Brad Setser

Follow the Money

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China’s recovery still isn’t adding (much) to global demand

by Brad Setser
June 14, 2009

At least not for anything other than commodities, where Chinese demand — and Chinese stockpiling — clearly has had an impact. Exports to China from the US and Korea continue to be pretty weak. Exports from the US have bounced back from their winter lows, but still well below their pre-crisis levels. And exports from Korea to China are still down far more than I would have expected.


China’s industrial production is up about 10% y/y (9%) even though exports and imports are both down around 25% y/y in nominal terms.

Lets do some very rough ballpark math. I’ll start by assuming that about 40% of China’s industrial production — pre-crisis — was exported. I think that is about right, but I don’t have the actual number. Help here would be appreciated. If industrial production for export was 40% of total production and if it fell by around 25%, the 60% of industrial production that is far domestic use would need to be up around 30% to generate 9% y/y growth.

That is a big increase. And it isn’t totally implausible. Lending and investment are way up. So are stimulus driven auto sales. But it also raises the question of why it took China so long to really stimulate domestic demand if it had such latent capacity to grow without relying on exports.

Let’s also assume that imported components constituted around 60% of Chinese imports (consistent with a world where China accounts for only about half of the value-added in Chinese exports) a year ago. Here imports would fall in line with exports. But to produce an overall 25% fall in imported demand, nominal imports for domestic use also would need to fall by 25%.

Such a fall could come from a 25% fall in the price of the goods China imports for its own use (presumably a basket that includes a lot of commodities). Or from a 10% fall in the goods China imports and a 15% price fall. Or a 35% fall in price and a 10% rise in actual imports.

That brings me back to the data on US and Korean exports to China. Some Korean exports to China may be influenced by the prices of the commodities Korea itself imports. And some are components for goods that are assembled in China. Similarly, some US exports are commodities and some are components. But both presumably also at least partially reflect Chinese domestic demand. Y/y growth in Chinese imports from both the US and Korea, for example, slowed in 2004 after China implied rather draconian limits on bank lending to keep its economy from over-heating.

And right now neither US nor Korea exports are registering y/y growth. The best that can be said is that the fall in Chinese demand for US goods looks to have stopped, and that there is now some evidence of a modest recovery.


So far at least, the surge in Chinese production hasn’t spilled over into much demand for the rest of the world’s goods.

That could be because China’s recovery has been overstated a bit — as the electricity use data suggest. Or it could be because China is going through a period of import substitution, and thus able to increase industrial output without increasing imports. But right now — unless I am missing something — there does seem to be a significant gap between the strong growth in China’s own demand for its own goods and the lack of growth in Chinese demand for the world’s goods.

China’s stimulus clearly has yet to spillover into world demand for manufactured goods in a major way. That is too bad. After several years when global demand helped spur Chinese growth (as net exports contributed a significant contribution to growth), this would be a good time for China to return the favor. Net exports are likely to subtract from China’s growth this year, as the fall in real exports should exceed the fall in real imports. But it would be nice to real imports actually rise — and not just for commodities.


  • Posted by Cedric Regula

    I think what happens going forward is that multinationals that have already set up real operating subsidiaries in China continue to shift, or localize production as we call it when the Japanese do it here with auto manufacturing, and take advantage of growth potential in China and do it with a low cost base.

    This could already have accelerated and explain some of the drop in imports of things like machinery or semis. Tho the drop seems too pronounced and rapid for that to be the only explanation. But on the other hand companies have a lot of motivation right now to close high cost plants and expand where they think it makes sense.

    Still a 30% growth in domestic growth out of the blue does seem hard to believe. Even if the banks were given permission to do a helicopter drop on the public, it takes some time to spend all the money.

  • Posted by jonathan

    I loved this line in the linked article on industrial growth: “stimulus spending was helping to make up for a collapse in demand for exports that wiped out millions of Chinese factory jobs.” Millions? The US is the largest economy and if we had millions of lost jobs, we’d be reeling.

