EXPORTS from China are still suffering as the latest April figures show. This impacted China’s industrial production which, although expanding, was still at a relatively weak pace.
This negative reading is not surprising as global economic conditions remain weak and the recovery process is in the early stages.
On the other hand, the latest economic figures pertaining to China’s stimulus package and consumer spending remain robust.
Bank lending, fixed asset investment and money supply are expanding at robust levels.
Most importantly, retail sales in China are expanding very healthily with April’s figure growing 14.8%, and with home sales in 2009 so far surging.
What we have now is a two-tier Chinese economy. The export-related side remains weak but the domestic demand-related aspects remain strong.
Would such a situation please investors and economists? Nouriel Roubini, New York University economics professor, said he was worried about the quality of the recovery and that private domestic demand was not growing fast enough.
“Without exports, China can produce growth for a period of time by getting the banks to lend like crazy, but that’s not sustainable growth,” said an economist with Macquarie Securities in Hong Kong.
Even though retail sales are surging in the mid-teens, at a time when retail sales in most countries are slumping, this is still not enough to please the bearish ones.
It is true that banks anywhere cannot continue to lend like crazy, but if export growth is so sustainable, why are exports collapsing now?
It would seem that, for some people, nothing is ever right. Are exports really that important for China? Is it just a myth?
Or is China’s economy more than just relying on exporting cheap goods to the US?
The table shows the growth components of China’s gross domestic product.
Contribution from net exports, i.e. exports minus imports, is far less important than contribution from domestic demand, whether from private or public sector.
A good proxy for domestic demand is retail sales and fixed asset investment. Both are expanding robustly.
If you suspect the figures from the Chinese official sources, just remind yourself that in 1978, there were only 400 washing machines in the whole of China. By 2005, there were 30.4 million washing machines.
In 1980, only a few thousand cars were on the roads in China.
Now, China is the biggest car market in the world. Now, all these are for domestic consumption, not for export.
The simple fact is that the US economy may still be the largest in the world but it is certainly not the most important anymore.
Hong Kong’s economic prospects are now very closely linked to China’s, the strongest economy in the world.
The Star~Thursday May 28, 2009
