Engaging research tools and consultancy services, MasterCard Worldwide Insights is able to expound and share new perspectives about what drives and shapes the global economy and consumer market. In 2011, MasterCard published an analysis report titled "China's Economic Rebalancing and Global Implications". The report points out that in discussions about the global economy, very few would not talk about its imbalance and how China has kept furthering it.

　　Simply put, the imbalance global economy is the result of China producing/exporting too much and not consuming enough, whereas the United States is consuming too much and not saving enough. Against this backdrop, the general opinion is China has used its cheap labor, increasingly effective infrastructure and low value currency to its advantage and turned into an export machine to support its aggressive development. In the heat of the debate, China has been called a "currency manipulator". In reality, however, it is inaccurate to describe China as an "export machine". Twenty years ago, China only accounted for 2% of the world's export. In 2010, the number rose to 11%. During those years, export from China increased gradually and so did the trade imbalance between her and the US and other major importer countries (more importantly the phenomenon has striped those countries of local employment opportunities). At the same time, domestic consumption in China has been weak, meaning she has to keep relying on exporting in mass to other countries.

　　Regardless of how China is perceived in the global economic imbalance, the crux of the matter is she has in the past decade reshaped the mode of development of international trade. It has become a trade partner of other countries in import/export of products and services, and investment and capital flow. It is not solely an "export machine". Today, China is a pivotal trade partner (the most pivotal even at times) of many key economies in the world. Table I shows that between 2000 and 2009, China had an increasingly important role as an important world trade partner. The table lists the five strongest economies in the world, the largest emerging markets and the most important producers of goods. It clearly indicated that the ties between China and all players in the global economy have become close like never before.



　　MasterCard explains how China's own economic imbalance has tipped the scale for the global economy. While it agrees that the exchange rate is an important factor, it does not think the low value of Renminbi (RMB) can explain China's success as an exporter nor does it explain her becoming an important trade partner of so many countries. The "currency-centric view" says if the value of the RMB did not rise markedly as the market desires, the global economic imbalance would continue. So, since the value of the RMB has only risen rather slowly in recent years, it is quite obvious that the global economic imbalance will persist.

　　MasterCard thinks the part China plays in the global economic imbalance is to a great extent the result of the imbalance of her domestic economy, which is in turn effected from her developments in the past decade. From that perspective, low value of the RMB is not an essential factor. With the media focusing excessively on China as an export machine and the world factory, attention has been drawn onto her export activities. In the next 10 years, exports from China will continue to grow. By 2020, they will make up 18% of the global total, which will match the record the US made in the 1950s when her economy presided that of the world. What will tip the scale is the growth rate of China's import relative to her export, and that will be decisively affected by how China re-balances her domestic economy.

　　China achieving a balanced domestic economy will have extensive influence on the world. One of the most obvious effects will be that China's trade surplus will shrink. China, no doubt, will remain a major exporter in the future with her general exports bringing annualized trade surplus. However, with a balanced domestic economy, the percentage of GDP of her trade surplus will lower from the peak of 10% to about 1 to 2%. That will help relieve the global economic imbalance, while allowing the country to speed up urbanization and consumption, and increase employment opportunities in the service sectors. At the same time, China's import structure will change. Investment in infrastructure will continue to drive economic growth, meaning the country will have to keep importing raw materials such as iron and copper ores.

　　Furthermore, China will gradually increase import to meet household consumption demands, whereas as import of industrial parts and construction raw materials will reduce. As the "influential" commodity buyer in the world market, her smaller demand for raw materials, however small is the reduction, will have tremendous effect on the global supply and demand structure.

　　A major shift in the industrial structure in China is the hike of labor cost in her low value-adding assembly and production industry. According to MasterCard's estimate, the current average monthly salary of workers in the production sector in China is already above those of her neighbors. Table 2 shows the average monthly salary of the production sector in China in 2009 relative to Thailand, the Philippines, Vietnam and Indonesia, etc. The salary gap between China and these countries will continue to widen.

　　At present, the production labor market of China about 165 million-strong is the largest in the world. If as much as 1% of it shifted to Thailand, the Philippines, Vietnam and Indonesia triggering productivity adjustment, the four countries would see a 15% rise in employment in their production sectors. So, a balance domestic economy in China will not only reduce her trade surplus, but also change the supply and demand structure of the global commodity market and, at the same time, drive the development of more economies in and outside Asia.



Please visit www.masterintelligence.com for the full report.