Thursday, June 11, 2009

China's Adjustment

. Thursday, June 11, 2009

It's happening, because the economic crisis has forced some changes:

China’s exports plunged by a record 26.4 percent in May from a year earlier, the Chinese customs agency announced on Thursday, as buyers in industrialized countries remained cautious about placing orders.

But investment in fixed assets like roads, factories and apartment buildings set a record in the opposite direction.

Chinese investment was up 32.9 percent in the first five months of this year compared to the same period last year, the National Bureau of Statistics announced in Beijing.

The change won't come smoothly. Boosting employment is still the top priority for the Chinese, and doing so without increasing exports will be difficult. If employment opportunities dissipate, or if wages flag, then it will be impossible to increase domestic consumption. Exporting manufactures still represents China's best opportunity to rapidly boost employment over the medium-run.

In the short run, the Chinese government will substitute domestic investment for lagging demand for its exports, and hope that the exports recover soon (and they to be betting that they will, as China is stockpiling commodities). But shifting focus from export production to domestic consumption will take much more time; employment, not consumption, remains the dominant priority for the Chinese government.


China's Adjustment




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