    But consider: the EU as a whole is similar in size to the US + China and there maybe we do see a similarity, with huge numbers of workers returning to their home countries – not necessarily in the EU. We then get millions of dislocated people, if you add increasing unemployment in both their home and migrant/temporary markets (in and out of the EU). This would not be as disruptive as it would be here because there is so much motion possible in the labor markets, much more than the US can possibly handle in short periods of time.

    But then, if I use the EU (plus its bordering worker suppliers) as a lesson, what it means to me is:

    a) a bunch of misery isn’t being included. I wonder how some provinces look and how the more rural areas of most provinces look. The EU tells us that even though the pain is general there are areas that can be hurting worse and those can be out of the way – anyone for Latvia?

    b) it would be difficult to budge the consumption figures in Germany much because it’s already rich – and thus they have clunker replacement programs, etc. – but China remains poor so stimulus applied to a population probably greater than the US’ or maybe even the EU’s has room to have effect. Given savings rates in China, stimulus could have a large fairly quick effect.*

    c) but, I’d bet they’re booking early. They book early on land sales and capital investments so they’re probably booking production and then end sales early too, meaning they’re currently counting future inventory and the future sales of that. I’m driven to that conclusion because there’s no way we’d see this great an effect if there were coordinated efforts in the EU et al. We’d see an effect but even allowing for greater current wealth in the EU et al, they’d first be propping up current consumption and preventing declines in production. I could be wrong – maybe the wealth difference is that huge – but I’d have to be convinced.

  • Posted by Howard Richman

    The world economy desperately needs more consumption in order to resume its economic growth. Otherwise, solving the banking problems will simply be, as Keynes put it, “pushing on a string.”

    But where is that consumption going to come from? Apparently not from China. And not from America: the American consumer can barely keep up with rising gasoline prices.

  • Posted by Indian Investor

    Unless there are changes in expectations about the USD exchange rate, or massive improvements in real wages in other geographies, aggregate demand increases in other geographies may not result in increased imports from the US there.
    For instance, automobile components such as seats, mirrors, etc that are relatively low-tech, are already manufactured locally in China to meet Chinese demand.Consider a high tech component, such as Power Take Off automatic transmissions for commercial trucks.Traditionally demand for these components was higher in the traditional industrial countries, whereas now the trend is that demand growth, and expectations of demand growth, are higher outside the US.The natural response is to set up new plants locally in China and India, to take advantage of lower wage costs there.The cost of manufacturing, and shipping, from outside China for increased Chinese demand is suddenly not justifiable due to increased Chinese local demand. If the US-led components company doesn’t make this move, they will be wiped out by local Chinese/Indian competition, anyway.
    On the same day several weeks ago, I read in The Economic Times, two articles on the same page which show the effects of demand pattern changes. Toyota announced plans for setting up a new small-car manufacturing unit in India. Whereas Michelin, the French tyre manufacturer, decided to close down some its manufacturing operations in the US.
    Think of the APAC operations of a Big 5 accounting firm. They traditionally had a Shares Service Center in India with English-speaking people meeting the requirements across the APAC region. In response to increased Chinese and Far Eastern demand, they set up a new Center in Dalian. It’s more cost effective to have Mandarin-speaking people helping a larger number of Mandarin-speaking accountants. The alternative of having a small number of bilingual English+Mandarin accountants co-ordinating with an English-speaking Shared Service Center is suddenly not as attractive, due to changes in the demand pattern.

  • Posted by Glen M

    How does this compare to other, more mature economies, that have followed the “Asian Economic Model”? How did US exports to Japan or Korea scale over time and as a percentage of GDP?

    I have an unfortunate feeling that these are somewhat rhetorical questions.

    Maybe the US might finally realize that some countries have little to no intention of being customers. They only have desire to be suppliers.

  • Posted by FollowTheMoney

    first of all, some sharp input and good data on the graphs. US exports to China looks worse than i expected based on the “China will lift the US out of recession” CNBC rhetoric…

    @ howard-

    sometimes in life you just have to bite the sour apple and move on.

    there’s no solution except restructuring the global economy and having a few really difficult years.

    look, here’s my view:

    -14% year end U.S. employment
    -long and protracted U.S. recession
    -S&P earnings “way lower” than analysts think
    -continuing consumer credit deterioration
    -Chinese exports fall off a cliff, and china floods the world with cheap goods as the inventory/capacity brought on by it’s recent stimulus is unable to meet internal demand expectations.

