Brad Setser

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This really doesn’t look good

by Brad Setser
January 11, 2009

Words don’t really do justice to the brutality of recent downturn in Korean and Taiwanese exports.

These look a lot like charts of financial variables after a bubble bursts, not charts of the level of exports. That isn’t good.

Looking just as the monthly data risks being misleading. There is a lot of seasonality in Taiwan’s exports. They usually dip in February. It is a short month, it often corresponds with the Chinese new year and the data isn’t seasonally adjusted. A small dip in December after the end of the Western holiday season also isn’t unusual. But such a big dip in December is most unusual. Plotting the rolling 3m sum eliminates the big February dip. The current downturn is real.

The data do not look much better if plotted as a percent change. The y/y change in the 3m rolling sum isn’t quite as bad as it was at the depth of the tech bust. But give it time. The 40% fall in Taiwan’s December exports is worse than anything observed then.

Almost all of Taiwan’s exports seem to go to China for final assembly. Korea though exports to both China (electronic components, steel, no doubt other products) and the US (cars). And there has been a very sharp fall in both Korean shipments to both the US and China. Then again, it seems that exports are down across the board. Europe doesn’t look much different.*

Korean and Taiwanese imports are down too. Korea’s trade balance is actually improving even as its exports fall off a cliff. Imports from the Gulf are following the trajectory one would expect.

What of China? Well, the official data isn’t out — but if the data leaked to Dow Jones is accurate, China is following a similar trajectory but with one difference: its imports are down more than its exports. In December, year over year exports were down close to 3% and year over year imports were down 21%.

Why is the fall in China’s exports lagging the fall in Korean and Taiwanese exports? Is China taking market share in the downturn? Or does the regional supply chain mean that the fall in China’s export will take longer to materialize, fewer imported components from Taiwan in December could just mean lower Chinese exports in January and February. It also sure seems like China’s own internal downturn is adding to the global contraction in trade.

Incidentally, China’s 2008 trade surplus (custom’s basis) should come in at close to $300 billion in 2008 — up from about $260 billion in 2007, even with the big run up in average commodity prices.

Korea and Taiwan aren’t the global economy. But they both report their trade data quickly – and they both export a ton. I wish I could say that I thought they were sending a deceptive signal ….

Three other points:

a) The trajectory of this downturn looks much worse than the trajectory of the 2000 recession. That isn’t news. But it is still worth noting. Korea and Taiwan export a lot of electronics, so they were among the hardest hit by the tech bust.

b) It is striking that neither Taiwan nor Korean exports seem to have been impacted by the (modest) slowdown in US imports that started in 2006. They made up for slower export growth to the US – counting both their direct exports to the US and their indirect exports through China – with strong growth in their exports to Europe, China and the Gulf. Y/y export growth rates for Taiwan and Korea were actually up a bit earlier this year, during the peak of “decoupling.” No more …

c) Policy choices matter. From 2002 to 2004, the won depreciated significantly v the euro. After 2004 the won rose the RMB – -and China slammed the brake on domestic demand growth. That too had an impact on Korea’s exports to China. These trends show up more easily on a graph that shows the percentage change in the rolling 12m sum of Korean exports (a variable that moves slowly but capture big trends) than in the monthly data.

But right now the sheer severity of the global downturn dominates all other variables. Everything is shrinking.

Thanks to Paul Swartz of the Council on Foreign Relations for help with the data downloads and the graphs.

* To flesh out the November and December data for Europe, I used the the fall in Korean shipments to France to extrapolate the fall for smaller European economies. Using the fall in exports to Germany would have produced an even sharper fall. But this data should be taken with a grain of salt.


  • Posted by Manc Trader

    Good post Brad,
    I was wondering is there a reason in the first couple or so graphs to not detrend or normalize the numbers. I find the exponential nature of the curves a little bit disorienting.

    Thanks for this blog it really helps those of us trying to see how things are unfolding.

  • Posted by Guest

    A good companion read is Pettis’ latest offering published in the FT where he states

    “Inevitably, however, a reduction in US overconsumption, a necessary consequence of the financial crisis, must force a corresponding reduction in overproduction elsewhere, and China, like it or not, will have to bear the brunt of the adjustment.”

