China's Economic Trouble May Just Be Beginning

If you follow the financial media, especially the output of dollar-phobe analysts, you might think that "Pork problems perturbing Peking" is the worst concern China is dealing with right now. But rising prices for moo-shoo pork due to increasing middle-class appetites and upticks in inflation may be the least concern to Beijing.

China's economic meltdown, which I predicted to start after the Olympics this summer, may have already begun. While analysts are sticking to their guns that the American Century is over and Asia a whole new kettle of koi, it looks like the Chinese economy is about to catch a heck of a cold as America's consumers sniffle.

Light export industries are experiencing massive losses. Growth in China's textile industry production in January and February 2008 came in at just 5.7 percent, compared to last year's 19 percent. That's the slowest growth rate since 2003. Guangdong's industry was hit by a whopping 11.3 percent drop in output, with textile output falling an incredible 32.9 percent -- due in part to February's massive snowstorms, but mostly to weakening demand from the US and Europe.

Reportedly, almost half the companies in 17 Chinese provinces are considering shutting down, and 44 percent were trying to sell export-oriented products on the domestic market. Almost 10 percent of the 60,000-70,000 Hong Kong-owned factories in Guangdong's Pearl River Delta will close in 2008 due to revenue and cost pressures. In Guangdong, the shoemaking industry laid off between 150,000 and 200,000 workers and cut roughly 15 percent of production capacity.

Companies are shedding jobs and outsourcing either abroad or to low-wage regions of China. The dollar has fallen 14 percent against the Chinese currency since 2005. Each percentage point increase in the yuan means a half a percentage point loss in a company's foreign exchange earnings. Soaring energy and commodities cost, rising wages and much-touted green policies, are forcing employers to shift production to poorer regions of China, as well as to Pakistan, India, Vietnam, and Myanmar.

Maybe Beijing's one trillion dollars in foreign currency reserves may come in handy as China's export cash flow start drying up by the fall. There may be some great investment opportunities left in the short term for China -- especially travel-related companies pandering to patriotic Chinese happy to fill the bleachers left empty by Olympia protesters.

Watch for the numbers to become better popularized after the Olympic Games this summer. And get ready for the second, far more powerful wave of economic calamity as the Chinese economy belly flops.

Comments

[MontyHigh]

Interesting post. What are the best English-language sources on Chinese economic conditions (subscription and free)?

Monty

[djr]

"Reportedly, almost half the companies in 17 Chinese provinces are considering shutting down, and 44 percent were trying to sell export-oriented products on the domestic market."

What is your source for this information? It sounds sensationalistic to me!

[CrossingtheT]

Well, if China is collapsing, why does the Baltic Dry Index rise every day?

[chinesepetti]

According to German government the unemployment rate is still about 10% and there are almost a million german are working in China at the moment.

[chinesepetti]

"If you follow the financial media....." That is how Mr Amberger makes his living....recycling and whining . Go read out your shameful German Hitler history before you even dare to start! Mr Media Follower!

[chinesepetti]

"If you follow the financial media....." That is how Mr Amberger makes his living....recycling and whining . Go read out your shameful German Hitler history before you even dare to start! Mr Media Follower!

[User 142738]

chinesepetti: Read up on Godwin's law...

"There is an unwritten rule on the Internet that, once an irrelevant comment is made, the thread in which the comment was posted is over and whoever mentioned the Nazi party or Hitler has automatically lost whatever debate was in progress."

It's nice to know that you're so nationalistic that you believe reductio ad Hitlerum is logical.

[longshort]

To chinesepetti,

I am really shocked by what you said. Give us the logic and reasoning, not the screaming.

I believe the extreme nationalism would be the dirty source of Hitler

[CrossingtheT]

Hats off to you, User 142738 and longshort!

