The Recession Squad Comes For China

At the recent annual gathering of China’s political elite, one official followed another in a nearly endless line, stepping up to the podium to insist that China’s GDP would grow at an 8% or better rate this year. They argued that the communist central government’s new $585 billion stimulus package was all the nation needed to stay on its expansion course. If necessary, the officials said, they could dig even deeper into their treasury vaults.

The best-made plans of the people who run the world’s most populous country may not work out. Exports from China fell 26% to $65 billion in February. Analysts polled by Dow Jones Newswires made a guess that the figure would be less than 7%.

China’s economy is at the early stage of collapsing on itself because it cannot get its products onships which used to sail for the United States and Europe. Its GDP relies heavily on exports. But, growth in China also depends on its middle class buying goods which are made inside its borders. That middle class is being pushed out of work at an accelerating pace as factories that do not have orders shut down. China’s growth is being undermined from abroad and from within. Pressed from two sides, there are no other ways for the country’s economy to keep pace with the rate of growth it has enjoyed for the past decade.

China’s chance to make up for some of its lost ground in exports is to throw enough money into the economy so that infrastructure building and lending are pushed up. It is an artificial way to drive expansion, and it may work, to some extent. But, it is not likely to offset exports which are contracting by a quarter of where they were last year. And, unemployment and plunging business spending numbers in America and the EU are likely to make that export figure worse over the balance of the year.

Douglas A. McIntyre