China became the world’s largest trader in 2013, surpassing the United States and setting record high trade statistics with imports and exports equaling $4.16 trillion, a 7.6 percent increase from the year before . What may come as a surprise to many, however, is China’s shifting focus from exports to domestic consumption.
The Chinese government started the process of slowly cooling down their economy about two years ago by cutting back on wasteful spending and closing down inefficient industries. Factory output and fixed asset investment have been steadily decreasing as a result. Retail sales, on the other hand, have remained fairly constant, recording a 13.6 percent increase in December. An increase in wages is the reason for the increase in retail sales in China, with urban residents’ disposable income rising 7 percent and rural residents’ disposable income rising 9.3 percent when adjusted for inflation.
As a result, many foreign companies are expanding in China. BoConcept, a Danish furniture company with more than 260 stores worldwide and 16 on mainland China already, recently opened a branch in Hong Kong. Regional director of Asia-Pacific, Kim Moelholm, says that the company sees a lot of opportunities in China and plans to open another six to eight branches in hopes that increasing wages will lead to more demand for their products. Companies such Ford Motor, Burberry and Mariott seem to be following suit and expanding throughout the country as well. This emergence of Chinese affluence and consumption could be extremely beneficial to the United States’ economy in the years to come.
Further reading: NYTimes and FT
What metric should we use for measuring trade? Shouldn’t it be net trade relative to GDP, not the absolute volume? As much of China’s exports (think iPhones) are assembled from imported components, we’d really like to measure the value added from exports, not total exports. In the case of an iPhone, each one has only $2 or so of actual Chinese content, principally labor in assembly.
As to furniture, search the blog for a post last term on Ikea.
[Added later: Ikea in China
According to tradingeconomics.com,
As of December 2013:
Imports: 1821.02 USD Hundred Million
Exports: 2077.42 USD Hundred Million
The gap or the net export is also increasing.
Also, I think Chinese trade is no longer just for the Chinese because there are a lot of countries (South Korea for example) depending on Chinese trade. Without trade, these countries’ GDP will drop by a large amount.
Another point I want to make is that Chinese economy is a great place for business to make money. There are lots of “rich” people with cheap labor/resources. What else do companies need?
Thanks for finding those statistics, gjeong. I agree with you that China is extremely attractive to businesses because of rising affluence among the Chinese, cheap resources and labor, etc. Right now, though, it seems that there are only a few name brands that appeal to the Chinese, but I believe that Chinese tastes will change as more and more companies begin to expand into China.