Alas, the rebalancing in this case is a shift from exporting to the US to exporting to Europe — not a shift from export-led growth toward domestic-demand led growth.

Alan Beattie, in the FT.

Mark Page, research director at Drewry Shipping, a consultancy in London, says Asia-US container trade saw a big slowdown that began in the middle of 2007, with demand for the whole year perhaps only 2 per cent higher than in 2006. But ships were redeployed to the routes between Asia and Europe, north Africa and the Middle East, where container trade grew by around 20 per cent.

It is hard to fudge container data. The rise in shipping from Asia to Europe and the Middle East helps to explain how the Baltic freight index decoupled from the US economic cycle (UPDATE: NOTE COMMENT AT THE END). The Baltic dry index rose strongly for most of the year even as the US (non-oil) import growth slowed in 2007. Things obviously changed a bit in November.

It also explains why Europe is increasingly putting pressure on China to appreciate against the euro, not just the dollar — and why Europe seems to worry more about about the risk that it might attract too much investment from sovereign funds than to worry about the risk that it might attract too little.

What then would happen if European demand also falters? Beattie is not optimistic:

For the moment, Mr Page says, most shippers are confident that such growth will persist in Europe and the Middle East. But if demand from Europe does slow, Japan seems highly unlikely to take up the baton and global trade will suffer.

That would be true even if the big emerging markets do manage to generate enough domestic demand to absorb a lot more of the goods that they produce. Despite all the talk of an emerging Chinese middle class that could buy the goods coming out of its factories, its economic growth in recent years has instead owed much to its high trade surplus.

The last point is key. We don’t yet have good q1 data from China, but the early signs haven’t confirmed the q4 shift in the basis of Chinese growth toward domestic demand. And for 2007 as a whole there is little doubt that Chinese consumers failed to absorb the increase in Chinese production.

UPDATE: It turns out (per the comments) that the Baltic Dry Index measures the cost of shipping non-containerized freight (including a lot of commodities).   Consequently the argument I made above only works if there is some correlation between bulk shipping and container traffic.    Strong Chinese demand for coal and iron ore — another kind of decoupling — may offer a better explanation for the 2007 rise in the Baltic Dry Index than the surge in container traffic between China and Europe.