It’s a continent, actually: China’s external imbalances are as nothing compared with its internal ones

Feb 8th 2014 | HONG KONG AND YINCHUAN | From the print edition


It’s a continent, actually: China’s external imbalances are as nothing compared with its internal ones

NINGXIA, an autonomous region inChina’s north-west, is home to 6.3m people. About a third of them are Muslims, descendants of travellers along the Silk Road. The region is keen to revive the kind of trade networks that created its unique ethnic mix, so that it can diversify an economy which relies too much on coal, metals and chemicals.

In that regard Ningxia is hoping to sell nutritious goji berries to people worried about their bodies, certified halal foods to Muslims worried about their souls, andfine red wines to people relaxed about both. If these schemes succeed, they will help Ningxia to close its big trade gap with the rest of the world—and the rest of the country.

China trades more goods across its international borders than any other country. Its provinces also trade a lot with each other, but this trade is far from balanced. If each of China’s provinces were treated as an independent economy, they would record enormous trade deficits and surpluses with the rest of the country and the world (see chart).

The biggest deficit, in absolute terms, in 2012 was recorded by the central province of Henan, out of which China’s civilisation sprang and into which flowed goods and services worth a net 580 billion yuan ($96 billion). In relative terms, however, the widest deficits appear in China’s western provinces. Ningxia’s deficit amounted to almost 40% of its GDP, bigger than the current-account deficit of any actual country. Even wider trade gaps were recorded in Qinghai, Yunnan and Tibet.

These deficits reflect the government’s “Go West” campaign, an effort to invest in the infrastructure of the west. Net “imports” from the rest of China and beyond allow poor provinces to spend more on consumption and investment than they earn. Ningxia’s investment rate was 89% of GDP in 2012. In Tibet, the “roof of the world”, the investment rate was through the ceiling at 101% of GDP.

Signs of investment are everywhere in Ningxia’s capital, Yinchuan. Foreign firms are helping to build a posh hotel and mall, shaped like a flying dragon, which will attract international brands. But not everything is imported. The coal, piled around the dormitories where the labourers live and cook, is local.


About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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