  • Posted by Indian Investor

    Thanks for another insightful post with data and graphs.
    I’d like to provide a few facts which might be useful for your analysis.
    First of all, on China’s exports to India. Around 20% of India’s non-oil imports are from China. The Government of India during December imposed anti-dumping duties on certain categories of imported products from China. Anti-dumping duties are well within the framework of the WTO agreements. My understanding is that when a foreign factory is recovering only variable costs from its exports to your country, and you have strong data to show that the foreign factory is postponing recovery of its fixed costs, your country can impose duties on imports from that country, for that category of products to reflect the distortion.
    Second, you’re looking closely at China’s exports to Europe. On January 07, 2009 Bloomberg reported that OAO Gazprom has cut all gas supplies to Europe through Ukraine. I have a post on it at my blog, and the conclusion is that there’s reason to think somewhere between 75% and 80% of Europe’s overall petroleum gas supplies have been choked off as a result of Russia’s decision.
    This decision changes the entire geopolitical map. One of my recent realizations (today) on the geopolitical map (mainly the Caspian oil pipelines) China is actually a full blown political enemy of the United States, on the same side as Russia and Iran.
    Since most of the public discussions around China are so diplomatic, this isn’t clear at the outset.
    Very strong Sino-Russian ties, with Russian military sales to China, the Shanghai Co-operation organization having the US military base in Uzbekistan vacated, etc indicate this very strongly. Most importantly, competing with American oil firms through the Atyrau-Alashankou (Kazakhstan-China) oil pipeline shows that China is a geopolitical enemy of the United States.
    With the Europeans having had their gas supplies cut off by Russia, there’s very little chance that they’ll be amenable to any kind of good economic relations with China.
    I think Europeans will probably be more keen for protectionism against imports from China because of the OAO Gazprom decision.

  • Posted by bsetser

    Manc trader. I added a graph showing % changes. It is a bit busy, but hopefully shows the basic idea. I like levels graphs in part b/c I don’t think most people have an intuitive sense of what stable say 20% or 30% y/y export growth really means in terns of levels, and thus are shocked when they see a levels graph. this is certainly the case for china …

    Pettis has been on top of this story for a while; his latest blog post on it is also quite good. in addition to his argument that the differences in size between the us and china magnify the impact on china of a fall in us consumption, i would note that China looks to have entered into a domestic downturn just when its exports are poised to fall sharply. not good for anyone.

  • Posted by prophets

    difference between china’s imports and exports may only be inventory purging and a timing issue.

  • Posted by mark

    The recent report from Wynne Godley et al tells us all we really need to know. The rest, as they say, is just commentary.

  • Posted by Indian Investor

    The underlying problem in trading with third world countries like China and India which are dubbed as emerging markets is that the real wage levels are very low there for historical reasons. There are local mandarins in those countries who want to rely on the regime to make sure foreign investment doesn’t come in. This group consists of corrupt elected and unelected public officials in the regime and a select set of local entrepreneurs who would like to considate their monopolies and quasi-monopolies. You can extend this reasoning to Korean Chaebols and Japanese Kieretsus and the like.
    So this group is in conflict with foreign investors who see a good opportunity in export oriented sectors which allow wage arbitrage to happen yielding much better business margins that otherwise possible.
    On top of this you have the geopolitical ambitions of the China Communist Party and their oligarchic friends.
    None of this is helpful to the common people on the street. The sooner this is settled the better. 70% of China’s GDP is from exports and 40% of that is to the US. If Obama puts a ban on Chinese imports, the Chinese will collapse quickly. The very possibility of this should make the CCP cave in. If Roubini thinks 55 GDP growth is a hard landing for China, imagine what a year with a loss of 28% GDP from exports to the US would be like.

  • Posted by Indian Investor

    Your analysis seems to be based on the idea that currency interventions by the PBoC created the trade deficit with China. If not for currency interventions, you’re saying there probably wouldn’t have been a big trade deficit.

