How Could They: China Grows Only 9%!
Depression October 21st, 2008A bit breathless, Bloomberg reported that “China’s economy, the biggest contributor to global growth, expanded at the slowest pace in five years as the financial crisis cut demand for exports. Gross domestic product rose 9 percent in the third quarter from a year earlier.”
Economy caught SARS?
To put it in a perspective anybody can relate to, Bloomberg said that “China’s expansion was the weakest since the severe acute respiratory syndrome, or SARS, epidemic slashed growth in the second quarter of 2003.”
This brings back scary memories of China coming to a grinding halt for months, while everybody had to stay home and was allowed to go to the shop once a week only. Soldiers in HAZMAT gear watched the lines. A cough, a fever, and it was off to the camps. That’s how bad it is, Bloomberg wants us to think. While in reality, Mayor Bloomberg’s city currently might be worse off than Beijing.
9% growth? That’s all?
Economies all over the world would go ga-ga over 9% growth. Wait, maybe not. A 9% rise of GDP could frighten them into thinking that central bankers will raise interest rates to coll down certain inflation.
In reality, China simply goes from an inflationary, unsustainable, and unhealthy double digit growth to a solid level everybody would love.
Sure, export growth in China slowed substantially. It had to. Since the second half of 2007, the Chinese government tried everything to push down exports to a more sustainable level.
Points to consider:
- Retail sales in China rose 23.2 percent in September from a year earlier, matching the gain in August and close to the fastest pace in at least nine years.
- Urban disposable incomes for the first nine months of 2008 rose 14.7 percent from a year earlier. Rural cash incomes climbed 19.6 percent. People have more money and spend it.
- The formerly skyrocketing Chinese light vehicle market (which includes passenger vehicle and light commercial vehicle segments) is expected to slow in 2008, but it still will grow at a very nice pace. J.D. Power expects Chinese sales to come in at 8.9 million units in 2008, which would be an increase of 9.7 % compared to 2007.
- Much of the decline in exports had been caused long before the U.S. meltdown. The cause was the appreciation of the RMB, which was actually a reflection of the rapid depreciation of the USD which took place until July 2008. As gasgoo.com said, “for most local auto parts makers, the impact on exports brought by the demand slowdown of the global market triggered by the financial crisis will be less than that of the RMB appreciation.” It’s just that nobody was looking.
The Chinese stock market had seen it coming for a while.
From a high of 6000 at the beginning of 2008, the Chinese stock market eroded to around 2000 now. > without most outside the country even noticing. Since January, the Chinese stock market lost more than 60% of its value, a huge bubble burst, without an echo in the rest of the world.
The Dollar rises. The Yuan barely moves.
If anybody has noticed, the USD took a sharp turn and appreciated dramatically since July. Now is this reflected in the USD/CNY currency pair?
Until July, the Yuan pretty much appreciated against the USD as the Euro did. The Dollar went down, the Euro and the Yuan went up.
But what happened when the USD started rising, starting in July? The USD/CNY rate barely budged. The EUR/CNY rate did move.
According to Bloomberg, the Chinese “central bank has stalled gains by the Yuan against the Dollar since mid-July, protecting jobs in export industries.”
Hmmm. The chart says they did just the opposite. When the Yuan should have gone down sharply against the USD along with the other currencies (except the Yen, but that’s a different story) the Yuan barely moved.
The chart says that the Chinese central bank most likely propped up the Yuan against the US Dollar. China also took other measures to slow down their overheating export machine.
Yuan due for a fall.
We expect the Yuan to drop against the USD, the easiest way for the Chinese government to make Chinese exports more attractive. In the first half of 2008, this would not have been a popular move. But now, the world is preoccupied with other problems than the CNY/USD currency. If anyone will complain, the likely explanation will be the strength of the Dollar.
And when the USD will drop, as it should when America cranks up the presses to print money to finance the bailout and two wars, the Chinese can keep the USD/CNY level, and make their goods even cheaper in Euro terms.
More toggles to be switched:
The tax measures designed to dampen exports will most likely be lifted. Sinking commodity prices and record-low transport prices make low wage countries like China even more competitive.
Bloomberg is right: China is the country that keeps the world economy alive. The Chinese have the incentive and financial wherewithal to keep it that way. They have nearly unlimited room to grow. Most Western markets are saturated. European and Japanese have demographics that point to shrinking markets. Out of this recession, China should emerge stronger than ever.
