China’s Economy, 2008: Focusing on Imports & Consumption, Beneficial to Thai Exports (Current Issue No.2015)

In 2007-2008, China shall remain one of the world's fastest growing economies with a double-digit growth rate in conjunction with growing trade, consumption and investment. At present, China's growth in international trade is double that of the economic growth. In the first 10 months of 2007, Thailand's exports to China increased 27.5 percent and it is projected the yearly record of growth will reach 25-30 percent. At present, China is the third largest export market for Thailand. In 2008, China's economy is expected to decelerate with projected growth of 10.5 percent, from 11.3 percent in 2007 due to the slowing global economy. However, it is projected that Thailand's exports to China will continue growing at not less than 20 percent due to the stronger Yuan and growing consumption in China, which will propel China's aggregate imports to grow at a similar rate as in 2007.

KASIKORN RESEARCH CENTER (KResearch) projects that the Chinese economy for the entirety of 2007 will grow at an average of around 11.4 percent against 11.5 percent in the first 9 months. Key driving forces to the economic growth are still investment, exports and consumption. It is expected that overall investment for the whole year will grow 24.8 percent, with foreign investment growing around 10-12 percent, industrial production growing 17.9 percent and domestic consumption growing 11.9 percent. Exports for the entire year will also increase 25.5 percent with a value of USD1,216 billion, while imports will increase 20.5 percent to a value of USD954 billion.

China's economy in 2008 is expected to experience decelerating growth falling to 10.5 percent due to the global economy that has been impacted by oil prices that are projected to continue soaring until causing inflation in many countries. In addition, the US sub-prime mortgage problem is also affecting economic growth and consumption in the US, the EU and other regions of the world of which will result in reduced imports from major exporting countries globally, including China. However, over the last decade China has developed a supply chain system and the value-added industrial production, especially heavy and hi-tech industries. These value-added goods now constitute almost half of export commodities from China, so there would be only limited impacts on China, due to contracting demand for general merchandise in the world market. However, the Yuan's value will tend to appreciate steadily and affect exports to a degree. So Chinese exporters will try to reduce that impact by expanding their export markets in Europe where the Euro is stronger than the Yuan. Therefore, it is projected that China's aggregate exports in 2008 will show slightly lower growth at around 20.6 percent.

The trend of the Chinese economy is showing more focus on domestic consumption, and the stronger Yuan will drive China's import value toward rise. Thailand, hence, will have the opportunity to expand trade with China. At present, China is the third-ranked export market for Thailand. In the first-ten months of 2007, the Thai export value to China increased by 27.51 percent with a value of USD11.921 billion, which is higher than the overall export growth rate of Thailand projected at 17.2 percent this year. Many important products showed relatively high export value, particularly computer equipment and parts thereof, now constituting over one-fourth of all Thailand's exports to China. This product category recorded high growth of 57.7 percent and a value of around USD 3.122 billion. In addition, Thai products that showed high export growth were industrial products such as electrical appliances (increasing 61.8 percent), generators (increasing 34.9 percent), integrated circuits (increasing 39.9 percent, printed circuit boards (increasing 31.5 percent), rubber products (increasing 29.7 percent), chemical products (increasing 25.7 percent), etc.

However, some important products showing the obviously lower export value were, such as rice (dropping 29.4 percent), cassava (dropping 4.7 percent), rubber (increasing 16 percent, against 66 percent over-year in 2006), copper (increasing 13.7 percent, against 73.8 percent growth in 2006).

For imports, the import value from China rose by 20.9 percent in the first-ten months of 2007, with a value of USD13.412 billion, increasing in value slower than the growth seen in Thailand's exports to China. Every main product item showed double-digit growth, excluding electrical machinery and parts, where the import value dropped 19.6 percent, while integrated circuits dropped 17.3 percent because Thai private sector investment decelerated considerably this year. As a result, capital goods imports and some types of industrial parts dropped, accordingly. The products showing higher import values were, such as household electrical appliances (increasing 94.5 percent), fertilizer and insecticide (increasing 88.1 percent), miscellaneous utensils (increasing by 41.8 percent), fruit and vegetables (increasing 31.7 percent) and industrial raw materials such as metals (increasing 49.4 percent), metal waste and scrap (increasing 36.3 percent) and chemical products (30.3 percent), etc. In 2008, it is expected that the Chinese imports to Thailand will increase more than in 2007 because investment and the consumption in Thailand are expected to improve. Therefore, the import value of capital goods (such as mechanical equipment and electrical machinery), industrial parts and commodities should increase, accordingly.