    I think there are much deeper reasons for the trade deficit which the US has had with all the top 30 trading partners since at least the 1970s.
    The real wage level in developing countries is very low. So business groups utilize the arbitrage possibilities to set up companies to export from those countries to developed countries. Trade deficits with China won’t go away overnight if the PBoC stops its interventions.
    As far as exchange rates are concerned the US dollar has never been valued at its purchasing power in those developing countries, at least since the impression that they are independent countries was created after the WW II ended.

  • Posted by Manc Trader

    Thanks for the quick response Brad. I like to look at past periods like the 200-2002 bear and asian crisis and so much easier on that extra graph.

  • Posted by gillies

    decoupling ?

    lookout bursts into the captain’s cabin –
    “captain, captain, wake up the ship hit a rock !”

    captain : “are we sinking ?”
    lookout : “yes, captain.”
    captain : “is our end under water or the other end ?”
    lookout : “only the other end, captain.”

    captain rolls over in bunk and goes back to sleep . . .

  • Posted by David

    Thanks for the great graphs, which not only bear on the world economy but also hint at social and political stresses that may be building in and among our trading partners.

    By the way, I like the graphs that were not normalized, because they convey additional useful information.

  • Posted by gillies

    you ( u s business ) are taking away dell computer jobs from here (ireland) to set up production in poland.

    for the individual company that makes sense, as its business rivals have already made similar moves, and they have to compete –

    but overall the outsourcing process is a dead end. imbalances arise between the (global) wage bill shrinking and the power of ordinary consumers to buy computers weakening.

    so it is a race to the death. for a time one group of people can be the consumers, and another group of people the producers, but a hiatus arises which can only be temporarily evaded by the consumers going into debt, or being bamboozled into some illusion of prosperity.

    if the individual company makes profits even as the turnover contracts – imbalances arise between the profit makers, the underemployed consumers, and the producers, and consumption then begins to fall back towards the consumption levels and prices that the producing country’s own people can support.

    furthermore – as the producers’ wage levels rise – the world can supply other nations and peoples anxious to be the next manufacturing country in line.

    for example : limerick city is a city of 50 000 odd people. 20 000 odd jobs ? dell is letting go 1900 people but they say that there will be knock on effects and 5000 jobs will be affected. that is 25% of the wages and salaries in the city.

    (these figures are not to be relied on, they are ‘ballpark.’)

    so does ireland cheer the globalisation that brought dell to these shores, or bemoan the globalisation that is taking it away ?

    here on the site we debate the possibility of production shifting if china rises wages – but there is no need for theory. in limerick city by this time next year, the effects will be visible in quieter bars, restaurants, malls, streets, and idle youth on street corners. there will be fewer estate agents, and a lot more ‘for sale’ signs.

    what will change and change big time and long time – is personal financial morality.

    respectability, modesty, prudence, caution, thrift, dependability, and savings will be in.

    leverage and globalisation will be out.

    we fell off that cliff too.

  • Posted by David

    Sorry for the unintentional (and useless) link in the earlier comment.

  • Posted by Indian Investor

    @ gillies:
    Why do you think that Dell is hiring people in Poland? Have they made any announcements on that?
    There are some situations where there’s offshoring from Western/Northern/Central Europe to Eastern Europe. The current crisis isn’t one of them.
    Dell is just firing people and considering firing people all over the world to reduce some of their costs as they can everywhere. Dell has already exploited any wage differentials that they could during the boom years. Those Irish employees wouldn’t have been there in the first place if the real wage levels in Ireland were much lower than in Poland for comparable labor and positions.
    It’s just a percentage reduction in work forces all over the world in response to reducing sales volumes.

  • Posted by praxis22

    I second Manc Trader’s comment.

    For those of us trying to “see the future” you’re the closest to an oracle we have.

    Krugman and Wolf are good, you’re better.

  • Posted by Indian Investor

    For those who wish to see the future from links such as the one below (I got it from Calculated Risk’s blog)

    This is propaganda similar to what Brad is quoting above that says that China’s exports might be only 3% down from where they were a whole year ago.

