Thursday, November 20, 2008

Department of Ut-Oh (a continuing series)

. Thursday, November 20, 2008

Back in April, Peter Thiel said "there is no good scenario for the world in which China fails". He got a bit hysterical thinking about the possibility, concluding that a massive world war that effectively destroys human civilization is not outside the realm of possibility. I hope that scenario is too extreme, but the initial point stands: what is bad for China is bad for the rest of the world.

Presently we find that many things are bad for China:

Exports constitute nearly 40 percent of China's GDP--far too high a figure. (By comparison, in the U.S., exports account for about 10 percent of GDP most years.) And the global financial slowdown is already taking a terrible toll. Some 10,000 factories in southern China's Pearl River Delta area had closed by the summer of 2008. Gordon Chang, a leading China analyst, estimates that 20,000 more will shutter by the end of this year. In the third quarter of 2008, Beijing also reported its fifth consecutive quarterly drop in growth, and several private research firms expect a sharper slowdown next year. Additionally, unemployment is skyrocketing; in Wenzhou, one of the main exporting cities, about 20 percent of workers have lost their jobs, Reuters recently reported.
Don't forget the $586bn stimulus that China announced last week, which represents ~ 16% of 2007 GDP at the official exchange rate (less in PPP), and the fact that Chinese inflation and real growth rates are falling off. It now appears that if there is a global Great Depression, it may begin in China.


Thomas Oatley said...

Riddle me this, Kindred. How can a "global depression" begin in a country that earns 40 percent of its income from exports? Seems it fails to contribute sufficient consumer demand for the absence of same to have much impact on the ROTW.

Might it be that what one sees in Chinese activity actually reflects the impact of the collapse of US consumer demand on Chinese manufacturing production? Consequently, the great recession of 2008 begins in the US...

What am I missing?

Kindred Winecoff said...

It might be that, but it isn't. our trade deficit with China and the nominal dollar amount of our imports from China, have been going up all year:

indeed, in a U.S. recession, we should be demanding more inferior goods, right? many of these are made in China. or maybe their exports to other countries are off significantly. but at first glance it doesn't look to me like the U.S. is causing China's drop-off.

Department of Ut-Oh (a continuing series)
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