My views on China - Part I

I have been reading here and there over the last few months on others views on China. It's about time I stitch my random thoughts together. I want to apologize if I am not able to cite any sources as you may know blogging is less formal but I will still try my best if I can recall them. Here are the common themes and my views.

1. China cannot pull the world out of global recession. Correct, China cannot pull the world out of recession physically. The size of China economy of about US $ 3 trillion which is no way to offset the global economy contraction.



When global economy slipped by 4% of roughly a size of US $ 50 trillion, it will translate to about US $ 2 trillion loss. Even China GDP grow by 8%, it will be a drop in the bucket. Sorry folks.

Yes, China will not be able to help the world physically but it will help the world psychologically. Confidence crisis is part of negative downward spiral now. China will be able to give some moral support to battered world. China restocking at least putting a floor to some of shipping rate, commodity price like copper, iron ore, etc. This will help the emerging economies that produce real stuffs.


(Source : http://www.minyanville.com/articles/dow-CHINA-shanghai-pmi-Indices-Export/index/a/21459/p/1)

2. Crushed export segment and soaring unemployment will impact consumption and investment. To shift from an export-oriented economy to consumption-led economy will take about 5 - 10 years because this is structural.

Some already criticizing China top leadership being caught flat-footed as they did not see this was coming. The first 4-trillion Yuan stimulus was reactive rather than pro-active.



I am no professional economist but by looking at data alone, I feel the premise of labelling China is an export-oriented economy itself will nullify the argument itself. I show this chart about a year ago. Can you see investment is actually a big chunk of that growth contribution? The good thing about China, unlike some countries like India or Eastern Europe where their investment boom is largely depending on foreign investment, I believe China has more money than ideas. Those in export sectors will be the losers but there will be new winners from other sectors like infrastructure, agriculture, mining, etc. The big picture will remain intact but there will be some shifting from left to right pockets. One more point, it was export that push China GDP beyond 10%, that was just a recent phenomena started from 2004. Prior to that, China was still doing fine around 8% without big contribution from the export sector.