China’s Economic Stimulus Package Can’t Be Real

The term "China economic stimulus package" has to be an oxymoron.

NBC recently made the point that China’s economy can no longer be driven hard by exports. They have become too expensive as labor costs and commodities have risen. Some industries are actually cutting jobs.

Now there is mention of the idea that China may unwrap a program of as much as $58 billion to help capital markets and real estate. According to Bloomberg, "Since July, Chinese policy makers have put extra emphasis on sustaining growth rather than cooling inflation in the world’s fourth-biggest economy as the outlook for exports dims."

The Chinese GDP has been growing at a rate of over 10% for the better part of a decade. The economy in the world’s most populated country is not geared to handle any significant slowdown. The premise on which money supply and the subsidized costs of key products like gasoline and diesel is based assumes a type of "hyper-growth" which is not a part of any other large nation’s financial dynamics.

China’s improving economy had its foundation in exports, but its new middle class are powerful consumers in their own right. They help drive production in China and imports which keep the nation’s balance of trade with the West in a "reasonable" range. The scales are delicate, but so far the financial peace between China, the US, and EU has held.

If China’s growth rate is hitting a major deceleration point and prices continue to rise, inflation will move quickly from Asia to the West. Sourcing goods which are inexpensive without China is impossible. A damaged Chinese economic machine curtails exports from America. A breakdown in the system immediately hits the US GDP.

China was always too good to be true. That has been a minority opinion just as it was when a few economists in the 1970s saw trouble coming in Japan..

It took two decades for Japan to get all the way back on its feet. It might be argued that the process is not over.  If China were plunged into an economic dark age it would pull the rest of the world in the same direction.

Douglas A. McIntyre