China's export collapse continues

Bloomberg reports that:

China’s exports fell for a fifth month in March....

Overseas sales declined 17.1 percent to $90.29 billion from a year earlier, the customs bureau said on its Web site. Imports dropped 25.1 percent, leaving a trade surplus of $18.56 billion.
The export decline was less than February’s record 25.7 percent drop.

I haven't blogged much about China in the last few months. The reason is pretty straightforward: I don't believe their statistics.

In the face of a 20%-25% collapse in their export machine, we're supposed to believe that China's economy is still growing at a 6% or more clip? I don't think so.

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Who can trust China's numbers?

I find that hard to believe as well. I think I've read press releases talking about a "temporary" slow down but back up to 8% growth protections. No way, unless all of a sudden the Chinese started spending and created a domestic economy.

We've all been kind of lax on trade on EP generally and one issue, it's interaction, considering we are now debt nation is the interaction with China buying U.S. debt....

by the trade deficit alone I am assuredly thrilled if the U.S. stops buying cheap plastic items from China but this is a new dimension to this economic malaise.

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Well, actually

If I was dictator of China right now, I'd be printing yuan for all it's worth- with a limitation that it can only be spent domestically on domestic goods.

The reason? Keeping people employed and building a domestic economy in the face of huge slowdowns in trade.

So I wouldn't be at all surprised to see the Chinese start spending and trying to create a domestic economy that can match it's previous 8% growth projections.

I'd be surprised, though, if they succeeded.
Executive compensation is inversely proportional to morality and ethics.

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Maximum jobs, not maximum profits.


I hate to say it, but there may be some credibility behind these claims.The latest info on international trade has the deficit shrinking to - $26 billion from the previous - $36 billion. 

And while companies like Dollar Tree are reporting sales, they are all reporting that folks are still not buying that much..  If the news that we're now saving north of 2% of our income versus nothing before, and that we used to spend spend spend, well it has to come from somewhere and once more that is spending.  Consumers are weary, they see friends losing jobs or

 A month or so back, there was the big toy expo.  It was reported that almost a third of manufacturers who either were job shops for foreign firms like Mattel or they themselves produced their own brands, had gone out of business.  A lot of Asian companies are not getting the prices they used to fetch. If you look at Import Export prices released this past week, you'll see a continuation of the decline.  Given that oil, while itself seeing a descent into hell, has stabalized somewhat, so you have to figure that a good chunk is products being sent here. 

China is essentially the mother of all hedge funds.  On one end of it's portfolio is its sales of goods serving as volitile cashflow instruments. At the other end is their more "boring" part, their holdings in bonds.  Now perhaps one of the reasons you hear Beijing squeling about a reserve currency because the boring side is starting to look less calmer, which is a big no no for them.  There has to be a balance for them, and I think they're losing in their "volitile" portfolio because of a drop in demand and are not liking the possibility that their "hedge" is also looking like that as well.

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JV if I understand you correctly

There is credibility to the claims of an export collapse (with which I agree, because they are also confirmed by the container shipping numbers coming out of the West Coast ports; and because it is an admission).

But do you think China's claims of continued growth of 6%+ are also credible? I see shrinking trade and a shrinking surplus as almost necessarily requiring a shrinking Chinese GDP as well.

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NDD I'm with you

First let me appologize for the tardiness of my reply, just hectic here by me.  Regarding China's claims, you know it may be true.  But this is also the same regime who only a decade ago were also producing BS crop productivity numbers.  It may be 6%, it could be 3%, hell it could be 18%.  Emerging economies tend to have high growth rates relative to investment inflows.  Yet, as you already know, as an economy "matures", growth rates shrink.

There are really three economies in China.  The first is the State Enterprises, that is business operations officially owned by the government.  Following this is what I'll dub the Metro-industrial sector, that is the almost micro-city-sized factories producing goods for export located mainly in the Eastern Coastal cities.  Lastly, there is the Countryside, where at last check 60% of the populace still lives and provides the bulk of the Metro-industrial's labor pool through migration to the cities.

As you know, China is really a one-trick pony, they're the cheapest and growth comes through exports.  While domestic consumption is growing with the emergence of a modern middle class, they are no where near the capacity to provide as a substitute to export-related income.  In each of the three segments I've highlighted above, the growth rates varie.  The State Enterprises, absent a minority of manufacturers, have been operating at depressed levels; if they were in the West they would be bankrupt or "zombie companies."  Looking at the Countryside, the situation is almost the same, though recently some new industrial development has been happening, the situation still reflects the backwater nature.  The real engine, since the 1980s, has been the Metro-industrial, since the establishment of the Shenzen Special Economic Zone in 1980. BTW, I can't take total credit coming up with these three economic units, in college we had visiting professors from Hong Kong who came up with between 3-7 different econ units. 

The numbers quoted from China maybe a smoothed number, that is an average of these things.  The exponential growth in the Metro-industrial part managed to make up for the slack in the other two.  It should be interesting now, given that M-i is at the forefront of the layoffs, if you will still see those numbers.

If I may add one more thing.  There is something else that is rarely talked about in regards to China's economy.  That is their financial sector, primarily the banks.  For all the madness going on here, it has been a long-held dirty open secret that the books in those banks are not only cooked, but that much of the loans are rotten.  If China's banks that operate primarily inside China were to be examined, you'd have an armada of AIGs.  I've also had the suspicion that their banks that operate outside the country kept two sets of books.  I have no proof of this, and can be regarded as pure conjecture.  But these banks that finance the exports and such are also the first one hit up by the government for loans.  Something has to give.

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China Real Estate

I don't have the citation at the moment but yesterday I read a projection that China's Real Estate market would drop by 50%. It's hyper inflated. I don't know if that was both commercial/residential or just one.

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I was in Shanghai 3 years

I was in Shanghai 3 years ago, and couldn't believe how much excess housing had been built in anticipation of migrants from the countryside. It was done to prop up employment. Now, China has a similar issue to that of Japan in the 90s in terms of its real estate.

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'China is essentially the

'China is essentially the mother of all hedge funds."--JV
Well, I call them the company store in a coal mining town...the ultimate pay day lender.;-)

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