China Exports, Rebalancing Scenarios


Source of chart: Morgan Stanley


By John Richardson

CHINA might soon raise export tax rebates, as it did during the 2008-2009 global economic crisis.

Some chemicals and polymers exporters to China would welcome the increase in export tax rebates (this would make re-exports of finished goods from China more competitive).

But on this occasion, overcapacity across several of China’s industries is greater as a result of the investment splurge of 2008-2010.

Western economies are also burdened by deep structural problems.

The worst of possible outcomes, that needs to be built into scenarios for next year, is a global trade war as China exports deflation.

And what might further subsidies for exports indicate about China’s economic direction?

Would raising export tax rebates merely represent a stop-gap measure designed to shore up growth during and immediately after the once-in-a-decade leadership transition?

Or could it indicate a retreat from the economic rebalancing of the 12th-Year-Plan (2011-2015)? This involves a movement away from exports and investment as a driver growth towards greater domestic consumption.

China, as the chart illustrates, has become far-more heavily dependent on investment to drive growth.

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