    It’s NOT going to be a pretty picture, but there’s absolutey nothing than can be done.
    best thing may actually be for the FED to raise interest rates and take a quick direct hit to get to the bottom so we can truly stabilize.

    What’s more frightening is GEITHNER could disregard BERNANKE’s WARNING on U.S. Defecits and issue more stimulus/or encourage more QE and then goes the AAA credit worthiness of the U.S. and foreigners move further away from U.S. assets into hard assets and then the U.S. runs into very high domestic inflation (and devalued currency).

    The “REAL ECONOMY” contraction is just in the beginning phase. Are you ready?

  • Posted by Cedric Regula

    Follow the Money:”best thing may actually be for the FED to raise interest rates and take a quick direct hit to get to the bottom so we can truly stabilize.”

    Without getting into an esoteric conversation about whether that is a good idea or not, I’m more curious about whether the Fed really could raise interest rates even if they wanted to?

    Let’s ask Brad (since Krugman really isn’t on this blog) what he thinks, and how would they do it?

    Just noticed it’s late. Something for Brad to ponder over morning coffee.

  • Posted by Thomas

    The way I understand it, the 8.9 % growth for industrial production refers to value added, not headline revenue.

    That can make a huge difference:

    If the export collapse is related to products with comparatively low domestic value-added (say 1/3), whereas the increased production for local demand has very high domestic value-added (say 90 %), the required growth in domestic demand to offset the decline in exports is much lower than the 30 % you estimate.

  • Posted by Indian Investor

    Here’s a small extract from ‘The Economic History of India – Volume Two’ written by Romesh Dutt, C.I.E, first published in London in December 1903.
    “The kind hearted James Thomason, succeeded Robertson as Lieutenant-Governor in Northern India in 1843″…” Thomason’s first important work was his Directions to Settlement Officers drawn up in 1844″…”But the Land Tax was not only uncertain; it was excessive. Rule 52 of Thomason’s Directions, quoted before, indicated that the Government demand might reach two-thirds of the nett produce. Relatively, it was a humane rule; for the British Government had demanded 83 per cent in 1822, and 75 per cent in 1833. But in reality it was a crushing demand which left the landlords and cultivators of Northern India resourceless”
    …”It was necessary to revise Thomason’s Directions, and new Rules were accordingly issued in 1855″…”generally known as the Saharanpur Rules.” …”The most important of the Sahanranpur Rules is Rule XXXVI which reduced the Land Tax from 66 per cent to 50 per cent of the nett produce”…
    “This rule may be said to be the basis of land assessments in India in the present day.” (Me: THE PRESENT DAY WAS 1903!)…

    “After half a century of blunders and over-assessments, the British Government decided to limit its claims to one half of the rental or the nett produce of the soil; and this limit was gradually extended to all parts of India where the Land Revenue was not permanently settled. It was extended to the Central Provinces of India and to Oudh and the Punjab, after the annexation of those provinces. And it was also formulated by the Secretary of State for India, in his despatch of 1864, for provinces like Madras and Bombay, where the revenue was generally paid by the cultivators direct, and not through intervening landlords.”

  • Posted by imapopulistnow

    China operates in a very rational & self-interested way. I suspect they see OPEC and Emerging Market economies as better bets for future export markets than old debt ridden USA. Therefore it makes perfect sense to stockpile commodities and encourage faster recoveries in these economies and create new and more vibrant export markets. It is a win-win scenario with many long-term benefits (for China).

    What will be really scary is how China responds if and when they and the emerging market economies ignite a self-sustaining economic recovery. Would they continue to buy Treasuries even though we can no longer afford to buy their exports, or would they be more inclined to abandon the dollar and “move the game” to the other BRICs and commodity-based economies?