    The US Govt. claims that unemployment is less than 8% right now. That must be the number of people who’ve lined up for the social security fund dole at the government doorstep. Unemployment can’t be measured by that number. It’s just statistical tall tales in this link, all over.

    Unless there’s some good, srong Obama Tariff employment levels in the US are doomed for the foreseeable future. The rest will be history, as David might put it.

  • Posted by purple

    This shouldn’t be a big surprise. Austerity will be the new cool in America over the next generation. Export nations will be screwed.

    Young people already have an environmentalist outlook schooled into them. A school I’m involved with recently sold reusable grocery/shopping bags for a fundraiser (successfully).

    I strongly believe the era of mass consumerism (promoted by easy credit) is over in The U.S.

  • Posted by Tom s.

    Kind of makes sense. The Asian economies have been trading around materials and parts to make into products to export to the US, with China the Port of Final Assembly. US Demand Destruction exposes the trade data from each country being nothing more than a Trade Multiplier upon which each country relied for economic activity. Put otherwise, the proverbial economic “hole in the ground” dug for creating the appearance of econoimc activity is the hole into which Asian goods are now buried–the U.S.A.

  • Posted by assistant

    The export data reveals countries such as china need to focus more on internal stimulus than external aid (buying U.S. t-bills).

    Since September i have been writing letters to the Chinese primer and China Investment Corporation (China’s wealth fund) advising them to reverse course.

    I was very pleased to see China announce a large stimulus plan in past months and have advised more internal stimulus in the months ahead. In my letters I argue that China maybe facing “ghost assets” with the purchase of U.S. t-bills and have encouraged them to start liquidating (slowly) holdings of Tbills this spring and summer. I also argue that it is wise for country to work on moew internal inforstructure and investments in clean energy/technology (use the reserves to progress instead of regress, as is the case with the u.s.- who used all their loans on stupid consumption and a war in Iraq which we lost).

    I think that it may come as a surprise to many if China halts purchase of U.S. T-bills and U.S. investments sometime over the next 6 months. CIC i know has made clear that they will no longer fund U.S. financial institutions.

    The export data represented by Brad makes it clear that these countries need to start focusing more on themselves than aiding the United States. The United States has been artificially propped up by China and I’m very sad to say it but this is coming to an end.

    The U.S. should learn from China, we should learn at people who know how to save, eager to work, and who use investments for technology, education and hopefully valid internal programs-healthcare, alternative energy, etc.

    I’m sorry to say it, but we will face a Very Great U.S. Depression. There is no way around it. Had we not taken foregranted all the trillions we received from foreigners and spent the money on useless items (flat screen tvs, mcmansions, giant suvs, big wars, giant defense budgets, etc) and focused more on education, healthcare and energy we’d be in a much different place than today.

    No way around it, the U.S. (and U.K) are in for the Very Great Depression. Those of us that have money, please save and be careful with your spending. Use any Obama stimulus to pay off debt and downsize your consumption patterns.

    The next 5 years to come in the U.S. will be the greatest challenge ever. The biggest pain will be with a collapse in the dollar which will cripple the EU and Asia for some time, but will paralyze our standard of living.

  • Posted by assistant

    And i want to add that China’s primer needs to realize that much like all of the U.S. banks, majority of U.S. consumers are insolvent.

    China needs set up trade relationships with other emerging players and write-off the U.S. consumer!

    Months ahead Brad will see the charts of Consumer sentiment and see they look much like sales of GM and Ford. Straight off a cliff.

  • Posted by Indian Investor

    I saw a few speculative reports that China is conducting a ‘pilto project’ to settle all international trade payments within the SAARC region (South Asian Association for Regional Co-operation) in Yuans instead of dollars.
    But PBoC buying or not buying US Treasury securities has a lot of implications. It’s a big, complicated topic and it’s not easy to deal with it briefly.

  • Posted by ReformerRay

    The collapse of consumerism in the U.S. has been overstated above – but only in a matter of degree. U.S. consumption will decline but it will not collapse. The people with jobs and wealth will need to eat, buy gasoline, etc. I certainly hope the consumption will not be created by borrowing. There is a good side to the credit crunch.

