From S&P:
How important is China as a trading partner to individual countries? As a threshold, we only look at economies where exports to China exceed 5% of the total. And, importantly, what is the breakdown of the types of goods exported to China? Is a trading partner in the “right space”? As Growth Slows China is a major trading partner with almost every economy in Asia-Pacific. India is the only notable exception. (3) The share of exports going to China for Asia-Pacific economies is shown in chart 4, broken down by type of goods. A few features stand out:
• Australia is in a class by itself with the largest share of export going to China by a margin of 10 percentage points. It is also the most commodity-heavy exporter, with Indonesia a fairly close second in terms of the share of commodities in the China export basket.
• The region’s more advanced economies–Japan and Korea–are mainly capital goods exporters to China. The Philippines is in this group as well.
• Thailand and
New Zealand are relatively heavy intermediate goods exporters to China.
…We are now in a position to map out the effects of slower Chinese GDP growth on its major trading partners. Our approach comprises two steps and, again, was aimed only at generating a first-round, or direct, impact. The feedback loops to prices, further changes in quantities as well as any policy responses are omitted. These effects are likely to amplify, rather than dampen, the first-round effects. We begin by generating a unique Chinese import elasticity for each trading partner in our sample. This was done by dividing into shares each economy’s exports to China into commodities and other manufactured goods. We then took these two shares and multiplied each by the corresponding Chinese import elasticity (commodities and manufactured goods) (see charts 6 and 7).
Asia-Pacific economies show a veritable split compared with the overall Chinese import elasticity of 1.10, shown in the graph as “epsilon.” Not surprisingly, the commodity-heavy exporters have a relatively high responsiveness to growth when adjusting for
the composition of their exports to China. Australia came in at more than 1.6. Importantly, the more advanced economies–Japan and Korea–show much lower elasticities, given their low commodity shares, clustered below 0.8. As noted earlier, these economies already took the brunt of the onshoring part of China’s structural change to its trade pattern.
…The second and final step in the process of mapping the effects of slower Chinese GDP growth is to generate the impact on each economy’s exports to China. To calibrate this, we assumed a 2-percentage-point reduction in Chinese GDP growth, representing a plausible (and necessary) decline in growth from about 7% currently to approximately 5% over the medium term. (Recall that this is a comparative static exercise, so we are looking at the before and after, rather than the transition.) We then multiplied the 2-percentage-point change in GDP growth by the import elasticity to get a drop in Chinese overall imports, and weighted this by the share of total exports to China in the basket. Again, as a first-round impact exercise, we assume the
trade shares with China for each economy in our sample do not change. For example, China’s weighted import elasticity for Australia is 1.67, so a 2-percentage-point reduction in Chinese GDP growth reduces its imports by 3.3 percentage points. And since China accounts for 35% of Australia’s exports, the downward shift in China’s GDP growth lowers Australia’s exports by about 1.2 percentage points (.35 times 3.3). The results for Asia-Pacific and Latin America are presented in charts 8 and 9.
These, then, are our ready reckoners. As expected, we find a relatively large effect of slower Chinese GDP growth on the exports of commodity-heavy trading partners. Australia is a clear “loser” here, reflecting its commodity-intensive export basket and strong trade links with China. Sizable effects on export growth elsewhere are concentrated in Latin America, with four countries taking a first-round hit of about half a percentage point. New Zealand is in the same range.
A nice illustration of China dependence. What it doesn’t tell you is how that dependence interplays with the rest of the economy. In Australia’s case not very well given the income derived from resource exports is vital in the leveraging chain that runs through the house price inflation and consumption that supports the giant services economy.
As such I would say that Australia’s China dependence is absolute.
