Monday, August 18, 2008
Outside of the hedge fund community, where the votes seem to have already been cast over the last five weeks leading to broad-based declines in commodity prices, the China "decoupling" debate continues in some circles, the latest bit of data coming from this story in the current issue of The Economist with the telling graphic below.
That's not what was supposed to happen was it?
Absent growing demand from the West, particularly from the most important customer on the planet half way around the world, the great Chinese juggernaut was supposed to shrivel up and die.
Not yet, apparently.
For the first time in years, China’s exports are growing more slowly than America’s. In the 12 months to June (the latest month available for both countries), America’s exports grew by 23%, well ahead of China’s 17% (in dollar terms). Export volumes show a similar trend. China’s rose by 11% in the year to the second quarter, while America’s climbed by 12% (see left-hand chart). Stephen Green, an economist at Standard Chartered, expects China’s real export growth to fall to zero by the end of this year and to turn negative next year.Wow. Consumption was two-thirds of GDP growth in the first half of the year.
Meanwhile, in China consumer spending is now growing faster than exports (see right-hand chart). Retail sales jumped by 23% in nominal terms in the year to July, and 16% in real terms. Dragonomics, a Beijing-based research firm, estimates that consumption contributed two-thirds of China’s GDP growth in the first half of 2008, up from 44% in 2007.
Since, as a percent of overall economic activity, consumption is still a small component (as compared to most western countries), if they keep that up, they'll slowly wean themselves from their reliance on exports and develop a robust economy with a solid underpinning of domestic consumption.
Where will that leave us?
If things turn around in the West, sometime in the years ahead, will we still be able to buy cheap imported goods from them?