[chinesepetti]

If you follow the financial media....." That is how Mr Amberger makes his living....recycling and whining . Go read out your shameful German Hitler history before you even dare to start! Mr Media Follower

[lanaar2]

Last time Amberger wrote on China's doom it was about the next emerging housing collapse to take place in Asia due to non performing loans. I mean, this article has nothing to do with his last one. He seems to be throwing ideas here and there... The EU started lifting import quotas from China in begining 2008, this has lifted chinese exports: www.reuters.com/article/gc07/idUSL20080123

[john2]

if you keep on insulting the writers of these articles with little to no other purpose you will get your account suspended. chinesepetti

[User 143167]

China will have its fair share of problem in this global downcycle, nothing more, nothing less. But unlike the perma-bulls who keeps the US stocks afloat under the illusion that "loose monetary policy can cure all", this downside risk in China has been largely reflected in its currently sharp dropping stock prices.
For some of you who really believe that Chinese economy is falling apart, you should sell every stocks you own so far. NOTHING is a buy in that scenario, US stocks, EMs, bonds, Commodities, etc and etc, you name it.

[J.D]

SCMP coverage is filled today with news of a major land protest in Yunnan, re-education campaign in Tibet, and torture of an inner Mongolian bookshop owner. It's not just economic stability China needs to be concerned with at the moment.

What has happened to the harmonious society?

[chinesepetti]

Stop occuopation In Iraq! Stop Now! Shame on You!

[chinesepetti]

Stop occupation in Iraq Now before you invest your money in China; Chinese do not want your bloody money! Otherwise keep your money to save Bear Stearns and Mr Petti!

[CrossingtheT]

Wow, quite a Boxer Rebellion going on here. THE GERMANS TO THE FRONT!!!

haha! Chinesepetti, you are so ridiculous!

[City's mother]

The countryside could determine the pace and nature of change. nickgogerty.typepad.com/designing_better...

[rlirph]

Clearly some posters are reacting unreasonably. While some people sensationalize news headlines and make them more importantly than they appear, the following is quoted from a major Chinese newspaper (Southern City Daily News).

They have just concluded the first part of Canton Fair and orders from the US this year is 0.4% less than last year. It is 0.4% less, not 4% or 40% less. However the European Union countries have now become the number 1 importer of Chinese goods, followed by the Middle East countries.

While China is facing a slower US economy it has made up the pace with EU and other countries. Historically China has averaged a 9.6% GDP growth in the past 26 years. Frankly even with numerous economic and social challenges I do not see China going to be in any economic distress.

[Huangthomas]

This guy is a real Red Guard of Chinese cultural revolution. He lets you you experience what cultural revolution in China was like. Keep it up Chinesepetti, you are a disgrace to all Chinese.

[sherwin]

with 1.3 billion people and good savings averages, the Chinese growth engine will continue chugging on, despite some bumps and stops every now and then...

some people just suffer from huge China-envy...

[longshort]

Chinesepetti, if you are trying to help Chinese, please do not do like this.

[longshort]

As to GDP growth in China, it is really easy to get double digits if you look back the the growth equation and have the ideas about the second generation of baby boomers in China. But the growth could not be such imbalanced one. The allocation of wealth is not fair, even it supports the higher saving ratio. So the risk is not purely about economy but the mixture of sudden economic and politic disasters.

[Colin Chen]

HAHAHA nice one chinesepetti, lets beat back the hun's. Your clever insights are what makes this site worth reading. (*sarcasm*)

In anycase, the EU is China's largest trading partner, and the increased export to EU from the overvaluation of the euro should some what offset the slowing demand from the US caused by the drop in the dollar. The drop in light manufacturing and textiles are to be expected as beijing has in recent years abandoned the cultivation of those industries in place of more sophisticated industries. A rise in unemployment combined with a growing inflation rate is troubling however.
What worries me the most is huge amount of cash moving to Hong Kong in red chips and H-shares. Is there another chinese speculation bubble this soon?

[sherwin]

chinesepetti is probably not even Chinese to begin with...be careful of taking the bait