Brad Setser

Brad Setser: Follow the Money

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Well, almost

by Brad Setser
March 26, 2007

China's reserves are growing fast because, apparently, it is a resource rich-economy:

Third, foreign currency reserves have more than doubled in the past six years due to the commodities boom, which has increased the assets of resource-rich countries such as China, Brazil and the oil-producing nations of the Middle East.

Oops.  The actual article is pretty good, so I feel bad picking out the one little point that is a bit off.  The surge in global reserve growth is, in my view, an under-reported story.

I can see the source of the confusion.  If you plot the evolution of China's current account surplus against the evolution of say the surplus of any oil or commodity exporting region, it sure looks like China is a commodity exporter.    In reality, though, China's non-commodity exports — and the value-added inside China — have just grown faster than China's (quite rapidly rising) commodity import bill.  

And with the manufacture of high-end electronic components, not just the final assembly, migrating to China, well, that might well continue. 

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