GMB blog

Posted on 11 March 2010.

It is official – China has emerged as the world’s reining export champion, dethroning Germany for the title in 2009.   China’s exports of goods totaled $1.2 trillion last year, slightly ahead of German goods exports of $1.1 trillion.   It was in 2003 when Germany knocked-off the United States for the top spot, although with China’s exports growing by a 20% compound annual rate over 1999-2009, China’s ranking has soared over the past decade.   The mainland placed number nine in the world in 1999 but vaulted to the top spot just a decade later.  

Predictably, the news of China’s export ascent has triggered a great deal of anxiety and angst in the U.S. and Europe, notably among those who believe that China’s soaring exports represent a clear and present danger to workers in the developed nations.   These worries are not unfounded.   China’s increasing role as the “factory to the world” has lead to job losses in the west – notably among lower-skilled workers.   That said, however, “Made in China” is not what it seems.

Lost on many policy makers in the U.S. and Europe is this:   a great deal of what China exports to the United States and the world are goods from so-called foreign invested enterprises, or foreign subsidiaries of various global multinationals.  

The contribution of foreign enterprises to China’s export ascendancy is nothing short of staggering.   From a share of 2% in 1985, aggregate exports of foreign-owned subsidiaries accounted for nearly 60% of China’s total exports in 2005.   That’s another way of saying that China’s true exports to the world are inflated and overstated by official trade statistics.   Take out foreign affiliate exports of $673 billion, and China’s exports to the world totaled $530 billion, roughly on par with total exports from Italy.

Against this backdrop, thousands of low-cost Chinese firms are not flooding the U.S. and European markets with goods, displacing transatlantic workers in the process.   Rather, foreign firms are increasingly leveraging low-cost China to their competitive advantage.   Take the iPod for instance.   The 30 gigabyte video version is manufactured in China by a Taiwanese firm.   It sells for around $224 (wholesale), with China, the master assembler, only receiving $3.70 from the total price.   The bulk of the profits flow to Apple, even though the product – and many others like it – bears the familiar “Made in China” logo.

China has basically outsourced its exports to foreign affiliates over the past quarter century, a strategy that has helped employ millions of Chinese workers, lowered the cost of production for thousands of foreign companies, and stretched the incomes of millions of consumers in the U.S. and Europe.   The hardest hit have been low-skilled labor in the U.S. and Europe, but notably Asia, whose firms have lead the way in shifting manufacturing capacity to the mainland and leveraging China as a low-cost export platform.   In contrast, U.S. and European investment in China is mainly geared toward the domestic market.

Given all of the above, there is little doubt that China has emerged as a significant global exporter of goods.   The mainland is now the world’s top exporter of goods.   However, it’s worth keeping in mind that official trade statistics don’t tell the whole story of China’s rise as a trading power.   Neither do the figures accurately reflect who is really benefiting from China’s surging exports.   For these reasons, China’s export figures should come with an asterisk.