What CLSA’s Andy Rothman Thinks is the Biggest Misunderstanding in China
April 12, 2012
In our webcast last week on what to expect from China, Andy Rothman from CLSA outlined the major misconceptions about China. He believes the biggest myth that investors think about China is that its economy is primarily driven by exports. Using two charts which debunk this misconception, Andy explained that domestic investment and domestic consumption have long been the most significant drivers of China’s economic growth.
While most items we buy in big box stores have a “Made in China” tag stuck to the bottom, it should actually say, “Assembled in China” since China has moved up the manufacturing food chain. Andy uses the distribution value of Apple’s iPad to illustrate this development.
Andy says when an iPad leaves China, it has a factory value of $250. As you can see in the pie chart, the input costs for assembling the iPad in China are only about 2 percent of the value. About the same amount goes to Taiwan (2 percent) and even more of the cost of the iPad goes to South Korea (7 percent) because of the parts made by LG and Samsung which are then shipped to China.
How does this translate to GDP growth for China? If you break down China’s GDP growth year-by-year since 1996, you can see how much of the growth was attributable to net exports of goods and services versus internal consumption. Andy says, “In the decade before the global financial crisis, China, on average, experienced 10 percent GDP growth, but each year only one percentage point of that 10 percent growth came from net exports.”
On the far right is what CLSA is expecting for GDP growth from China in 2012: “Basically, we're looking for 9 percent GDP in China, about half from investment, half from consumption, with a negative half a percentage point from net exports, because obviously world demand for goods coming from China is a little bit weak.”
Hear Andy Rothman debunk more myths by watching the webcast, Hard or Soft Landing in China? You can also watch it on an Apple or Android device at your convenience.
More on China:
All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. None of U.S. Global Investors Funds held any of the securities mentioned in this article as of March 31, 2012.