China's Economy : Export or Domestic Driven?

Y u no tell me teh tru storeh?

    In a recent article by McKinsey Quarterly which I nearly fell asleep reading, the author suggested that the perception that China is turning into a major Export-driven economy (much like South Korea and Japan) is somewhat untrue. The author proceeded to introduce his own theory called Domestic Value Added Exports or simply abbreviated as DVAE which calculates China's exports by subtracting total exports from imports used in the production of goods and services which subsequently are meant to be re-exported. This is done to counter the following issues when dealing with conventional methods;

• Overestimation by failing to remove imported goods (raw materials or components) which are used for manufacturing and subsequently re-exported. This is particularly evident when measuring the contribution of total exports to the GDP.
• Underestimation as a result of the inclusion of finished imported goods which are then used for domestic consumption when using the Net Exports method (export less imports).

    The results from the application of DVAE (see article) in measuring China's actual exports indicated that China's exports seems to be overestimated, and actually slowing down within the past couple of years. Personally, I do think that the perception of China being an export-driven country is somewhat untrue. I think that come 10, 20 years, they would shift away from being a manufacturing-based country into a domestic-led economy, as evident in most developed countries. Let's face it, Chinese people are good at making money. They're a lavish good spender too.

    In another article relating to China's rising domestic consumption and disposable income, much has been discussed about the Chinese mentality of parading their personal belongings, coupled with a thrifty attitude, unlike their western counterparts. This sort of mentality is apparently a direct result from the constant years of the oppression by the communist state. But whether they will continue their domestic consumption will continue or not, much depends on whether the government is competent enough in battling key issues such as the country's inflation rate, risk of overheating, and its fiscal or monetary policies. The last thing the country would want to face after years of constant growth and trade surpluses is to end up in the middle income trap.

That would suck.