The realization that China is in no position to be especially helpful in coping with the financial crisis is finally beginning to sink in with the mainstream media.
The Washington Post, Wall Street Journal, and Financial Times today ran front-page stories that Chinese exports and imports contracted in November. This follows directly from weak manufacturing data, weak electricity production data released last week, and a spike in personal savings deposits in October.
The media emphasis is on a small decline in Chinese exports. Unfortunately, that also seems to be the emphasis in the PRC. It reinforces the belief in Beijing that the yuan must not be allowed to appreciate any further against the dollar and that further measures must be taken to support exporters. This could set up a collision with the US when the new Congress arrives in late January.
The trade weakness does NOT mean that China will stop buying US treasury bonds, financing our deepening deficit spending. China wracked up its fourth straight record monthly trade surplus in November, most of it denominated in dollars. It cannot spend that money at home due to currency controls and has no place to put it except American financial markets.
The real problem is that Chinese imports, already a neglected part of the solution to the global crisis, plunged in November and much further than exports. There will be no Chinese demand to offset weak demand in the US.
In the past few years, there have been boasts or warnings — depending on who’s doing the talking — that China is ready to join or even supplant America as a global economic force. For better or worse, the PRC is just another country caught in our economic slump.
More important, what we are seeing now are only the storm clouds on the horizon. I’ll have more tomorrow on how these Chinese numbers foretell a collision with the US.
