One-Legged China

 One of my friends challenges me with the following question:

In our last discussion, you insisted that Chinese export contribution to its GDP growth is at least 40% to 50%, far more than the 30% or so I mentioned.  Here is a link to a BW article: Why the Export Slump Won't Doom China's Economy.

http://www.businessweek.com/globalbiz/content/apr2009/gb20090420_581968.htm  

The authors stated that Chinese export counts 12% of GDP, contributes to 3% of the11~12% GDP growth.  I largely agree with them.  Are their data wrong?  If they were grossly wrong, then your bearish arguments about China and bullish arguments about the US long bond would carry a lot more weights.  Would you mind pointing out the Chinese economic data sources that you use and deem reputable?
 
I do not remember that he actually mentioned 30%, and I mentioned current account surplus, instead of export.  And my common sense tells me that Chinese export is far greater than 12% of GDP.  It is also such a laughable article that Business Week, a seemingly respectable Magazine, seems only to be able to serve the entertainment purposes today.

So now let’s look at the numbers by comparing the GDP growth rate and current account balance using data from IMF.  The idea here is that if current account surplus as a percentage of GDP is about half of the GDP growth, then current account surplus contributes to about half of China’s GDP growth.

The data seem to even surprise me.  The first graph shows the GDP growth rate, and current account balance as a percentage of GDP, whereas the second graph shows the later divided by the former.  The graphs, especially the second one, say that almost all the Chinese GDP growth is from current account surplus in recent years (from 2005), hence my blog title “one-legged China.”

Since the 2009 number from IMF is just an estimate, we probably should obtain the final number instead.  However you calculate it, my argument stands.  For example, a Google search shows that the media generally quotes a 2009 current account surplus of about USD 290 billion for China.  If you divide that by the Chinese GDP of about USD 4.5 trillion, that is about 6.4%.  So current account surplus would be about half of Chinese GDP growth.

And pay attention that this is not always the case.  Current account balance was negative for many times in earlier years, and current account surplus was never as large share of GDP growth as it is now.

People like Steve Roach still argue that it would be a smooth cruise for China to switch from export driven growth model to domestic consumption driven growth model (see The new lesson for resilient Asia, Financial Times, June 8, 2010).  I hope that these people would finally come to senses about the reality of the one-legged China and the difficulty, along with the grave danger, facing China and the world in this transition process.  Even if China starts the transition process voluntarily soon, it could easily take China more than a decade, with significant bumps in between.  If China still drags its own feet while the world all suffers from diminishing demand, any sensible Americans should vote for trade war by the end of next year with unemployment likely staying around 10%.  Those who argue today that it is a silly idea to blame East Asian countries for any problem facing the United States are themselves blind.  Those who still make the same argument by the end of next year are just stupid.

And if you would like to challenge me on facts, you should bring your facts and data, instead of asking me to prove against some entertainment story ;=).