    During the last recession, profits in U.S. manufacturing, as a share of U.S. corporate profits, dropped dramatically because imports gained market share in the U.S.

    Each recession-depression is different. But the share of U.S. consumption supplied by imports during the current downturn may not decline. It may increase.

  • Posted by ReformerRay

    The Federal Reserve Board reports that the Net Wealth of housholds and non-profit organizations in the U.S. at 56 trillion in the third quarter of 2008, down 7 trillion from the previous year. It may well decline another 7 trillion in the next year. At which point it will be at 49 trillion, down to a level reached during 2004.

    I agree that we are all going to pay for not using the power of our government to restrain the hot shots on Wall Street. But I want to remind everyone that there was a strong concensus among the talking public to support the growth of assets such as company shares and housing. We did this to ourselves by neglecting to control greedy impulses.

  • Posted by assistant

    Odds of U.S. Depression increase:

    Imagine a U.S. depression with a collapsing currency? A hyperinflationary Depression would be far worse than what we had in the 30’s. true?

  • Posted by bsetser

    On topic comments please; thanks.

  • Posted by exporter

    would not be surprised to see Chinese export graphs similar to Taiwan and Korea.

    This leads me to suggest China may flood the world with exports at much lower prices…

  • Posted by Judy Yeo

    Frankly Brad, what really surprises me (ok, so do lotsa other stuff) about the snowball is its speed in hitting what most term as the real economy; that seems to have inspired optimism that there’ll be some recovery in the latter half but honestly I don’t share that optimism, the very idea that consumption and demand numbers from the rest of the world can in any way offset the precipitous decline in the same numbers in the developed economies (usa, europe) might be a tad too optimistic. The timing and the qualitative aspects of the demand switch would be quite difficult to match ?what do you think?

    BTW, happy new year everyone!

  • Posted by Howard Richman

    Michael Pettis has called Chinese policy, “Smoot-Hawley-with-Chinese-Characteristics,” just the reaction to the global slowdown that I predicted in my October 7 2008 blog entry (A Global Depression Started this Week.

    I based my prediction of a global depression based upon the Chinese and American reactions to the global slowdown that could be expected. My predictions have all been coming true. I wrote:

    “The worldwide depression would just be a temporary recession if the countries that are currently pursuing export-oriented strategies were to stimulate their own economies in order to reduce their own people’s savings and reduce their own trade surpluses.

    “Unfortunately, this will not happen. Countries do not switch away from economic policies that have been working for them. Japan went through a 10-year recession from 1992 through the end of 2002 because of its refusal to change its export-oriented strategy. The backbone of an export-oriented strategy is extremely high savings by a country’s people. Were an export-oriented country to loosen its money supply, those savings would decrease.

    “Instead of stimulating their own money supplies, China and the other mercantilist countries will be increasing their lending to the United States….

    “Whoever gets elected president will probably continue the policy begun by the Bush administration of borrowing ever-increasing amounts of money from foreign governments to fund giveaways in hopes of stimulating the U.S. economy. The foolish $150 billion stimulus package earlier this spring and the foolish $850 billion Wall Street Bailout last week are examples of what to expect.

    “These giveaways will decrease our domestic savings which will cause our trade deficits to grow. The eventual result will be that the United States will lose many of its remaining manufacturing industries, the U.S. government’s credit rating will eventually deteriorate, and eventually the United States will be forced to repudiate or inflate-away its debt. That’s when things will get really bad in the United States.”

    So far everything has been going according to script.

    Howard Richman

  • Posted by Exporter to GANT

    Great set of posts, Indian Investor.

    IMO, what is going to unravel is… when US goes to depression/recession, where it reeks most is India and china.

    India and china just started the consumerism in their countries and when that suddenly reverses.. its going to hurt and cause surprises .

    The speed with which downturn is unraveling is unnerving. Its all due to flow of information. (information velocity)

  • Posted by DJC

    Howard Richman,

    Michael Pettis and Brad Setser continually complain about the high Chinese savings rate. So what do you want the Chinese goverment to do? Even under Communist rule, it isn’t possible for the government to hold a gun to the collective heads of the Chinese savers to force spending. The Japan Central Bank has held interest rates at Zero percent for the past decade (ZIRP) but that hasn’t induced the Japanese public to spend. Frankly, a majority of Asians have lived a large portion of their lives in extreme poverty and simply aren’t culturally inclined to wasteful consumer spending.

