International Law

Chinese Export Volume Falls Off the Proverbial Cliff

Reuters:

Exports in February slid 25.7 percent from a year earlier, dwarfing forecasts of a 5.0 percent fall, while imports dropped 24.1 percent, close to projections of a 25.0 percent decline.

Bloomberg's story fleshes it out a bit more. Read also Andrew Batson's article for context.

As we've written many times in the past -- echoing the research of scholars of the Chinese economy -- official Chinese statistics must be taken with a grain (make that "pillar?") of salt. Distortions due to collection methodology, the inaccuracy of reporting, the pressure of political demands, all contribute to inaccuracy.

But we all know that the manufacturing sector in China has been badly hit -- we saw the signs and posted our early presentiments back in the summer of 2008. As unreliable as the number is. I find this officially announced statistic so shocking that I'm compelled to compare it to the extraordinary upset occasioned by an event in modern Taiwanese economic history: when the New Taiwan Dollar peg to the US dollar was removed in the late 1980s.

In the space of a few months, that ratio moved from 40:1 to 25:1, shutting the doors of many businesses on the island and forcing factory owners to look for manufacturing sources elsewhere in Asia. It was -- and those who were there at the time will remember it -- a disaster of great proportions. Prices and unemployment soared, and Taiwanese, already following the trail of general diaspora throughout the world, hastened their steps away.

While a handful of Westerners have told me they do not see much change in China -- they see people continuing to purchase and go about their lives as naturally as they did before the global meltdown -- these gentlemen reside in the major urban centers and are only vaguely aware of the boiling undercurrent in rural areas, especially in the middle and southern parts of the country.

One does not see China creating within a generation -- not to mention a brief economic cycle -- a domestic market capable of absorbing sufficient volume of manufactured product to make up for the decline in exports. Exports are the engine which drives China's growth, upon which great masses of uneducated and poorly skilled people rely for a basic living. The Chinese stimulus package may provide limited employment for some building roads and fixing the rails, but never the kind of capacity that manufacturing has provided. An empty stomach and idle hands are ruinous to individual, family and country. Now that they have had a taste of a better life, Chinese will not willingly return to the life of strict social constraint and enforced poverty of the pre-1978 years.

The export statistic is, thus, a crude indicator of the social turbulence to follow.

Full post as published by Asia Business Intelligence on March 11, 2009 (boomark / email).