In all the hoopla created by the ‘shock’ political turnaround in Europe and the revelations from JP Morgan (well, well – that deserves a separate post), we can be forgiven if we let the China trade data pass by without a wink. But, that would be a folly. Exports were exceptionally weak and imports were a lot weaker than exports. You can do the math. On Wednesday, in a presentation I was making to some audience, I had reckoned that the current growth rate in China is around 4% to 6%. I think I was far too generous. I was basing my rule-of-thumb number on the basis of figures 7 and 8 in the World Bank China Quarterly (April 2012) – full report here.
The collapse in imports suggests that there is no domestic demand worth its name, in China. All imports (of course, not ‘all’) were meant for re-exports or inputs for the process of capital investment for exports. With the export machinery shutting down, there is no investment and there is no export.
Where is the 8+% growth coming from?
Of course, Reuters story here catches some bright spots in the external trade report:
robust imports fromAustralia and solid annual volume growth in raw material imports indicate that state-led infrastructure spending underpins economic activity.
But, the report evidently is clutching at straws.
Patrick Chovanec reckons that
In my Bloomberg remarks, I made three core assertions:
- That the reported decrease in China’s consumer inflation rate (CPI) does not seem to accord with my own daily experience of rising prices in China;
- That there is reason to suspect the Chinese economy may be growing substantially below China’s reported real GDP growth rate of 8.1% for Q1, and may actually be in contraction (negative growth); and
- That Chinese companies I have been talking to are seeing flat performance (near zero growth) in Q1, compared to last year………………….
…………….. for a number of reasons, including people cashing in inflated assets, as well as the bottled-up pressure from earlier price controls, the everyday cost of living continues to rise. That suggests that inflation is turning into stagflation, a problem that places serious constraints on the Chinese government’s ability to pump money in to reignite growth.
………………….. In the interests of readability, I’m going to break here for the moment and examine my second controversial assertion — that China’s economy may be slowing more severely than the headline GDP number suggests — in my next installment. [Link to his post]
I wonder where is the next quarter ‘beat’ is going to come from, for Apple Computers.
In the meantime, we are waiting for Patrick’s promised examination of his ‘second controversial assertion’ on the actual GDP growth in China. Frankly, in the light of the trade and other data, it should not be controversial at all.
It is amusing to read the comment on the scope for policy ease in China in the Reuters article linked above. Real deposit rates are negative. Central bank balance-sheet is 80% of GDP. Bank asset to GDP ratio is over 300% and bank credit to GDP ratio is around 160%. Want to ease further?
It is hard to wake up those who pretend to sleep or who do not want to be disturbed out of their ignorance.