By Daniel Hunter
Fifteen years ago China's growth was led by exports, mainly to Western countries eager for its low-cost goods. Now investment and consumption in China is a major driver of growth, and imports have risen sharply giving a greater balance to its trade.
China is importing steel, cement, minerals and metals as it invests in transport and infrastructure projects to cater for its rapid economic development. It is now the second largest importer of rice and barley, while the trade deficit on agricultural goods is growing fast. As China's growing middle class eats more meat, it needs to import more cereals to feed its livestock.
Development in China is spreading from the eastern coast to central and western areas, bringing greater demand for high-speed rail links, technology and equipment.
There is a growing middle and upper class in China with an appetite for retail brands and household spending, which will become an increasingly important driver of GDP growth.
China has diversified exports beyond the US and Europe into Latin America, the Middle East and Africa. We expect South-South trade to keep growing rapidly over the coming decades.
China has also become a higher-value producer. Thirty years ago it made textiles, clothes and socks, often sold to large distributors around the world. This has not stopped but as China evolves, its exports are becoming more sophisticated. Employment in electrical and communications equipment is believed to exceed jobs in textiles, garments and leather making. China also specialises in final assembly, importing high-value components and re-exporting the final goods. This highlights the importance of the global supply chain.
In the past two years, Chinese exports to the US of high-tech electronics, car parts and optical devices rose 24 per cent to USD129 billion. Exports of clothes and footwear increased just 5 per cent to USD47 billion. Many of the lower-value products have moved to Bangladesh, Indonesia and Vietnam.
In the Middle East, many construction workers are now driving Chinese cars. One Chinese car-maker already has 16 production centres abroad. In ten years, Chinese technology and equipment are likely to be more prominent in international retail outlets, and there will be more Chinese cars in Latin America and the Middle East. In a similar way to Japan and Korea, China is building out global businesses.
As the emerging-market economies drive world trade growth, China will be at the centre of this expansion. Its currency, the renminbi, will become global, spreading from trade and payments to capital markets and investments and moving towards a reserve currency.
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