The China Decoupling Debate Continues in Some Circles

Outside of the hedge fund community, where the votes seem to have already been cast over the last five weeks leading to broad-based declines in commodity prices, the China "decoupling" debate continues in some circles, the latest bit of data coming from this story in the current issue of The Economist with the telling graphic below.

That's not what was supposed to happen was it?

Absent growing demand from the West, particularly from the most important customer on the planet half way around the world, the great Chinese juggernaut was supposed to shrivel up and die.

Wasn't it?

Not yet, apparently.

For the first time in years, China’s exports are growing more slowly than America’s. In the 12 months to June (the latest month available for both countries), America’s exports grew by 23%, well ahead of China’s 17% (in dollar terms). Export volumes show a similar trend. China’s rose by 11% in the year to the second quarter, while America’s climbed by 12% (see left-hand chart). Stephen Green, an economist at Standard Chartered, expects China’s real export growth to fall to zero by the end of this year and to turn negative next year...

Meanwhile, in China consumer spending is now growing faster than exports (see right-hand chart). Retail sales jumped by 23% in nominal terms in the year to July, and 16% in real terms. Dragonomics, a Beijing-based research firm, estimates that consumption contributed two-thirds of China’s GDP growth in the first half of 2008, up from 44% in 2007.

Wow. Consumption was two-thirds of GDP growth in the first half of the year.

Since, as a percent of overall economic activity, consumption is still a small component (as compared to most Western countries), if they keep that up, they'll slowly wean themselves from their reliance on exports and develop a robust economy with a solid underpinning of domestic consumption.

Where will that leave us?

If things turn around in the West, sometime in the years ahead, will we still be able to buy cheap imported goods from them?

Comments

[User 220706:]

With an average per capita annual income of $2,800, the Chinese economy is unable to grow organically (i.e., driven by internal demand). The majority of emerging middle class consumers derive their higher income from activities related to export manufacturing. The export manufacturing sector's serious troubles (attributable to the economic contraction underway in the U.S., Japan and Europe) will began to manifest significantly in 2-3 quarters, due to the typical lag. For an excellent overview of China's Economic Outlook, see the following research bulletin:

www.globalsecuritieswa...

2008 Aug 19 06:12 AM

[Still Renting:]

This reminds me of the "real estate expert" that was on talk radio just befor the Special Olympics (SO) came to Seattle a couple of decades ago. He said the event would put Seattle on the map and real estate would CERTAINLY soar afterward. The SO came and went. We had a slight bump in the local economy and it was almost instantly back to business as usual.

I believe it is at least POSSIBLE the same thing could happen to China. They should enjoy their 15 minutes of fame. The rest of the world has our own problems and can't really give them much more than that.

2008 Aug 19 11:24 AM

[Glen Bradford:]

I'm trying to figure this one out.

2008 Nov 19 03:08 PM