Trouble In China As GDP Slows

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The central government put on a brave face and hinted that GDP in China’s first quarter might be a bottom, but a look at the role that exports played in the number suggests otherwise.

The gross domestic product in the world’s most populous country rose 6.1% after a 6.8% expansion in the fourth quarter of 2008.

Comments by JP Morgan got to the heart of the issue of why the latest figure is not a bottom. According to MarketWatch the firm said in a note, “The government’s rapid easing of credit and rollout of infrastructure projects has bolstered FAI, helping offset decreased investment by export manufacturers and property developers.” The US faces the same problem with its stimulus package. If it does not catch hold quickly unemployment, falling housing prices, and lack of access to credit will overwhelm the money being pushed into the economy by the Administration.

What the Chinese government has not been able to solve because it does not have to power to is the rapid and intractable drop in exports. It shows how dependent the country is on its trade partners. With the recession in the major consuming nations deepening and signs that it may not reverse itself, China faces three more quarters of economic difficulty. Basically, the central government cannot spend its way out of its export problem.

On the off chance that China’s GDP growth will pick up as the year goes on, it is because consumer consumption within the country has not fallen apart. But, one of the issues that the government mentioned as a hurdle to growth was labor unrest and unemployment. Growing joblessness is almost certain to undercut the ability of the middle class to pull China out of its slowdown.

China cannot escape the vortex of the Japanese and Western economies going through their worst contraction is years. The big Asian economy is not that isolated.

Douglas A. McIntyre