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China Can’t Do It Alone

By Charles Sizemore⋅ March 24, 2009 ⋅ ⋅ Post a comment

In the early stages of the housing bust, the myth of “decoupling” could be found on the pages of virutally every financial magazine and newspaper. There was a genuine belief that somehow the economies of East Asia–which depend heavily on exports to the West–could somehow continue to thrive with the West mired in recession.This has, of course, been proven to be patently false. Not only have the East Asian nations failed to avoid a slowdown of their own, but in some cases–such as in Japan and South Korea–the East Asian economies have gotten hit even harder than those of the West, where the crisis began. Barron’s (”Why China Can’t Save the Word“) reports that China’s exports plunged 25.7% year-over-year in February, and more than 20 million migrant workers have been displaced as a result. Producer prices and real estate prices are both falling, and the Chinese consumer has not stepped up to pick up the economic slack. Given the uncertainty out there, the consumer’s caution is warranted. Given that China has its own domestic issues with which to contend, it is safe to agree with Barron’s that “China can’t save the world.” To fully grasp why, consider Kopin Tan’s quote from the article:

Americans spent enough in 2007 to drive 18% of global GDP, a staggering number compared with the 2.1% accounted for by Chinese consumers. …if U.S. consumption were to shrink by just 10%, the decline would already surpass what the entire nation of Chinese consumers currently spends.

Bottom line: China may or may not continue to grow and proper, but in any event don’t plan on China “bailing out” the US and world economy any time soon.

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One comment for “China Can’t Do It Alone”

It amuses me to see so many “experts” write so glowingly about China.

The “experts” apparently accept everything that China tells them. Have they forgotten they are a Communist Government! Do they think a Communist Government wouldn’t lie? Have they forgotten all of China’s ’successful’ five-year plans in which we subsequently learned that millions had died from starvation?

As for China’s so-called recovery, China’s March exports were down (17%) for the 5th month in a row, so how is that a “recovery”?
Even worse, the March balance-of-payments surplus increased because imports were down 25% - domestic demand continues to collapse. How on earth can anyone imagine that a country which grew on the back of supplying the world’s developed economies can improve while those economies have gone over a cliff and (whatever stock markets are doing in the immediate term) are continuing to deteriorate?
The property booms in Shanghai and Beijing have collapsed.
Students coming out of universities in China can’t get jobs. Tens of millions of ‘migrant’ (from rural areas) workers are unemployed - 40% of rural spending comes from the money these young people send home. They are unemployed because, by the middle of January 2009, 50,000 factories had closed (and many of the owners disappeared - they just run for the hills). An article in the Australian Financial Review pointed out recently that those sorts of figures aren’t being updated any more. All we get are self-serving statements from the government or government-controlled sources about things like “a surge in bank lending”. For what? To whom? 90% of new lending is being made to the Government sector.
Electricity consumption in China is declining rapidly - a sure indicator of falling industrial production.
All the hard evidence from China is that of a boom gone bust.
And finally……….you can bet that the people predicting China will lead us and the world out of recession are the very same people who told everyone in 2007 to keep buying shares at the top of the boom because “this bull market is different”!
Don’t be fooled by the China

Posted by peterwt | June 22, 2009, 8:27 pm

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China Can’t Do It Alone

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