    Is a Chinese “Savings Glut” really responsible for US Economic Imbalances. It’s really a stretch of the imagination to blame Asian savers for America’s overconsumption problem. The US landscape is now littered with ugly McMansions from coast to coast. Oh please, did the China PBoC really force American consumers into purchasing McMansions, speculating on luxury condos in Florida, or leasing the latest model gas-guzzler SUV?

    Moreover, if the Washington Consensus were truly concerned about the US Trade deficit, Cold War restrictions prohibiting high-tech exports to China would be lifted. Recently, a Chinese-American was prosecuted by the US Dept of Justice for exporting European rocket fuel compression technology. Every single export of Boeing Aircraft requires the US President’s signature. Satellites, supercomputers, semiconductors, machine tools, composite materials remain on the prohibited list for export by the Pentagon which fears erosion of US global hegemony.

  • Posted by DJC

    A Really Scary and Totally Irresponsible Plan by Washington Consensus Economists. “Punish savers and force them spend money”. Of course, we are in this mess because consumers went on a reckless spending spree. Unfortunately, Bernanke and Paulson are considering this absolutely insane idea right now.

    “Near-zero interest rates and even a tax on bank deposits are necessary to force those with cash to use it productively.

    Instead of reducing taxes on interest payments, the Government could tax all bank deposits and other risk-free savings. This would create a negative risk-free interest rate, encouraging savers either to invest in property, shares and other productive assets – or simply to save less and consume more. In either case, the result would be more consumption and physical investment, less unemployment and faster recovery from the slump.”

  • Posted by Twofish

    gilles: imbalances arise between the (global) wage bill shrinking and the power of ordinary consumers to buy computers weakening.

    Karl Marx pointed out the issues involved with capitalist overproduction a century ago, and people figured out in the early 20th century how to deal with the problem of overproduction.

    gilles: what will change and change big time and long time – is personal financial morality. respectability, modesty, prudence, caution, thrift, dependability, and savings will be in.

    Keynes pointed out that while thrift may be a good thing at a personal level, it will kill an economy if practiced at a social level. If you have lots of productive capacity, but no one is buying anything, then you end up with the overproduction problems that Marx described.

    The obvious solution is boosting demand by production of public goods.

    It may be that there is something in the current crisis that is new and original, but everything that has happened thus far are things that have happened before with relatively well known solutions.

  • Posted by Indian Investor

    Thanks @ exporter.
    I would advise reading the financial press with a healthy isolation of bare facts and the sources attributed to those facts.
    Reading in this way over a period of time gives you the themes.
    Frequently you find that some facts have been ‘planted’ in the media, where those facts don’t fit the overall picture, trend and theme.
    That’s when you get to make profits.

  • Posted by Indian Investor

    In Brad’s post above, what doesn’t fit is the speculation that China’s exports are 3% below where they were one year back. That fact isn’t really attributed to any official source. I think it’s been planted in the media.
    Also, some governments’ statistics tend to create wrong pictures of facts. US Government Departments may not be a notable exception to that.
    I don’t know any other country which looks at inflation “Ex Food and Energy Prices”, for example.
    Dr. Schiller inflation-adjusted home price statistics are therefore off since the early 1970s because that’s when food and energy prices were removed from inflation measurements.
    If you use the inflation statistics from the ‘shadow government statistics’ for inflation-adjusted home prices from Dr. Schiller’s base price data you get a much better picture.

  • Posted by assistant

    Asians live moderate lives. Asians in general are always savers, not spenders. They are happy for basics of life. They re-use and they have “need-be” life standards.

    The only country i can think of where “bigger is always better”, and “more is better than less” is the United States.
    Then again, we’ve all been brainwashed by media, reality shows, and hollywood to need that “big suv, have that tiffany bracelet, wear the latest bag from Gucci, and have a huge home, where we don’t even bother to look at the loan”. We lived an artificial lifestyle from head to toe.
    China will never live this sort of lifestyle. They’ll always at best be “moderate consumers”. And isn’t a moderate consumer what’s best for a good global standard of living-pro environment?