  • Posted by Indian Investor

    For the perspicacious reader, here are two more interesting extracts from the same volume:
    Chapter II: Hardinger and Dalhousie
    “It is not the purpose of the present work to narrate the history of wars and annexations.”…”But the economic history of India is incomplete without some reference to the enormous expenditure caused by wars, or to the extension of the Empire effected by annexations.”…
    ” We have in the preceding pages briefly narrated the history of Lord Dalhousie’s conquests and annexations. During his administration of eight years he annexed eight large kingdoms or states, and the reasons assigned for these annexations were various. the Punjab was annexed because there was a rising in the country, such as the British Government itself had undertaken to quell in their treaty with the minor sovereign. Lower Burma was annexed on the complaints of British merchants trading in that country. Berar was taken over because the Nizam could not pay his debts. The kingdom of Oudh was annexed because of its misgovernment. Sambalpur was annexed because the last Raja left no heirs; and Satara, Jhansi and Nagpur were annexed because Lord Dalhousie declined to recognize the heirs adopted by the rulers of those States.”
    Chapter XIV: End of Company’s Rule
    “Mr. Disraeli’s Bill was dead; and it was neccessary now to frame a new one.It was then resolved that the principles of the new scheme should be discussed in the House, and that a Bill, the joint production of both parties, should be introduced.This was done; and the new Bill became a law in August 1858, and is known as Act for the better Government of India.”…
    “The strangest clauses of this Act are its financial clauses. It was provided that the dividend on the capital stock of the East India Company, and all the bond debenture, and other debt of the Company in Great Britain, and all the territorial and other debts of the Company should be chargeable upon the revenues of India alone.”
    By this singular clause the capital stock and the debts of the East India Company were virtually added to the Public Debt of India; and the annual tribute which India had so long paid as interest on the stock was made perpetual. The Crown took over the magnificent empire of India without paying a shilling; the people of India paid and are still paying the purchase money. It was an act of injustice unexampled in the history of the British Empire.”
    …”Numerous instances will occur to student of English history of Great Britain incurring heavy expenditures for colonies and dependencies. As late as 1900, the British Government took over Nigeria from the Royal Niger Company, paying GBP 565,000 as purchase money; and the sum was not charged to Nigeria. More recently Great Britain has spent over two hundred millions sterling to protect or extend her South African Empire; it is doubtful if more than a fraction of it will be realized from South Africa.”
    “One salutary provision was made by the Act.”…”the revenues of India shall not without the consent of both Houses of Parliament, be applicable to defray the expenses of any military operation carried on beyond the external frontiers of such possessions (Me: such possessions = The Indian territories of HEr Majesty)” …
    “The just and salutary provision has been violated but too often; and the expenses of the expeditions of Egypt and Abyssinia, of wars in Afghanistan and for the conquest of Burma, have been charged to India.”

  • Posted by Indian Investor

    From the above extracts, it’s easy to see the point. The barbarian British rulers, referred to deferentially in the 1903 book as “kind hearted” looted from 83 per cent to 50 percent of the nett produce of India’s soil, for a period of more than a whole century.
    The rule of barbarian hordes from West of the Indus river began in 1192, with the defeat of Prithviraj Chauhan by Sultan Muhammad Ghori in the Second battle of Tarain in 1192 A.D, leading to the first stable establishment of Muslim Rule in India. From 1192 till 1526 A.D. the Afghan hordes ruled India till they were replaced by the Moghuls from Samarkhand. The decline of the Mughal Empire, and the victories of Lord Robert Clive set the stage for Anglo-Saxon Empire in India.
    From 1192 A.D. till the midnight of August 15, 1947, India was a political colony. The foreign rulers were free to plunder the land, torture the local residents, and commit crimes against humanity that are best left to the unquoted pages of the history books.
    Is India a free country today?

  • Posted by Minzu


    Most (by far) Chinese imports are through/by SOEs plus intercompany trading by MNCs (simplistically considering contract manufacturers part of MNCs). The point is, what drives these imports right now?

    If all that the Chinese state wants to do is to as much as possible maintain the growth of industrial employment plus prevent a collapse in construction industry employment, without actually wasting resources on imports not supportive of that objective, on would expect that the resulting pattern of imports (principally commodities, components and production equipment) compensates for exogenous future foreign demand. That requires information from MNCs, retailers and expernal supply chain management firms. Not all of these suffer from declining demand after the demand shock of 2008 (which may well have caused a flattening of OECD long term growth compared to extrapolations that could have been made based on the 1995-2005 period). And some will be suffering more.

