Germany looks to China, but in the UK the china looks broken

Posted: January 10, 2013 in China, Currencies, UK Economy, UK Exports
Tags: , , , , , , , , ,

In November, UK exports to Ireland were worth £1.45 billion. We sold £2.09 billion worth of stuff to the Netherlands, £1.785 billion to France, and £1.21 billion to Belgium/Luxembourg.

In short, UK exports to its nearest neighbours were worth around six and a half billion pounds in November.

Exports to China were worth just £840 million.

Alas, data for November is not available yet, but In October, exports to Brazil were worth just £207 million, to India they were worth £397 million and to Russia £381 million.

In short, the UK sold almost more goods and services to little old and deeply troubled Ireland than it did to all the BRICs put together.

Be grateful for small mercies. At least it was a case of almost as much. Until recently, exports to Ireland were trouncing our combined exports to the BRICs.

But now take a look at Germany. In 2011, 59.2 per cent of German exports were to countries in the EU, which was a 20 year low.

According to ‘Spiegel’, in 2012 growth in exports outside the EU will make up for the decline in exports within the area.

‘Spiegel’ stated: “German exports are set to hit a new record for 2012 as strong sales to the US and emerging economies like China offset falling demand from austerity-hit Europe. Exports rose 4.3 per cent in the first 11 months, thanks to a jump in sales outside the crisis-hit Continent.” See: German Exports Seen Hitting New Record in 2012 http://www.spiegel.de/international/business/new-record-for-german-exports-expected-for-2012-despite-euro-crisis-a-876296.html

According to the ‘China Daily’, unit sales of cars in China are now greater than sales into Europe. It quoted a Germany analyst predicting that it won’t be long before the Chinese auto market is bigger than that of Europe and the US combined. See: Vehicle sales overtake Europe in 2012 http://europe.chinadaily.com.cn/business/2013-01/10/content_16100482.htm

You don’t need a PhD in anything to know that Germany will do rather well out of the exploding Chinese auto market.

We can speculate as to why. Here are a few observations.

Germany is benefiting from the euro. Because it shares its currency with the likes of Greece and Spain, its currency is much cheaper than it would be if it still had the Deutschmark.

The UK may be losing out thanks to North Sea oil and the City. Both bring in tax receipts. But both push up sterling.  It’s hard to say whether that is a net positive or negative.

The Bank of England is worried about the strength of sterling, and may well use QE to try to push the pound down later this year.

If Scotland does indeed gain independence, it will probably stay in the sterling area. Scotland may benefit from North Sea oil tax receipts, but North Sea oil will also have the effect of distorting the value of sterling. That means the rest of the UK will pay the price of North Sea oil via a terms of trade disadvantage, but won’t gain the benefits. That won’t go down well.

But here is a question.

Given the UK’s ethnic diversity, why is it not able to use its pool of labour with its global roots to sell worldwide? Is the problem that this potentially world class sales force, doesn’t have enough to sell?

©2012 Investment and Business News.

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