    Now that our materialistic lifestyles are in decline, export graphs from export countries will continue downward momentum.

    The good news is as inventory builds to extreme levels, these manufacturers will flood the global market with low cost goods thus making them cheaper for the consumer. It may get to a point where things become so cheap, because of oversupply that Wal-Mart is half price special every day.

  • Posted by bsetser

    DJC — ummm… it also isn’t necessary for China to run a fiscal surplus/ not distribute dividends from the SOEs/ etc. National savings isn’t just a function of private savings and consumption. A big increase in China’s fiscal deficit (more than the forecast increase) would help to bring savings down.

  • Posted by DJC

    Brad Setser: ummm… it also isn’t necessary for China to run a fiscal surplus/ not distribute dividends from the SOEs

    DJC: The US runs a budget deficit during both boom and bust economies. The Chinese don’t have that luxury as a developing nation. Running a government fiscal surplus provides the Chinese with an economic safety net for a degree of financial stability.

    For the record, the Chinese SOEs do distribute “real cash” dividends to shareholders. In fact, most Chinese SOE’s distribute a higher level of hard cash dividends than their American counterparts. Chinese SOE Corporations pay cash dividends as a percentage of profits. For instance, CNOOC and China Mobile pay shareholder dividends of 30% of annual profits. PetroChina ADR shares currently pay a 4.5% annual dividend that is around twice Exxon’s dividend.

  • Posted by Indian Investor

    I’m trying to build a Tintin-in-Kazakhstan comic book – 2009 Crisis Forecast – Crystal Ball of Caspian Oil and Gas Pipelines -understanding – and all these posts about imbalanced current accounts in the Treasury Coffer books are a nice distraction.

  • Posted by MacaoDealer

    …as long as we’re generalizing, Asians do love to gamble (ie, gaming).

    How does that fit into this Confucian saver stereotype?

    Americans spend freely because they believe in their own power to earn in the future. China & other emerging Asian nations have very limited safety nets – which encourages saving for self-preservation. Japan has a social stigma against ostentation. Europeans try to enjoy smaller pleasures in the present while relying on a more robust safety net for the future.

    These are all true & all false depending on how specific you want to be. The one you view as the right path has much more to do with where you grew up than what Brad’s graphs show.

    Macao Blackjack Dealer

  • Posted by xyz;range=1y;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

    The Won has gone from 900 to 1300-1500 per USD over the last year. The drop in Korean exports in won would be less, no?

  • Posted by Daniel de Paris

    What is of course missing here is the pain and horror…

    We look very carefully at the unemployment figures from the US and reasonably so at the ones from EC. And rightfully so.

    What about the social – and later political consequences – of this overcapacity nightmare.

    I just hope that Asian governments will find a way to make the social transition smoother than the economic-and-financial one.

    Should this transition be made in a rough way, say bye-bye to the current Asian geopolitical situation. And not for a more peaceful one.

    That’s also what is behind current Brad’s utterly rough figures. Pain and utter misery. No doubt alas.

  • Posted by Howard Richman

    I would like to correct my earlier posting on this blog.

    The dollar has indeed been going up in currency markets ever since I predicted that it would turn around. But there are three possible explanations:

    1. The extensive borrowing by the United States government could be causing the dollar to rise. Whenever we borrow from abroad, we are essentially bidding to buy dollars in currency markets so that we can borrow them.

    2. Foreign central banks may be increasing their reserves. Whenever foreign central banks increase their dollar reserves they bid up dollars in order to place their countries’ savings into American assets, usually US Treasury bonds.

    While it is possible that I just called a random change in dollar value. It seems more likely that government actions by the US government and by foreign governments caused the dollar to turn around exactly when I said it would do so.


  • Posted by Howard Richman

    DJC asks me: “Michael Pettis and Brad Setser continually complain about the high Chinese savings rate. So what do you want the Chinese goverment to do?”

