China's House of Cards: Exports Down 23% in July, Year-Over-Year

Shortly after Wen Jiabao's statement that China will maintain its stimulus, Bloomberg reports that Chinese exports tumbled in July and industrial output numbers came in under consensus. The former is significantly more troublesome, though as this drag on industrial output is going to become a bigger part of the story.

With exports falling 23% and industrial production "only" gaining 10.8%, the Chinese government is going to have to pump in a whole lot more stimulus. The truly puzzling part has to be the following quote:

The government wants to avert bubbles in stocks and property and bad loans after a record $1.1 trillion of lending in the first half helped to drive a 7.9 percent economic expansion in the second quarter.

Disregarding the inherent contradictions, we have to wonder how else they see this story ending? If they mark GDP to the traditional pegs (US and Euroland demand levels), the results will be catastrophic. However, pumping in massive quantities of stimulus from state-run banks to state-run companies and mandating forced lending to keep the spigot open is far from a fool-proof plan "avert bubbles in stocks and property and bad loans".

The other details in the article do little to bolster confidence. With growth being essentially funded by government-mandated liquidity and an alarmingly small proportion of consumer demand, it's especially troubling to see urban fixed-asset investment rising 32.9% by July.

In the continuing footrace between a global recovery and the Chinese madly building an ever taller house of cards, it is tough to see this ending well. Incredibly, it is possible to imagine a scenario in which this all works out. The odd situation of Communist central bank control and political agenda combined with the current market outlets leads to an ability to blow through most of the traditional macro buffers that the rest of us face. Despite Goldman Sachs' estimate of 9.4% growth this year, the Chinese economy continues to show signs of strain at the edges.

Comments

[djackson:]

Actually, while YOY % is negative, exports are again growing. From the same source:
7/09 105.42
6/09 95.41
5/09 88.76
4/09 91.94
3/09 90.29
2/09 64.89
1/09 90.45

Aug 11 12:26 PM

[Alphameister:]

Keep the nonsense flowing. Keep adding bricks to the Great Wall of Worry that the "Chinese bubble" will continue to climb (preferably after a period in which earlier dramatic gains are consolidated). If you did not understand the point made by djackson above, then you are not well qualified to comment on the situation. If you did understand and chose not to address such information, you lack intellectual integrity.

Aug 11 01:18 PM

[RLLH:]

I think we will wish we could trade our White House (and occupants) for China;s house of cards after it becomes apparent who has the bigger economic problem. The Chinese are spending money they have, we are spending money our great-grandchildren will be trying to raise.

Aug 12 07:21 PM

[Tony Daltorio:]

Forget the export data - it's yesterday's news. There is a long-term change in trade trends thanks to growing Chinese consumption.

The ratio of Chinese exports to imports has gone from 56 tons of imports for 100 tons of exports a year ago to now 80 tons of imports to 100 tons of exports.

Aug 12 07:40 PM

[Ricard:]

I would re-check the calculations on your numbers. You may find that with a YOY drop of 23%, most of your ratio change is due to exports dropping, not imports rising. This is simply an indicator that consumption has dropped precipitously around the world.

However, I still completely disagree with the author's 'house of cards' comment. There's no basis for such a statement when looking at just export numbers. If anything, it puts China in a relatively positive light, as consumption was not affected nearly as much as it was in other nations, i.e., this crisis just didn't matter that much to China.


On Aug 12 07:40 PM Tony Daltorio wrote:

> Forget the export data - it's yesterday's news. There is a long-term
> change in trade trends thanks to growing Chinese consumption.
>
> The ratio of Chinese exports to imports has gone from 56 tons of
> imports for 100 tons of exports a year ago to now 80 tons of imports
> to 100 tons of exports.

Aug 13 02:01 AM