China’s external imbalances are as nothing compared with its internal ones
Feb 8th 2014 | HONG KONG AND YINCHUAN | From the print edition
NINGXIA, an autonomous region in China’s north-west, is home to 6.3m people. About a third of them are Muslims, descendants of travellers along the Silk Road. The region is keen to revive the kind of trade networks that created its unique ethnic mix, so that it can diversify an economy which relies too much on coal, metals and chemicals.
In that regard Ningxia is hoping to sell nutritious goji berries to people worried about their bodies, certified halal foods to Muslims worried about their souls, and fine red wines to people relaxed about both. If these schemes succeed, they will help Ningxia to close its big trade gap with the rest of the world—and the rest of the country.
China trades more goods across its international borders than any other country. Its provinces also trade a lot with each other, but this trade is far from balanced. If each of China’s provinces were treated as an independent economy, they would record enormous trade deficits and surpluses with the rest of the country and the world (see chart).
The biggest deficit, in absolute terms, in 2012 was recorded by the central province of Henan, out of which China’s civilisation sprang and into which flowed goods and services worth a net 580 billion yuan ($96 billion). In relative terms, however, the widest deficits appear in China’s western provinces. Ningxia’s deficit amounted to almost 40% of its GDP, bigger than the current-account deficit of any actual country. Even wider trade gaps were recorded in Qinghai, Yunnan and Tibet.
These deficits reflect the government’s “Go West” campaign, an effort to invest in the infrastructure of the west. Net “imports” from the rest of China and beyond allow poor provinces to spend more on consumption and investment than they earn. Ningxia’s investment rate was 89% of GDP in 2012. In Tibet, the “roof of the world”, the investment rate was through the ceiling at 101% of GDP.
Signs of investment are everywhere in Ningxia’s capital, Yinchuan. Foreign firms are helping to build a posh hotel and mall, shaped like a flying dragon, which will attract international brands. But not everything is imported. The coal, piled around the dormitories where the labourers live and cook, is local.
via Internal trade: It’s a continent, actually | The Economist.
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