Chinese Production Engine Begins to Stutter; Surprise Trade Deficit Reported

Bloomberg writes China Reports Surprise Trade Deficit as Export Growth Slumps:

China reported an unexpected $7.3 billion trade deficit, the biggest in seven years, buttressing the government’s case against U.S. arguments for faster gains in the yuan.

Exports rose 2.4 percent in February from a year before, the least since 2009 as Lunar New Year holidays disrupted shipments, and imports climbed 19.4 percent, customs bureau data showed today. Central bank adviser Li Daokui said that the full- year trade surplus will shrink from the 2010 level.

Yuan forwards dropped after today’s release as investors pared bets on the appreciation of China’s currency against the dollar. Premier Wen Jiabao aims to spark domestic demand and reduce the role of exports in the economy through wage increases, rather than the exchange-rate gains sought by the Obama administration.

The plot thickens. China’s unsustainable government credit/inflation induced distortions of market forces cannot be stretched much further it seems.

Faber may have been spot on with his predictions about China crashing within 9-12 months.

This is the development I also expected in terms of what could potentially precede a Yuan crash, which it contrary to what virtually the whole world is expecting right now.

As I said in 2009 already (albeit prematurely, granted)

The truth is: There is no decoupling. The Chinese economic miracle is a mirage, a very popular one to be sure. If it is China the world is banking on to lead a recovery, then the world is royally screwed.

It’s been papered over so far. It can’t be papered over forever.

Everyone is in love with the Chinese story. Everyone has huge expectations of China. Nobody considers the possibility that their politicians might be making the same mistakes ours’ are making.

Such an imbalance between expectations and reality usually ends badly.

May those who don’t know any better make it through the impending hangover …


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4 thoughts on “Chinese Production Engine Begins to Stutter; Surprise Trade Deficit Reported”

  1. “Premier Wen Jiabao aims to spark domestic demand and reduce the role of exports in the economy through wage increases, rather than the exchange-rate gains sought by the Obama administration.”

    “Nobody considers the possibility that their politicians might be making the same mistakes ours’ are making.”

    My thought: sparking domestic demand through wage increases, and reducing the role of exports, is not a mistake. Emphasizing exchange-rate gains and increased foreign trade is a mistake.

  2. “sparking domestic demand through wage increases … is not a mistake”

    … as we can perfectly see play out in the US with its minimum wage laws and collective extortion rights. No unemployment, no massive unfunded liabilities, no problems at all! Let’s crank up the coercive wage pump and live in a paradise of chocolate rivers and money trees!! =)

  3. Oh… I meant wage increases is probably not a mistake FOR CHINA. Sorry if I was not clear about that. For the U.S. the necessary policy is by hook or by crook to reduce private-sector debt, so that the private sector can grow again. But that doesn’t seem to be on the agenda.

    Art.

  4. I know you meant FOR CHINA, and my response remains the same … =)

    Just out of curiosity: I know you keep stressing the issue of private debt, so my following question is one you have probably already dealt with at length already, but please indulge me if you could:

    Are you saying that US private liabilities of $41 trillion is the huge problem to be tackled while the total US public liabilities of $126+ trillion are a lower priority on your list?

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