China has emerged as a weak link in Asian trade.
Asia's exports to the United States are rebounding, offsetting a sharp slide in shipments to Europe. Recovering demand from the world's largest economy would normally mean more exports to the world's largest factory: China. But as Beijing reins in growth to rebalance its economy, it seems to need fewer raw materials, parts and machinery from its neighbours.
Exports to the United States have become a relative bright spot for Asia's economies as the American economy slowly picks up. China's exports to the United States grew 12.8 per cent in the first quarter, offsetting a slight decline in exports to Europe. Japan saw a similar 12.5 per cent increase in exports to the United States, while those to Europe shrank 9.4 per cent. South Korea's U.S. exports jumped 24 per cent, compared with a 17.7 per cent slump in shipments to Europe.
The surprise is China. Normally when export demand from the United States is strong, Asian exports to China also jump. As a rough estimate, two-fifths of everything China exports is made from imported components, and at least one-fifth of everything Asia exports to China is used to make something bound for global markets. So for example, when China's exports to the United States recovered in 2010 to grow 28 per cent, South Korean exports to China expanded by 35 per cent.
But as China strives for more sustainable growth, it is reining in investment, which accounts for roughly half of its GDP. One of the biggest declines are imports of machinery and electronic equipment from Japan, which dropped more than 12 per cent in the first quarter. Base metal imports from Australia slumped more than a fifth. As China gets its economic house in order, it may no longer prove as powerful an engine for Asia's export growth as once hoped.