How Much Has the Export Driven Strategy Led to Chinese Boom?

I found the article in the January 3 Economist entitled "An Old Chinese Myth" to be quite fascinating. It takes a contrarian view that increases in domestic demand, not the export surplus, have led to the economic boom in China. Begin Quote: "MOST people suppose that China's economic success depends on exporting cheap goods to the rich world. Headline figures show that China's exports surged from 20% of GDP in 2001 to almost 40% in 2007, which seems to suggest not only that exports are the main driver of growth, but also that China's economy would be hit much harder by an American downturn than it was during the previous recession in 2001. If exports are measured correctly, however, they account for a surprisingly modest share of China's economic growth "Jonathan Anderson, an economist at UBS, a bank, has tried to estimate exports in value-added terms by stripping out imported components, and then converting the remaining domestic content into value-added terms by subtracting inputs purchased from other domestic sectors. "Once these adjustments are made, Mr Anderson reckons that the "true" export share is just under 10% of GDP. That makes China slightly more exposed to exports than Japan, but nowhere near as export-led as Taiwan or Singapore (which on January 2nd reported an unexpected contraction in GDP in the fourth quarter of 2007, thanks in part to weakness in export markets. Surveys suggest that one-third of manufacturing workers are in export-oriented sectors, which is equivalent to only 6% of the total workforce." I have a slightly different take on the process based on my experience in countries like Chile and Argentina which opened their markets to international trade in the 1980's. An exchange-rate policy that favors exports at the beginning of the process is certainly an important first step. However, in my opinion, the key policy change is that by orienting the country to international trade, an economy can rapidly close the technology gap with the developed world. In doing so, productivity increases and domestic sectors that feed the export industry can also increase production. In a few years, countries that were laggards in technology because of self-imposed isolation can catch up to the most modern production techniques. One of the issues that critics of globalization seize on is that income gaps widen during this process of modernization. This results from the above processes. The sectors that are open to international trade advance quickly, only limited by the pool of skilled workers, while traditional sectors lag. This is not the fault of globalization but rather a reflection of sectors where the economy has not kept up to date because of low skill levels. The answer is not to slow down globalization but rather to increase investments in education and infrastructure. China has boomed not from low-wage exports or a "rigged " exchange rate but rather by moving up the value chain. That in turn has allowed a good portion of the traded-sectors to grow rapidly. The challenge in China, as other economies have experienced, is to bring the non-traded sectors of the economy up to the same levels of productivity.