    The matter is if (my “compensation” hypothesis is correct -and it is at least plausible since China has both greater control over business decisions than a true market economy would have, and China’s robust commodity imports appear to reflect a compensation effect ( but also FX and commodity cost management of course) then there would be a coordination problem: does “China” err on the high or the low side in forecasting the need for compensarory production/employment and the resulting need for imports of components, machinery and commodities.

    I guess commodities are the easiest since errors are not costly, the stuff can simply be used later if there is to much of it now. Buying the wrong kinds of components (for Lenovo, Huawei or Haier for instance) is far more costly. Buying the wrong kind of machinery even more. By “the wrong kind” I also mean goods that are bought too early (and may thus be obsolete before optimal utilization) or too much.

    The more uncertainty around foreign demand estimates, probably the less there will be imported.

    Of course it is also possible that there is an element of Korean-style developmentalism. In that case, China’s production plans would err on the high side, thus forcing foreign competitors aside. I would believe that most of non-MNC production is not yet at a stage where aggressive or even predatory market share strategies during a crisis (costly, but China is rich) would make sense. So I would expect China to systematically lag behind a full compensation scenario. That would explain less of a demand effect coming from China, despite the fact that it is still growing and importing a lot, that could have been the case with perfect coordination.

    An interesting issue is of course if China’s mixed economy model with a pegged (and quite protectionist) exchange rate would be much worse in compensating for an external demand shock through diverting production (and related imports) to domestic markets, than a true market economy in a deep financial crisis. I think that Greater Germany (Germany, Austria, Benelux, Scandinavia plus a few Eastern European countries) has at least as much trouble in stimulating demand for production capacity no longer needed for exports, and imports.

    Whatever one may believe, this may simply be a matter of coordination problems, not necessarily proof that someone is trying to sabotage the recovery for mercantilist reasons. It will become easier once the US gvt has acquired a mojority interest in all of the S&P 500 firms and established a proper economic planning unit that would negotiate production levels with their international peers..

  • Posted by Rien Huizer


    “China operates in a very rational & self-interested way”

    What is “China”, what is “rational” and what is “self-interested”?

  • Posted by Thomas

    Here’s a more detailed calculation based on industrial value-added:

    – Based on your earlier estimate, “export value-added” equals roughly 15-20 % of China’s GDP

    – Based on Q1 2009 figures, the “secondary sector” (i.e. manufacturing) makes up roughly 50 % of China’s GDP

    => So exports make up 30-40 % of total manufacturing value-added (slightly less than your 40 % estimation)

    Further calculation:

    – An overall growth of 8.9 % of industrial value-added equals 4.5 % of GDP (based on 50 % of GDP).

    – A 25 % drop in exports (assuming “average value-added” of the drop) equals 3.8-5.0 % of GDP

    => To make up for the drop and reach 8.9 % growth overall, domestic manufacturing value added must increase by 8.3-9.5 % of GDP.

    => Based on 30-35 % of GDP “domestic manufacturing value-added”, this implies a required growth of 24-43 % in domestic production

    So it turns out that your 30 % guesstimate was quite appropriate if you want to position yourself somewhere in the middle of the range.

    If we believe that the export industries hit hardest by the crisis tend to be mostly the “low value-added” ones, then we are looking at a required domestic growth of 24 % or even less.

    If we believe that export value-added is high (50 % of total exports), and the drop affected all export sectors in the same way, then the required domestic growth could be as high as 40 %.

    Personally, my gut feeling is that the lower end (20-25 %) is more realistic, but that’s just my feeling and isn’t based on any hard facts.

    (By the way, any idea if the value-added growth figures are price-adjusted or nominal? Presumably export figures are purely nominal, so if value-added figures aren’t, this could be quite distortionary considering the sharp deflation currently seen in producer prices)

  • Posted by Thomas

    And another interesting snippet: The NBoS press release says that the “export delivery value” of industrial enterprises in May only dropped by 15 %.

