollar, and that, if given political space, China will move again.
In his opinion, if the US did not tag China a "currency manipulator", Beijing could resume gradual appreciation either before the late-May bilateral security and economic dialogue with Washington or after that meeting — but before the June G20 meeting.
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