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Contents:

We’ve read Megan Greene’s article in the FT “Don’t believe the deglobalisation narrative” and want to add charts to it. The charts you’ll see:

1. GDP by country

2. Trade to GDP

3. Net trade

4. Port statistics

5. FDI

6. Portfolio inflows

7. KOF Globalisation Index

The setup:

1. GDP by country

First, let’s put things in context and compare countries by GDP as a percentage of world GDP. The pink line in the panel on the right = 1 since that’s world GDP divided by itself. South East Asian economies, including Vietnam which gets so much attention as an alternative supply chain source to China, are tiny. Let’s just get that out of the way.

Now let’s work through the FT article, adding charts where we can.

2. Trade to GDP

The “World” part checks out. GFC shook things up. China & India retraced, while Japan had some swings but stayed steady. Germany, following the Hartz reforms in the early 2000s, increased and kept it high. Vietnam has been ripping higher. Indonesia and Malaysia retraced following the Asian Financial Crisis (1997). It seems that crises are often catalysts for change.

3. Net Trade

It’s interesting to note that the historically highest net trade (USD terms) reading for China in 2020 is actually its lowest reading in terms of percent of GDP since the early 1990s. China’s not the mercantilist story anymore a lot of people believe it to be. 2007 seems to have been a watershed year. One explanation could be that the narrative about China turning inward is actually happening. Another explanation could be that factories stay in China and export (for now) while also seeking unrestricted access to Chinese consumers.

China is increasingly less of a “factory of the world” story and instead one about being one of the “largest markets in the world”. The next change for China would be to become one of the “largest markets for the world.” (And yes, it already is for many things.)

4. Port Statistics

Instead of plotting just Los Angeles, we plot all international cargo volume for all Chinese ports.

Here’s an excerpt from Marc Levinson’s piece in Aeon (Aug-2021):

The COVID-19 pandemic has given a temporary boost to goods exports as consumers unable to enjoy vacation trips and concert tickets spend on furniture and food processors instead, but the long-term trend is unchanged.

Here is a map of Dry Cargo ships currently in operation. The most congested routes appear to be the ones through narrow straits.

5. FDI

Again, absolute USD values (left pane) and percentage of GDP values (right pane) tell different stories. China’s uptrend on the left pane is a downtrend on the right pane.

6. Portfolio Inflows

This chart was supposed to be about China. But we can’t get over the crazy portfolio inflows into the US in 2020. Would this explain the performance of the S&P500 since Covid hit the tape?

7. KOF Globalisation Index

Here’s the KOF Globalisation Index (up to 2018) from the Swiss Federal Institute of Technology in Zürich (ETHZ). From what we’ve seen, it’s likely the most comprehensive and longest running index of globalisation out there.

The ETHZ institute actually segments globalisation into de facto (hard data) and de jure (laws, regulations, tariffs). The chart above is a blended index of both. Here are the weights for the individual components of the index.

Final thoughts. Globalisation is obviously a complicated and multi-faceted topic, especially since it may mean different things to different people, may look different depending on how you slice it, and may have different implications depending on one’s investment objectives.

Covid may have indeed caused certain changes in the world economy, as for example more consumer spending to be directed to products (likely imported) in the developed world than otherwise. But it may take at least one more year to see a trend develop. Globalisation (or its reversal) is a large, slow moving process.

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Sincerely,
China Charts Team