    So the export drop factored into the data is not the 25 % we are seeing in the April export data, but “only” 15 %.

    In other words, the required domestic growth to achieve 8.9 % overall growth is far lower than our estimation based on a 25 % export drop, because there is no 25 % export drop as part of the May value-added data.

  • Posted by Thomas

    Based on a 15 % export value-added drop, the “required domestic growth” drops to 14-26 % (lower end for 15 % of GDP export value-added, higher end for 20 % of GDP export value-added).

  • Posted by purple

    It looks like China’s AMC’s aren’t too eager about buying up any more NPL’s from the Big 4.

    I think that tells more about the true state of China’s financial situation then their official growth numbers.

  • Posted by imapopulistnow

    What is “China”, what is “rational” and what is “self-interested”?

    I suspect you are coming from a human rights, freedom of expression, environmental degradation perspective. My comments are addressing their economic objectives which I believe are of a much greater importance to China’s leadership at this point in their societal development. Therefore their “rational” decisions and “self-interests” are designed to expand domestic economic growth and job creation. Thus they manipulate currency valuations, captial flows, international trade levels, taxes and tax credits, etc. towards the goals of economic growth and job creation.

    Why is China buying commodities and loaning funds to Russian companies in exchange for future oil exports? Because they have concluded that the USA will no longer be able to buy their exports as before and therefore they need to shift their economic focus to the development of new markets.

    Consider the ramifications. We also just might need to shift our policies towards economic growth and job creation.

  • Posted by bsetser

    Thomas — thanks for your calculations. it confirms my sense that the numbers imply a very large increase in domestic production (consistent with the surge in FAI) — and also my sense that it is a bit strange that this surge hasn’t had broader echoes externally.

  • Posted by Rien Huizer


    “I suspect you are coming from a human rights, freedom of expression, environmental degradation perspective. My comments are addressing their economic objectives which I believe are of a much greater importance to China’s leadership at this point in their societal development. Therefore their “rational” decisions and “self-interests” are designed to expand domestic economic growth and job creation. Thus they manipulate currency valuations, captial flows, international trade levels, taxes and tax credits, etc. towards the goals of economic growth and job creation.”

    Thanks for the compliment but I come from a mainstream economics perspective. What you say China does may be correct (more or less). What they try to achieve with what they do is unknown, but there is a fair bit of -often plausible- speculation about their motives. Whatever these motives are, I still do not know what China is (the PRC? the PRC plus HK, plus Taiwan? I think that Taiwan has become a bit of China (or a rather large bit of China a piece of Taiwan). That changes the logic that people thought applied to “China’). Self-interest in a state? I think the individuals that form part of the state are self interested and they may actually be a small enough group and under the right conditions to act collectively with negative transaction costs. But we (and perhaps they) do not know how long that will last and when the conditions that enable a possible team situation will change. We are not talking about a project here, that hs a team-supporting structure. Finally, I guess that under these conditions, there is no way for an outsider to assess the rationality of “China”s actions…

  • Posted by Minzu


    Good guesswork. Add to that that whenever the bureaucracy gets to make decisions they will always err on the side relevant to them (too much commodities, not enough machinery for domestic cosmetics production), so a somewhat disappointing total performance should be expected. Once the economic coordinators and SOE bosses have figured out the new world, they may just be able to generate the growth that the state’s legitimacy needs. Not that it will help the rest of the world a lot though!

  • Posted by Thomas

    According to the NBoS press release, these are the fastest growing industries right now:

    “the growth rate of textile industry went up 8.3 percent; that of manufacture of chemical raw material and chemical products hit 11.1 percent; that of non-metal mineral products industry increased 14.7 percent; that of general equipment manufacturing industry promoted 9.3 percent; that of transportation equipment manufacturing industry went up by 12.8 percent; that of electric machinery and equipment manufacturing industry jumped 11.2 percent”

    No idea to what extent these industries require imports of components or machinery.

