Doubts about China’s Growth Rates
Posted by Michael A. Kamperman on April 15, 2009
Most economists are still predicting that the Chinese economy will grow somewhere between 5 to 8% in 2009. But I have serious doubts about these estimates. Reports out of China indicate thousands of factories have closed and up to 20 million people have lost their jobs. Last week it was reported by the WSJ that “China’s exports fell 17.1% to $90.29 billion in March from a year earlier, while imports fell a steeper 25.1% to $71.73 billion, the General Administration of Customs said Friday on its website.” Economies have two main components; exports and internal demand. China can have declining exports and still grow its economy by increasing domestic consumption and demand. Or, China can see a decrease in internal demand and focus on increasing exports to maintain growth. But China cannot have declining exports and shrinking domestic consumption and still grow its economy.
With exports in March down 17.1% from a year earlier China would need a large increase in domestic demand to keep growing. However, imports fell more steeply than exports declining 25.1%. Part of this can be explained by lower prices for many of the raw materials China imports such as oil or copper. But not all of it can be explained away by price declines. If any other country reported millions of people have recently become unemployed and exports and imports plunged from year ago levels, then most economists would normally forecast a deep recession for that country. So why are there no recession forecasts for China?
The Chinese recently questioned the safety of U.S. Treasuries and their own strategy of buying more and more U.S. Treasuries in the future. Could it be that this is a face saving move on the part of the Chinese government designed to hide their own weaknesses? If China has fallen into recession, they will not have billions and billions of new U.S. dollars that need a place to be parked. The only way China can continue to fuel its economic growth rates is for the Chinese consumer to turn from a saver into a consumer. In the months ahead my recommendation is follow the tea leaves from the Chinese consumer. As they go so goes the Chinese economy.
