China's Trade Balance; Importance of Luxury Goods.

`Made in China` is everywhere in our life. Walmart survey shows us that at least ten `Made in China` product we have at our home and five of them we use in a daily-basis. The comparing China with other countries according to trade is hard. If I say `made in China`, what comes to your mind? It is like the bottomless pit. It can be computer, toy, telephone, avocado, camera, lamp, clothes.. The list can go more and more. However, Let's try it again. If I say `made in Germany` what comes to your mind? Probably car and car parts right? Switzerland? Perhaps, it should be watches and medicine. Despite the fact that, in every aspect of our life we see/use Chinese products, China has account deficit with this two country; Switzerland and Germany. In this short article, I will try to analyze the reasons.

China's Trade

In 2014, goods worth 4 trillion US dollars exported from China to the world. According to CIA World Fact Book,  mostly China's export goes to Hong Kong, USA, Japan and South Korea. However, the most of the products are cheap or technological products which are computers, telephones and clothes. When we look at the statistics, China's biggest trade market is USA and the trade surpluses with the USA is 281 billion US Dollar. It can look like huge but actually according to last 5 years, this is the smallest trade surplus.

Actually, If we want to understand how Chinese Export increase yearly, we should look at the 1985 Balance of Trade between China and USA. In 1985, Chinese Trade surplus with USA was just 6 million US Dollar. After 30 years, the number increased by %46000.

Trade Deficit in Europe

But Chinese Trade of Balance is not always positive. As I mentioned above, In European Union (EEA included) China has negative balance of trades with Germany and Switzerland.

If we analyze Chinese population, we can find that 1% of Chinese population is a very rich. What does it mean? It means that China has 10 million millionaires/billionaires who want to purchase the luxury  goods. Of course, not only millionaires can drive Mercedes or use Rolex Watch yet I just want to show you that China is a big market for luxury goods.

Furthermore, If you go to street and ask strangers (don't) which brand of the car they want to have probably, 90% of the answers will be the German brands. However, can we say that BMW is a Luxury good? or Mercedes? Porsche? Some economists believe that they are not the luxury goods in today's world yet I still believe that they are.

Thanks to German Car Industry, Germany has trade surplus with the China in past 5 years. If we look at the Switzerland, Switzerland's main export good is gold, packaged medicine and watch. According to reports, Switzerland's trade surplus was just 2 billion US dollar in 2007 yet in 2014 this number is 40 billion US Dollar.

Conclusion

While EU's trade deficit with China is very large, How can Germany and Switzerland can have trade surplus? I think the answer of this question is so simple; Luxury goods exports.

In today's world, when you export 20 tons of potatoes it is approximately the same value of exporting 15 laptop. And exporting 500 laptop is the same as exporting 1 Rolex. Therefore, the importance of luxury goods are huge in today's economy.

In 2018, China will have 84% more billionaires/millionaires. For me, this data is the proof that in the future, the trade deficit of China with Germany and Switzerland will increase.