China all set to grow as 'megatrader'
By Mike Rees (China Daily) Updated: 2014-06-04 07:39
If your company is not already trading with China in some way, chances are it soon will. Research by Standard Chartered predicts that China will continue to grow as the "megatrader" of this century, countering predictions that its role in world trade has peaked.
Our (Standard Chartered's) recent report, "Global trade unbundled", sees China as the focal point for rapidly growing trade, not only within developed markets, but increasingly between emerging markets as goods and services are not just made in these economies, but consumed there.
Global companies will need to position themselves for this continuing shift in world trade by adjusting the ways they make and sell their goods. All companies should take note that, as China's trade grows in importance, so will the yuan as a global invoicing currency.
China overtook the US as the world's largest exporter in 2007. It now accounts for 11.5 percent of all world trade. But since 2008 Chinese exports have slowed, causing some to fear a long-term decline for China's trade. This fear is misplaced for three key reasons:
First, China's export growth was bound to slow from the breakneck pace of more than 25 percent annually from 2000 to 2007. Since the global financial crisis, exports have been hit by weak demand in the West, especially Europe, but as growth picks up in developed markets, China stands to benefit.
Second, trade anywhere is increasingly likely to involve one or more Chinese counterparts. In recent years, China has cemented its position as a key player in global supply chains, with goods designed in one country, manufactured in several others (sometimes with back-and-forth trade in between) and then sent for final assembly somewhere else, more often than not in China. Think of Apple's iPad, designed in the US and assembled in China from components made in countries across the globe.
We believe China - along with much of emerging Asia - will remain an attractive manufacturing base for global companies. Its low-cost advantage may be eroding, and some companies may have transferred operations to lower-wage countries such as Vietnam, Cambodia and Bangladesh, or "onshored" production back home, but the pace of this transition is likely to be slow.
Besides, China's companies have the size and know-how to retain much of the business by investing in technology and raising skill levels. As such, China will remain a great place to source suppliers for global companies. China is already a major innovator, not least in processes; China's patent applications at the major country patent offices have surged in recent years, and it is now the world leader, reflecting its key role in world manufacturing.
