Surging prices leave oil producing countries with extra funds for Chinese imports, which could rebalance China's trade.
For many developed countries, steep oil prices are grinding local manufacturing and causing cutbacks across the economy. However, for oil producing countries, the fluctuations have generated an exorbitant $1 trillion trade windfall. Analysts believe developing countries will use this windfall to increase high-value imports from China, which will, in turn, help Chinese companies better climb the value chain and rebalance the world’s biggest exporters economy.
China, often dubbed ‘the world’s factory’, can attribute a large portion of its economic success to the manufacturing of cheap goods, whose cut-throat prices have made them globally available. Yet in recent years, the rising yuan has made constant encroachments on profit margins for exporters, potentially compromising the nation’s trajectory for growth.
However, the latest oil-trade windfall could encourage developing economies to increase high-value imports from China, such heavy infrastructure goods, telecom network equipment and construction equipments, which would then fill the widening trade gap. Simply put, the developing, oil-exporting countries, from whom China purchased 5 million barrels-per-day in 2011, would then spend the additional income from oil sales on purchasing infrastructure equipment from China.
Nonetheless, consultancy firm GK Dragonomics, believes it is unlikely that China’s estimated 10% share of the windfall - equivalent to around $100 billion - will do little to stop its economy slowing dramatically. After enjoying double-digit growth for a decade, most economists estimate China is likely to grow by around 7-8% this year, with some predicting grimmer estimates as low as 6%.
As recession fears once again flare up across the EU, the growing superpower seems keen to develop its customer base among OPEC countries in the Middle East and Africa. HSBC sees China at the forefront of global trade growth and expects it to become the world’s single biggest trading nation by 2016.