China Research

A discussion forum on emerging markets, mainly China – from a macro, micro, institutional and corporate angle.

Emerging countries on German import markets 2001-2021

February 23, 2022

Two facts are obvious when analyzing international and German developments in the past two decades. One is that Germany remains the number one importing country in Europe, the other one is that emerging countries have gained substantial markets shares in the advanced country of Germany. Although the table below does not explain everything, one should get some illuminating impression – also in general terms – about successfully exporting emerging markets and late EU-member countries.

German imports by country*
(percent of total imports)
 2001 2021 Difference
U.S. 8.5 6.0 minus 2.5
UK 6.9 2.7 minus 4.2
France 9.2 5.2 minus 4.0
Sweden 1.7 1.4 minus 0.3
Poland 2.5 5.7 plus 3.2
Czech Rep 2.7 4.2 plus 1.5
Slovak Rep 0.8 1.4 plus 0.6
Hungary 2.2 2.5 plus 0.3
Romania 0.4 1.2 plus 0.8
Bulgaria 0.1 0.4 plus 0.3
Russia 2.7 2.8 plus 0.1
China 3.7 11.8 plus 8.1
India 0.5 0.9 plus 0.4
Vietnam 0.2 0.9 plus 0,7
Korea 0.9 1.1 plus 0.2
Malaysia 0.7 0.8 plus 0.1
Turkey 1.2 1.5 plus 0.3
South Africa 0.6 1.0 plus 0.4
Mexico 0.3 0.6 plus 0.3
Brazil 0.8 0.6 minus 0.2
Asia (China included) 15.5 22.2 plus 6.7 (minus if China excl)
Africa 2.1 2.2 plus 0.1
Latin America 1.6 1.3 minus 0.3
Europe 70.9 66.8 minus 4.1

* In current prices. Source:  https://www.destatis.de/EN/Themes/Economy/Foreign-Trade/Tables/order-rank-germany-trading-partners.html; own calculations

It is indeed no surprise that Poland and the Czech Republic have been particularly successful on the large German market – but also the Slovak Republic, Hungary and Romania have made visible progress. As one could expect, Asia is the continental winner on the German market for importers, due to China’s success story. India – on the other hand – is still moving very slowly (but has been improving all the same). Vietnam performed quite nicely in recent years.

A number of other Asian – mainly South East Asian – countries, however, stagnated more or less in Germany since the beginning of this century and contributed strongly to the slightly declining market share of Asia minus China. This is not always known. Africa still remains, unfortunately, unable to catch up significantly. The same seems to be the case when it comes to Latin America which has been losing momentum in the past two decades, mainly caused by disappointing Brazil.

Summary: It may be concluded that emerging countries from Asia – but not all of them – and countries from the previous Comecon area in Eastern Europe obviously have succeeded well on the tough German market during the past twenty years. Most countries in Latin America have their difficulties to compete. Persistent future progress on foreign markets assumes much more focus on improvements of education and institutions.

 

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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Worsening outlook for emerging markets – China included

January 26, 2022

It seems obvious that the Fed in 2022 will have a couple of interest rate hikes which have been almost officially announced in recent weeks by Chairman Powell. This probable development may be necessary to be started in the U.S. for the attempt to re-balance the globally economy, both when it comes to the fight against the ongoing high inflation and to the deflation of unpleasant asset price bubbles in quite a number of countries (real estate, bond and stock markets).

However, welcoming higher interest rates in the U.S. – and at a somewhat later stage in Europe and other parts of the world – is really not an easy call, particularly since such a development also will dampen GDP growth somewhat in the global economy. Some kind of getting back to a realistic “new normal” for short-term rates has no alternative. But how can a “new normal” be found and defined? A safe answer cannot be given these days. Different markets (financial and labor markets, technological competition, etc.) will gradually lead us to more insight in this conundrum.

Higher U.S. rates bad news for (many) emerging markets

For emerging markets, tightening monetary policy of the U.S. is bad news in several respects. Matters of concern for emerging and less developed countries are, for example (at least theoretically and according to textbooks):

¤ Lower growth in OECD countries dampens imports from emerging countries
Higher interest rates have a negative impact on investors and consumers in advanced countries – followed by a similar reaction in emerging countries. However, in this case some new hope may arise from declining global bottlenecks on the supply side. Many emerging countries may benefit from weakening commodity prices in the case of slower growth in mainly the U.S.

¤ Many emerging countries are highly indebted in U.S. dollars
Higher short-term rates in the U.S. mean also ceteris paribus higher costs for the borrowing in USD by emerging countries. Reactions on bond markets are not really predictable.

¤ Higher U.S. rates will probably strengthen the dollar
Higher short-term rates in the U.S. make the USD stronger – and for emerging countries the costs for changing into USD more expensive. The open question is for how long time the dollar will surge.

