China's trade: win some lose some

The rapid expansion of China's trade signals its deeper integration into the world economy and greater impact on other economies. The continued growth of its economy and the shift in its growth model, which the country's leadership has pledged to accomplish, would benefit many other economies. Having said that, major commodity producing economies are among the most likely to suffer.

The National Bureau of Statistics said on Monday that China's imports and exports amounted to $4.16 trillion in 2013, an annual increase of 7.6 percent, and it recorded a trade surplus of $259.75 billion.

The country's leadership appears to be making a concerted effort to push ahead economic reforms that it pledged at the Third Plenum of the 18th Communist Party of China Central Committee in November. This should in time help reduce the threat of a hard landing for the Chinese economy because of misallocation of capital and a build-up of excess capacity. The comprehensive plan for structural reform, if properly implemented, should also support stronger growth over the medium term than would otherwise be the case.

This would be positive virtually across the board for other parts of the world, particularly emerging markets, where the importance of China's economy has continued to rise. The share of emerging markets' (ex-China) exports to China has increased from 6 percent in 2009 to 8 percent today, although it is still less than 10 percent for those exported to the US.

Nonetheless, China's further development would be felt differently in different economies because the proposed reforms would shift the country's economic growth model; a greater role for the market would see resources being channeled away from capital-intensive heavy industry toward households. This means growth in investment spending would slow down, while consumer spending would benefit.

Indeed, the government seems to have started preparing the ground for rural land reform and relaxation of the hukou (house registration) system. It would probably not be long before banks are allowed to offer higher interest rates to depositors. These measures would direct a greater share of resources toward relatively poor households and increase their demand for consumer goods.

Most of economies in emerging Asia should benefit from this shift. Over the last decade, while China's economy has been expanding at an incredible pace, the growth of its consumer demand has fallen behind. A major cause of that is the shifting of a bigger share of income from average households under distorted policies that benefit investment and exports. A large part of imports reflects the need for intermediate goods for processing and re-export, which is driven by demand from overseas rather than at home.

China will probably remain a hub for manufacturing, with the spokes radiating across the region. But whereas much of China-made products is currently exported, a growing share would be directed toward consumers at home when the driver of the economy shifts. Accordingly, the economies with well-developed manufacturing sectors and close trade links with China, such as its neighbors, should be best placed to benefit from fast-growing Chinese consumption demand.

However, some economies will probably be disappointed. Rapid growth in investment has driven up China's share of final demand for a range of commodities, including iron ore, steel and copper, benefiting industrial commodity producers the most over the last decade. But weaker investment growth ahead would pose a challenge to these commodity-exporting economies because of the reduced volumes of their exports to China and continued weakness in prices.

There are no signs to suggest that China's investment spending is about to stall. Its capital stock is still relatively less than that of many other developing economies and will continue to rise. And more of its people will move to towns and cities. But there has to be a significant slowdown in investment to direct the economy onto a more sustainable track. For example, the current pace of property construction is already good enough to accommodate the likely growth in the urban population this decade.

In fact, commodity producers should have already felt a chill. While China's imports of many commodities reached record highs in 2013, the growth of key industrial commodity imports slowed down by two-thirds compared with the past decade. A further slowdown seems to be on the cards with policymakers becoming less keen on investment-driven growth. But exporters of energy and, in particular, agricultural commodities would be less affected, with household demand for cars and food products expected to grow steadily.

Local factors will determine how well commodity producers adapt to China's structural change. Those that have channeled commodity revenues into productive investment are likely to find it easier to sustain rapid growth as commodity income growth slows down. But countries that instead used revenues to boost consumption are much more likely to experience a slowdown. The most exposed countries are those that "overspent" commodity revenues, generating current account deficits. In this context, South Africa and Chile look especially vulnerable, with Brazil also likely to face a difficult time.

In sum, the biggest winners from China's rise over the last decade will probably become the biggest losers in the years ahead. But for others, China's more balanced and sustainable economy will be welcome.