The remarkable resilience of the Chinese economy and the effectiveness of its $585 billion stimulus package were on display as the nation released key economic data for November. Retail sales grew almost 16%. New loans were up 29%. Factory output was up over 19%.
The drop in exports from China was small in November, barely more than 1%. It is curious that the figure is so powerful since the recovery in the West is still in an early and tentative stage. Imports were up almost 27% which makes sense because the Chinese consumer has easy access to credit as a by-product of the stimulus program.
It is still not certain where all the goods produced in Chinese factories will go and that is the most important concern that the industrial output data raises. China still faces the prospect of having stagnant markets to buy its production, particularly in the large developed nations which include most EU countries, the US, UK, and Japan.
China may find that the only way to clear the surplus of industrial output from its ports is to sharply cut prices on the goods it sends to the West. That could be the trigger for a major series of trade dispute as weak economies try to protect their own industries from a flood of products priced so low that consumers and businesses find them almost irresistable. Goods made in Western factories with higher labor costs could be frozen out of the market.
China’s success may come at the expense of trade harmony, at least as it exists in an uneasy form now.
Douglas A. McIntyre
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