¤ Declining foreign propensity to invest in emerging countries
Here we have really a high risk. We have seen such reactions in the past. Portfolio investors prefer often less risky strategies in (very) uncertain times. They wait for signs of recovery. Greenfield investors also tend to cut or delay their planned projects when uncertainty is increasing.

¤ Economically vulnerable countries are less resilient
Countries with healthy economic conditions and limited foreign debt are certainly more resilient against rising U.S. rates than the weak and vulnerable emerging and developing countries. Analysts should consider this distinction.

¤ How much will China be hit – and how much hits China emerging countries?
This question is not easy to answer. China stands now for 17 percent of the global economy. This is why China cannot isolate itself from developments in the U.S. and the global economy.

But how much will China be hit by the American hikes? Financially certainly to some extent, probably also (temporarily) by weakening exports to mainly the U.S. and other emerging countries. However, most of China’s problems are made at home by the worrisome conditions on the bubbling real estate market, the enormous domestic debt credit bubbles and all the well-known structural growth impediments -> see my previous article in this blog (chinaresearch.se). It is not a secret that China is overly dependent on the real estate market – even more than the U.S.

Altogether, developments in China will be very important to other emerging countries in 2022 and beyond – but not basically due to the interest rate hikes by the Fed. The main Chinese economic problems are purely made at home.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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China faces slower growth

January 17, 2022

China’s GDP development in the whole of 2021 (+8.1 percent) seems to look fine at the first sight. However, this high number has to be seen in the light of the weak growth of 2020 (recently revised downward to 2.2 percent) and, consequently, the low comparative levels from 2020.  GDP growth in Q4 (4 percent yoy) reflects current reality much better and must be seen as a disappointment and clear slowdown both by global analysts, their colleagues in China, Chinese politicians and also by many domestic and international companies outside China.

The problem of credibility and the way of sending messages

The publication of the Chinese GDP development in Q4 and the whole previous year – again very early in the middle of January – is usually a major statistical event for Chinese and foreign analysts. This can be said despite the fact or concern that major progress in the statistical quality of China’s GDP as a whole and the different components still cannot be singled out. And certainly not either very much as far as the quality of economic growth itself is concerned since it remains impossible to deeply analyze all GDP components.

Many years of not really reliable Chinese GDP numbers unfortunately means that possible limited qualitative improvements initially remain difficult to be found or confirmed by external experts. Here we come to the psychology of sending and receiving messages, a well-known research area from behavioral finance. At the same time, it is known from research that improvements of institutional shortcomings tend to take quite some time to be visible and / or believable, in certain cases even generations.

What do the new growth GDP numbers really mean? 

If we look at previous official forecasts or objectives for 2021, one can compare with Prime Minister Li Keqiang’s forecast of “more than 6 percent”  for GDP growth at the National Party Congress (NPC) in the beginning of March last year. This objective has been clearly met by the published annual average growth number of 8.1 percent – one more time almost exactly in line with expectations.

Considering the outcome of GDP growth in Q4 leads, however, to the conclusion that Chinese growth has been slowing down markedly in the course of 2021(yoy Q1: + 18.3 %, Q2: + 7.9 %, Q3: +4.9, Q4: + 4.0) – due to gradually higher comparative GDP levels in the course of 2020, and in the last year to distortions from the supply side, corona (fears) and other contributions from uncertainty.

 

The outlook for 2022 – substantial problems are still there

In my view, China will be confronted with different kinds of problems also in 2022. It really should be emphasized that interdisciplinary analysis will be particularly important in 2022 and beyond. Examples of different non-economic approaches with possible impact on the economy can be given for the forthcoming quarters – and partly even years – from

¤  politics: relations to the US, the EU, protectionism;

¤  social challenges: handling  the pandemic (omicron included), demography;

¤  institutions: the ability of managing the real estate problems;

¤  health: the fight against covid-19;

¤ psychology: reactions on Chinese politics in China and abroad, confidence from consumers, investors, financial markets, etc.

Possible growth objectives and indications

Important indications come certainly from the most two most important influential members of China’s dominating political institution, the Standing Committee (of the Central Political Bureau of the Communist Party of China) – with President Xi Jinping and Prime Minister Li Keqiang on the top. Probably at the NPC in March at the latest.

Three alternatives for the GDP-growth objective in 2022 are theoretically in the cards according to my view:

a) an optimistic one ->  would be back to (more than) 6 percent like for 2021,

b) a quite cautious one -> would be 5 percent or less,

c) a position somewhere between the optimistic and the cautious one -> would be around 5 percent.

Even if calculations of China’s potential GDP are extremely difficult to prepare because of the insufficient quality of necessary statistics, one can assume that potential GDP growth when applying official statistics currently may be around 5.5 percent or what I above define as “between optimistic and cautious” (reflecting only half of the potential growth rate that was achieved on average from 1980-2010). Could this current potential growth number turn out to be the official GDP objective for 2022?

Whatever the most correct number for potential GDP growth may be, China’s economic growth has been clearly downsizing in the past decade.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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