    There are four things that the Chinese government should do:

    1. Increase their money supply. A country can increase its money supply even when the interest rate is zero or near zero. Japan went through a 10-year recession from 1992 through the end of 2002 because of its refusal to increase its money supply. In 1997, Milton friedman criticized this policy in a Wall Street Journal commentary, but the Japanese Central Bank did not listen to him until 2002 when they increased their money supply by 36% in a single year. The result was that Japan’s savings rate temporarily fell and unemployment rate began a turnaround. In 2003, the Japanese Central Bank went back to their tight money supply policy.

    2. Let the yuan rise. The Chinese government perposely weakens the yuan. If they were to let the yuan appreciate, their people would be much richer and would likely spend more.

    3. Half hearted stimulus packages. As Michael Pettis has been writing, China could be spending much much more to stimulate their economy.

    4. Increase imports from US. China currently minimizes their imports from the US through tariff and non-tariff barriers, including 25% tariffs on American vehicles, automobile parts, and mining machinery. If they were to start importing more from the United States, American workers would have higher incomes to spend more on Chinese products.

    The current global depression was caused by mercantilism and will only end when the countries practicing mercantilism stop doing so. As I explained in my October 7 posting on my blog (A worldwide depression started this week):

    “Roubini is not the only one whose predictions are coming true at the moment. Richard Duncan’s predictions from his 2003 book (which he revised in 2005), The Dollar Crisis: Causes Consequences and Cures warned that the global imbalances would cause a great depression that would be the biggest economic story of the 21st century.

    “He argued that global aggregate supply is beginning to outrun global aggregate demand as the countries pursuing export-oriented growth are producing more and more goods without a corresponding increase in income among worldwide consumers. In other words, the excess of savings over investment in the export-oriented countries will drive the world economy into a depression. Eventually, he predicted, US consumers will not be able to borrow more for consumption. Like other debtors they will be forced to pullback, causing the depression.

    “Roubini’s ideas and Duncan’s ideas do not conflict. In fact they coallesce around the same idea: the American consumer can no longer afford to pile on debt.”

    The way to reverse a global depression caused by trade imbalances is to end the trade imbalances.

    Howard Richman

  • Posted by JC

    Seven fat years, seven lean.

    Enough to make one turn quite Old Testament Christian.

    Form an orderly queue for the Ark…

  • Posted by Howard Richman

    I do not believe that the United States should wait for the mercantilist countries to end the global depression, we can get out of the depression any time we want to, simply by balancing trade through Warren Buffett’s import certificates.

  • Posted by James Davison

    Interesting post. I am the admin over at the World Bank’s East Asia & Pacific blog, and thought your readers might be interested in a similar post by the Bank’s China country director David Dollar.

    David writes about China’s macroeconomic policy options in light of the financial crisis. Check out the post at


  • Posted by bsetser

    James — thanks for highlighting Dr. Dollar’s post. I will link to it in a forthcoming post.

  • Posted by ccombs

    太好。This is quite distressing. One can only guess how bad it will be when the US under
    哦吧马 (Obama) turns protectionist and Europe and the rest of the world perhaps follow suit and import less. Asian economies will be devastated. I am American but I can’t stand people gloating over for instance China’s slowdown in the West- these are real people that are losing their jobs and livelihood, with more and more being added to their number daily. This will only hurt the US in the long run, especially if it has geopolitical ramifications.

  • Posted by James

    What worries me most is not the inevitable cyclical nature of the market, but the ability of nation states to absorb these cycles from a political point of view.

    Speaking only of Asia, the “free” countries have the advantage of experiencing boom and busts, and while these have caused political upheaval to be sure (Korea, Philippines) over the past decades, there is at least some past point of reference for the populace to take some measure of solace.

    However, China in the past several decades has generally been very very poor, followed by steadily increasing standards of living, but with no real experience (at least in the modern era) of dealing with a giant “shock” of say, a quick extra 5% unemployment over a 12 month period. Not only do the poeple not have this experience, but more importantly the political structure doesn’t have the tools, experience or even will to deal with this looming crisis.

    Hang on to your hats everyone!

  • Posted by PiterKokoniz

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