A Wall Street Journal headline today adds to a chorus of claims that China’s stimulus efforts are benefiting American business and the world economy. As with previous claims, however, there’s little substance.
The WSJ article cites Caterpillar reporting China sales of excavators have returned to pre-crisis highs, concurrent with intensifying Chinese government spending on rail and roads. So far, so good. Goodyear, though, merely sees promising signs for tire sales. Yum Brands — known for KFC and Pizza Hut restaurants among others — is continuing its rapid expansion in the PRC but, of course, this has nothing to do with infrastructure stimulus. And that’s all for the gains for U.S. business.
A last cited “benefit” is all too suggestive: it is hoped that increased domestic demand for steel will make it unnecessary for Chinese mills to essentially dump their colossal amount of excess steel on foreign markets. Being thankful China isn’t making things worse seems to be setting the bar a little low.
As it turns out, not low enough. Back in November when the stimulus package was announced, there were a few skeptics. Girding this skepticism was that additional infrastructure investment is just more of what the PRC has been doing for a decade. What the world economy needed was an increase in genuine Chinese consumption, as manifested in a decline in the trade surplus.
Not happening. China’s trade surplus in the first quarter of 2009 was half again as large as it was in the first quarter of 2008, a year when the surplus was close to $300 billion. This means the PRC is draining wealth from the world at an even faster rate, now in an environment of weak global demand.
The Chinese economy has benefited and continues to benefit the world economy in many important ways, including but certainly not limited to CAT’s excavators. But the stimulus package and the broader trend since the financial crisis began have, on balance, been harmful rather than helpful. Giving China credit for things that are not happening is a major obstacle to truly improving the structure of the Chinese economy and its relationship to the U.S. and the rest of the world.