Less Competitive? China Exports Drop To Emerging Economies

Less Competitive? China Exports Drop To Emerging Economies

Chinese exports to the developed world have held up relatively well, with shipments to the U.S. rising 4.2 percent despite budget chaos in Washington, WallStreetJournal reports.

But exports to emerging economies fell in September as the prospect of monetary tightening by the U.S. Federal Reserve chilled markets from Jakarta to Johannesburg,

That could be a problem for China, which now sends less than half its exports to the U.S., E.U. and Japan.

China’s competitiveness has declined as a shrinking labor force drives up wages, with private-sector salaries rising 14 percent in 2012, according to the WallStreetJournal. The effect is compounded by a stronger currency, with the yuan up 2.9 percent against the dollar so far this year.

Exports to South Africa, for example, fell 12.8 percent.

But even as exporters struggle, China’s imports have held up surprisingly well, cutting the trade surplus to $15.2 billion in September from $28.5 billion in August. That could at least deflect some pressure on China to let its currency appreciate further.

Raw-material imports were especially strong in September. Crude oil shipments rose 27.9 percent on-year in September, making China the world’s biggest oil importer. Iron ore imports were up 14.7 percent to a record high.

That’s good news for commodity giants like Australia, Canada and Brazil. Iron ore shipments are feeding a continued infrastructure and construction boom in China, despite increasing concerns about whether all the projects are viable.

“Demand is being pushed up by the government,” said Fan Zhang, an economist at brokerage UOB KayHian. “It’s infrastructure that’s using up all these raw materials.”

Although Beijing wants to keep a tighter rein on local governments’ spending plans, it has given the green light to a batch of new subway projects and held off from fresh curbs on the property market over the past few months.

Going forward, China will need to rely more and more on that kind of domestic demand. The days when it could lean on double-digit export growth to power the economy are long gone.