    I assume this snippet means that inventories have increased a bit:

    “The sales ratio of industrial products was 97.34 percent, dipped 0.49 percentage points year-on-year”

  • Posted by Indian Investor

    Brad: After several years when global demand helped spur Chinese growth (as net exports contributed a significant contribution to growth), this would be a good time for China to return the favor.

    Me: ROFL … Dr. Setser, just try to understand, a very LARGE percentage of all relevant people in the WHOLE WORLD understand EXACTLY how the Petrodollar Amercian Empire is set up. A local accountant in Bangalore said to me yesterday that Obama made some speech in Cairo and the crude price went up to $70 at around the same time 🙂 One manager of a small-time IT body shopping firm said that ‘everybody who is in business’ needs to ‘be aware’ how the control over oil dynamics works. An analyst in a large bug fixing firm who is part of their risk management committee gave me a two-hour lecture about the same issue. I met two junior Turkish salespersons in Holland, and they went to the extent of commenting on Obama’s strategy to bring Turkey closer to Armenia, to reduce Europe’s dependence on Russian oil.
    So it isn’t a big secret anymore that the US Dollar is kept strong with the US Military, and a lot of geopolitical machinations. The common people in the United States are generally not as aware, but many of them have caught on to this now.
    Basically, please get it .. the cat is out of the bag. No amount of denying the full spectrum dominance geostrategy will help. And when you suggest things like this knowingly, for instance, that the US has done ‘a favor’ to China by importing from them, you will just become the laughing stock of anybody with even a little bit of knowledge and an unbiased approach.
    ROFL …
    What exactly is the favor, and what is the United States actually doing to increase its exports … LOL
    The whole country is basically bankrupt.
    🙂 And then you get the Ivy League analysts hectically making a lot of calculations about China !!! 🙂 ROFL.

  • Posted by Michael

    re: FollowTheMoney’s June 15th, 2009 at 1:31 am post:

    FollowTheMoney’s view:
    “ -14% year end U.S. employment
    -long and protracted U.S. recession
    -S&P earnings “way lower” than analysts think
    -continuing consumer credit deterioration
    -Chinese exports fall off a cliff, and china floods the world with cheap goods as the inventory/capacity brought on by it’s recent stimulus is unable to meet internal demand expectations.”

    What is your basis for these views ?
    The need to de-lever financial system over-capacity ?
    G-7 adjustments for manufacturing shift to EEM nations ?
    Resource constraints on World growth versus expectations ?



  • Posted by jonathan

    Thomas, I believe that if you look at German exports, you’ll find that these areas generally require expensive machinery imports.

  • Posted by DOR

    40% of industrial production exported? That didn’t sound right, so I grabbed the nearest China Statistical Yearbook (2006) and went to the first two data points to jump off the page.
    Manufacturing gross industrial output value, 2005 (p. 522): Rmb2,175,428 mn (US$265.3 bn)
    Export of manufactured goods, 2005 (p. 736): US$71,292 mn (Rmb584,591 mn)
    Ratio: 26.9%

    No construction, agriculture, mining, utilities.

    That works out to the need for a 21.5% rise in non-exported industrial production to generate a 9% rise in total industrial production. Call it a Rmb2 trillion increase in non-exported manufactured (only) goods.

    = = = = =


    US Civilian Employment (SA), May 2008: 146.05 mn
    US Civilian Employment (SA), May 2009: 141.01 mn
    Job loss: 5.04 million. We’re reeling alright.

  • Posted by Thomas


    fair enough. Though the base year for the current drop is 2008, and AFAIK, Chinese exports doubled from 2005-08, so the ratio probably went up quite a bit from 2005 to 2008. Not likely that it went up all the way to 40 %, though.

