China’s GDP rose 8.9% amid talk that the increase was caused by the nation’s $585 billion stimulus package and not a significant improvement in its huge manufacturing and export engine. The news means that China’s stimulus has worked better, or at least much faster, than the American $787 billion stimulus package. That would make sense. The China program is a larger piece of the nation’s GDP than the one in the US.
China must worry about whether its growth can continue at the rapid pace as easy money and government support for infrastructure building and consumer spending go away.
The People’s Republic may end up being lucky. More and more analysts in the US believe that GDP growth in the world’s largest economy will rise to 5% in the fourth quarter as business-to-business activity increases as a results of higher profits. Sharp cuts in the prices that retailers offer their customers could also stir consumer activity. The government stimulus package in the US may be accelerated by efforts of huge American companies like Wal-Mart (NYSE:WMT) to bring in more business. If Wal-Mart and its legion of competitors have real success, orders for China’s exports will increase quickly although the demand may be temporary.
Wal-Mart management said that it will cut the prices on some of its high-volume items by as much as 25% to 30%. The company’s $400 billion in sales make its actions impossible for other retailers to miss or avoid. There seems to be a good old-fashioned price war shaping up among bricks-and-mortar and e-commerce retailers. Like the “cash for clunkers” program, it could be enough to bring consumers out of their shells.
The effects of China’s stimulus package could begin to fade next year and that will leave its export economy to deliver real demand-based growth. The desire of American companies to resurrect their customers at almost any cost could be a windfall for exporters on the mainland. That is unless the demand US retailers create is only short lived.
Douglas A. McIntyre
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