Chinas growing trade clout

The red dragon has found its way to media highlights again. This time around, its the potential of global trade of the country which is being touted.
Several economists, including US Treasury Secretary, Timothy Geithner, had been at Chinas door to allow the Yuan to appreciate as the countrys huge trade surplus and dependence on exports was criticised for being quite unstable.
China allowed the Yuan to appreciate 3.59 percent against the dollar in 2010, and economists expect the currency to appreciate by more than 5 percent in 2011. The country also surprised the world with a trade deficit of $7.3 billion in February 2011 - the largest in 7 years.
With appreciation of the Yuan, and expected changes in Chinas consumption patterns, the trade pattern in China is likely to shift from an export-centric approach.
"We
e likely to see some narrowing in the trade surplus, perhaps to the $150 billion range in 2011 from $180 billion last year," David Cohen, head of Asian forecasting for Action Economics - a Singapore-based company providing commentary and analysis on global fixed income and currency markets - told Bloomberg.
The report issued by PricewaterhouseCoopers (PWC) last week, which received much attention in global media, foresees China as overtaking the US and dominating global trade by 2030.
Chinas trade with developed countries is believed to increase, though the nature of trade is believed to be slightly different. From electrical goods in 2009, China is likely to import more consumer goods from developed countries in the coming decades as domestic demand in the country will surge.
Specifically, the report envisages Chinas trade with India, the oil-rich Middle East and other Asian economies such as Indonesia, Malaysia and Thailand to increase.
Overall, global trade will plausibly shift towards emerging economies driven by urbanisation, changing trends and greater consumer demand.
In fact, emerging economies, such as China, are likely to become the demand drivers of exports from developed countries as they become richer. The nature of exports, however, will be skewed towards high-end products such as pharmaceuticals, designer clothing, new technologies such as green technology and high-end manufacturing technology.
Developed countries will have a competitive advantage in these product categories over emerging economies because of the availability of skilled labour, R&D infrastructure. Further, low-wage advantages of emerging economies such as China will likely be lower as they become richer.
"China is predicted to account for nearly 20 percent of global demand for luxuries by 2020," highlighted the PWC report.
With upward pressure on wage rates in China, its advantage in producing low-cost goods will shift towards lower cost economies such as Indonesia, Vietnam and Bangladesh.
Interestingly, trade between China and Africa is expected to be the fastest growing in the next two decades, with the former being interested in the oil industry and energy and mining sectors of the African continent to fuel its economic growth.
The tides of change in global change have gradually begun. Its a matter of a couple of decades before sweeping changes occur.