Bangladesh along with Pakistan and Sri Lanka had a less severe direct impact of decline in China’s import contraction in 2015, says a new report of the World Bank.
“Lower growth in China, as well as the gradual shift away from industrial production and investment, is affecting all regions of the world, but South Asia felt a less severe direct impact of developments in China than did other regions,” according to the WB report on Trade Developments in 2015 which was released by the World Bank last week.
The report said: “After the downturn in world trade volumes in the first half of 2015, trade began to recover starting in the third quarter albeit at a slower pace.”
According to the report, trade developments in 2015 reflected a combination of factors: persistent weak global demand and structural changes in world trade, compounded by falling commodity prices and China’s transition to a new growth path.
The first half of 2015 saw a reversal of rising merchandise import volumes in 2014, leading to a contraction in import volumes of around 3.5% while in the second half of 2015, growth was positive again, yet below that seen in the second half of 2014, according to the report.
“The merchandise exports of Bangladesh, Pakistan, and Sri Lanka continued to grow, buoyed by positive developments in the United States and parts of the Euro Area,” said the 2015 trade development report.
However, an adverse effect of the import contraction in China was felt primarily by India, it, however, said.
For India, the report noted that markets in the Middle East are more important than those in China, and so it suffered export contraction as much as a consequence of the downturn in exports to the Middle East (particularly the United Arab Emirates) affected by the fall in commodity prices as it did from lower direct exports to China.
The World Bank predicted that in the longer term, the scope for trade growth in manufacturing would be affected by a number of factors with contrasting effects.
On the one hand, trade growth may be limited by diminished growth in demand in China, said the report further adding that on the other hand, the gradual rebalancing from investment to consumption is likely to create opportunities for exporters of final goods’ evidence of which is already emerging, and it may also eventually boost upstream intermediate and capital goods sectors that are now adversely affected.
Furthermore, increasing real wages in China may encourage relocation of production towards other lower-cost economies like Bangladesh, it added.
The rebalancing of the Chinese economy will influence trends in world trade but how the transition happens will affect the extent of trade fluctuations, said the bank in its report.
The report said: “The changing composition in demand may well favor exporters of consumption goods and eventually of upstream intermediate and capital goods used in their production.”
The rebalancing is also shifting Chinas’ demand from goods to services, and services imports may grow even faster if services markets become more open, said the report.