By William Pesek
So you think China’s 6% growth will power a global recovery. Think again, warns William Pesek.
So you think China’s six percent growth will power a global recovery. Think again.
Economists, for example, can’t put a gloss on how ugly Japan’s data are getting. Exports and output are plunging, unemployment is at a 25-year high and those all-important summer bonuses are evaporating. The best we can say is that sentiment among large manufacturers was less gloomy in June than expected.
Where is that smidgen of hope coming from? China, which rarely misses a chance to declare victory over the global recession. Officials in Beijing say stimulus spending and record lending are sparking a recovery in the third-biggest economy.
Export-led Japan would seem perfectly placed to benefit. That is, until you check the evidence. Shipments to Japan’s biggest trading partner fell 29.7 percent in May, more than April’s 25.9 percent. It suggests China’s growth isn’t helping the rest of Asia very much.
China acted quickly to shield its economy from the global crisis. Manufacturing in May expanded for a fourth month. Central bank governor Zhou Xiaochuan says things may keep improving in the third and fourth quarters.
It’s also worth noting that Japanese exports to China are falling less severely than elsewhere. Shipments to the US fell 45.4 percent in May. Exports to Europe slid by the same amount.
China isn’t turning out to be an engine of growth for Asia. One possible explanation for that is protectionism, as China works to encourage exports while curbing imports.
The country objects to the “Buy American” provisions in US stimulus efforts, yet it is using similar tactics. Another reason may be that China’s revival is more spin than reality.
Either way, talk that China would feed the “green shoots” dynamic that Federal Reserve chairman Ben Bernanke introduced into Wall Street’s lexicon four months ago isn’t working out. Nor will the Asia-decoupling theory that’s being resurrected.
Yes, Asia is less reliant on the US than it was a decade ago. Its fortunes are still intricately tied to what happens in the $14 trillion US economy. The longer the US is on its back, the harder it will be for Asia to maintain modest growth.
One reason for a resurgence of the decoupling argument so convincingly debunked last year is actual growth. Even with the US, Europe and Japan mired in recession, economies in China, India, Indonesia, the Philippines and Australia are still expanding. That’s impressive given the state of credit markets.
Fast-forward one year, though. If the US economy is still weak in July 2010, Asia will have a hard time supporting growth from within. At the moment, stimulus efforts are starting from a low base. Over time, government spending and low interest rates may get less traction.
The Asian market won’t close the gap. Much of the region’s internal trade involves intermediate goods used in the production of other products — many of which go to the US and Europe. A world without growth will force Asia to retool economies toward greater domestic consumption without the cushion of robust demand.
What’s more likely is an inward-looking period as opposed to regional cooperation. Groups such as the Association of Southeast Asian Nations talk a lot about linking their combined fortunes and outlooks. Meetings, photo opportunities and communiques don’t hide the stark reality that Asian economies compete more with each other than join hands.
China has been expanding efforts to help exporters with bigger tax benefits, loans from state-owned banks and other steps. Many “Buy China” directives are coming from Beijing. And don’t expect China to allow the yuan to appreciate much in the second half of 2009, regardless of the market pressures.
Such policies suggest China is losing confidence in its 4 trillion-yuan ($585bn) stimulus plan. They are also a reminder of the limits to governments’ ability to boost growth with public largess alone.
Growth may slip as stimulus spending wanes amid political opposition to a widening fiscal deficit, says Ma Jun, Deutsche Bank AG’s Hong Kong-based China economist. That casts doubts on predictions that Chinese gross domestic product will expand eight percent in 2010.
The omnipotent reputation many assign to leaders in Beijing is being challenged. Take this week’s Internet fiasco. China postponed the deadline for personal-computer makers to include state-backed anti-pornography software on new PCs after US officials and business groups urged it to scrap the rule.
China is normally a model of implementation. The speed with which it builds state-of-the-art airports, high-speed rail lines and Olympic stadiums is impressive by any scale.
Its censorship efforts were exactly the opposite: sloppy and ill-considered.
Economic-stimulus efforts appear to be benefitting from greater competence. That may be a boon for 1.3 billion Chinese trying to get a share of the nation’s growth. The benefits for those outside China are much more limited.
William Pesek is a Bloomberg news columnist. The opinions expressed are his own.
Being friends with China is a difficult process, because it is an unreciprocated arrangement. China takes, and does not give. The fact that economists for years have warned that China can't feed its citizens if economic growth falters is largely ignored by the West. That growth rates still seem high is deceptive, because 6 per cent isn't enough to fuel the social collapse looming from unemployment, stagnating exports, ethnic unrest and the coming backlash from poor countries who sold their farmlands to the Mainland for a pittance and zero sustainable return. China is the scariest country on earth, not its diminutive neighbour.
China as more people than the combined population of the western world, thinking about its needs, wants and plans in the same way as individual countries like Japan or the US is the reason for a lot of confusion. China "rescuing" the global economy is a fantasy if you think of China as a single country, China "rescuing" the global economy make more sense if you consider China alone makes up a fifth of this "globe". There's no reason to think what happens in China will help western economies, because as a general rule, if China can make it, China will make all of it for itself and a large chunk of the world, if it does not already import the manufactured goods, it has no reason to start importing it in the future.