China's Exports Plunge

The world's third largest economy is sending worrying signals to those whose best hopes for an end to the Global Economic Crisis reside with China. Though Chinese growth projections seems spectacular in a recessionary world, with estimates ranging from 8% to above 9%, there is both more and less to these numbers than meets the eye.

The superstructure underlying China's impressive growth rate over the past decade and more has been exports, especially to the American consumer, with facilitation from credit flows emanating from Beijing. In a situation where the central government is priming the stimulus pump, growth is being artificially created to a large extent, since domestic demand cannot compensate for China's ravaged export markets. Factories may still be manufacturing export goods, however, the inventories are surging while shipments abroad are contracting. That appears to be the message revealed in new figures on China's economic performance.

According to China's customs bureau, exports in July declined a staggering 23% from a year ago. This number is apocalyptic, yet on paper China's GDP keeps soaring. How can an export driven mega-economy experience significant growth simultaneously with its core export sector undergoing a free fall contraction? By flooding the economy with liquidity through monetary easing, it would appear. However, this is not a recipe for long-term, sustained growth. This policy will only succeed if there is a rapid turnaround in China's export trade. That is a dim prospect, in light of the continuing decline in employment numbers in most of China's key export markets, especially the United States and the Eurozone.

Another revealing statistic to emerge from Beijing involves lending. The first 6 months of 2009 involved a floodtide of easy credit saturating the Chinese economy. However, in July new loans declined by a massive three quarters from the prior month. It seems policymakers in China are getting more concerned about the prospect that overly-loose credit will fuel an asset bubble in Chinese equities and real estate, while leading to an increase in loan defaults in the future.

Taken together, we see China engaged in a a series of massive interventions and policy actions in response to the Global Economic Crisis that are not dissimilar from other major economies. These steps are predicated on the hope that massive pump priming will keep the economy from imploding until there is a global recovery, enabling China's export trade to resume its upward trajectory.

In my view, despite the rosy growth projections, the underlying fundamentals of China's economy are based on fragile assumptions. If demand for China's export goods from overseas consumers remains far under peak demand levels for a sustained period, Beijing will confront this reality: the nation's massive export manufacturing infrastructure cannot indefinitely employ workers who fabricate products that pile up on the docks of China's major ports. That is the nightmare scenario China's leadership circles pray never unfolds.

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Comments

[KillTheMessenger]

I would suggest everyone consider this: What are China's export products?

A lot of it is junk. Seriously. They have tens of millions of people over there tied up in producing Christmas decorations, fur covered toilet seats and similar novelty items. Even something as high tech as an LCD picture frame is, after a closer look, nothing but an energy wasting device. Nobody looks at it for more than 60 seconds a day while it keeps consuming energy worth hundreds of lbs of CO2 emissions annually (if you got one and you love the planet, please turn yours off).

Now, if we cut most of this stuff out and assume that the government investments which keep the economy running at 8-9% growth are going into long term things that make sense and deliver quality of life and opportunity for their people, we can see the true problem we are facing: China has 8% real growth, we barely manage to hang on, and, if we discount the growth that was generated in the last decade by us selling their novelty items, we are slightly negative.

What looks like a problem for China on the surface, is really a problem for us. They are still doing the right things to get into the 21st century, we are not even close to stabilizing our infrastructure free fall that has persisted for most of the last quarter of the 20th.

[Stirner]

Is it possible that the U.S. public has bought enough hyped-up-junk to satisfy their emotional needs? Is it possible that a large number of folks just have had "enough"? Constant and ubiquitous advertising might well be loosing its effect, as the growth of "equality" (any boob is equal to any other boob) is dampening the usual consumer desire for conspicuous consumption. Even sex, now in the stage of final "revelations" of body parts, is beginning to lose it lure as a bait for buyers. Who knows, perhaps our production and our advertising industries have, with their success, exhausted both curiosity and the desire for recognition. If so, be prepared for a radical change in what is "important".

At the moment, the "Mega-Church" gang know exactly what many people want -- "spiritual goods". These are not made in China. Still, for all that, its "promissory notes" for a rapturous future can neither be honored or verified. Certainly, religion has been a long-time marketing success. But 2000 years of non-redemption is not exactly a good track record.

[Sundialsvc4]

And so the tulips become, "but flowers again."

The fairy-tale of Rumpelstiltskin finally turns itself to the final pages. Rumpelstiltskin is gone with the dawning of the morning light, and with him, his endless gold stands revealed as smelly, stinking rotten straw.

But as for the babbling mechanical puppets, obviously their mainsprings are still fully-wound, because they babble on with increasing volume but utterly vacuous content. They'll be singing "Happy Days Are Here Again" until wintertime comes in earnest and it finally dawns on someone that those puppets are made of wood . . . "chop 'em down, at least now they'll be good for something."