Analysis: Petro-dollar windfall could help China's rebalancing

Mon May 7, 2012 10:17pm EDT
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By Nick Edwards

BEIJING (Reuters) - A $1 trillion oil-fired trade windfall couldn't be better timed to help Chinese companies climb the value chain and rebalance the economy of the world's biggest exporter.

Fast growing countries producing oil and other commodities, are taking advantage of the windfall from the recent surge in prices and buying roughly half of the $2 trillion worth of goods sold by China overseas.

But, more importantly for the economy, they are buying the value-added products that Beijing wants its export-oriented factories to focus on - construction equipment, heavy infrastructure goods and telecom network equipment, for instance.

"Commodity exporting countries have had a windfall after commodity price rises and they are now recycling this back into the global trade system," Yao Wei, China economist at Societe Generale in Hong Kong, told Reuters.

"The silver lining to China's exports is really the other emerging economies," she said.

China's export-led expansion of the last decade has been largely a function of processing trade - importing materials and components for assembling products that are then shipped overseas.

And now the source of value in Chinese exports is shifting.

New orders are increasingly coming from developing economies buying industrial goods to build out infrastructure, products with a large element of domestic added value, using locally-made components that China once imported.   Continued...

Employees unload containers from a cargo ship as frontier inspection soldiers (C) stand guard at Qingdao port during a rainy day in Qingdao, Shandong province April 10, 2012. REUTERS/China Daily