  • Posted by Shannon

    To Indian Investor –
    I don’t believe the phrase “this would be a good time for China to return the favor” insinuates that China owes us an actual debt or obligation, simply that the rapid development of China’s economy has absolutely been driven by global demand for their cheap exports and with a growing middle class, a potential consumer base of 1.3 billion people, and a high savings rate it is logical for China to fill the gap in global demand created by the recession., a native Chinese, English language website dedicated to providing professional analysis of China’s economy from the Chinese perspective, recently posted an article titled, “China Explores International Investment Agreement as a Method to Resist Protectionsim,” which accuses the U.S. of hipocrisy for encouraging China to open its markets while adopting protectionist measures when China tries to invest in its key industries (i.e. Cnooc’s attempted takeover of Unocal). Yet, the Chinese government refuses to allow foreign firms to obtain even a majority stake in any of its companies, let alone those vital to national security, can you picture China allowing an American firm to takeover one of its oil companies? Is there a double standard because the U.S. is the world’s largest economy or do people simply notice its actions more than those of other countries?

  • Posted by Twofish

    China’s economy isn’t planned much more than the US economy, and I really don’t think that the Politburo has more real control over the Chinese economy than the US cabinet. For example, right now China is boosting construction in a big way, but it’s doing it largely by increasing budgets for construction by local governments and relaxing lending limits.

    There isn’t a central economic planning agency, and what directives come out from the central government are often ignored within the SOE’s and local governments. One reason that China relies a lot on market mechanisms is that those are often more effective at enforcing central government policy than administrative decrees.

  • Posted by Twofish

    Also one thing that has really messed up analysis is the idea of the Asian developmental state. The fact is that the Chinese economy really doesn’t look that much like the Japanese or South Korean economies. There are parts which look similar, but there are also parts of the Chinese economy that look like the American economy.

    One reason China looks different from Japan or South Korea is that economic ideas from Hong Kong have been extremely influential in Chinese circles, and Hong Kong frowns on the type of economic structures you see in Japan. Also saying that China is against neo-liberalism is too simplistic. China has adopted parts of the neo-liberal program (open capital investment policies and market resource allocation for example) and rejected other parts.

    purple: It looks like China’s AMC’s aren’t too eager about buying up any more NPL’s from the Big 4. I think that tells more about the true state of China’s financial situation then their official growth numbers.

    No new NPL’s have been transferred to the asset management companies for almost a decade. That was the whole point of the banking reform. The AMC’s set up as a one time injection of state funds to recapitalize the banks. If you keep transferring NPL’s to the AMC’s then you defeat the whole purpose of the system.

    What the Chinese government did in 1998 was to tell the banks that they would trade yuan for yuan bad assets. In this situation the banks would start moving their worst assets to the AMC’s. That was the whole point.

  • Posted by Twofish

    Minzu: Good guesswork. Add to that that whenever the bureaucracy gets to make decisions they will always err on the side relevant to them (too much commodities, not enough machinery for domestic cosmetics production), so a somewhat disappointing total performance should be expected.

    Not necessarily. You can change the incentives of the bureaucracy so that they do things that maximize total performance, and China has done a pretty good job at that, because the people at the top are incentivized to increase economic growth, or less they mob comes and cuts their heads off.

    One thing that people miss when they discuss public versus private, is that large private companies are themselves huge massive bureaucracies.

    Something else to point out is that not all of the “infrastructure economy” is state-owned. Most Chinese construction companies are funded by non-state capital, and a pretty large fraction of cement and steel companies are “non-state.”

  • Posted by Minzu


    Right, agree with your argument that the state bureaucracy is not necessarily worse than that of big corporations. But pse find some positive incentives for these poor bureaucrats, why would anyone want a job like that! My point is simply that I expect that Chinese imports will be less of a support for world trade than possible, if they were spending a little more recklessly. On the other hand, I expect China/Chinese owned firms not to engage in predatory exports and thus add to deflationary pressures. It will simply become a bit more autarchic for a while.

    As to large non-SOE domestically owned firms. Sure, but do you believe that these construction related companies are completely independent of the state? Construction is, everywhere, the most politically connected industry of all!

  • Posted by emenot

    If there are any true of Chinese reports, I think 10% would be about right! To think Chinese people would buy their own junk product is NUTS! THEY ALL LOVE IMPORTS! IF NOT, PLEASE EXPLAIN WHY THEY LOVE BUICK, BMW, VW, TOYOTA, NISSAN, HONDA??? Only the poor have no choice buy to buy their own junk!!! YOU CAN TAKE THIS STATEMENT TO THE WORLD BANK!!!!