A week ago I was commenting on the Guardian about how China’s exports AND its imports had declined massively in February – 25.7% and 24% respectively. I thought this might indicate China was focusing on building an internal market to rebalance it over-reliance on exports. Now news comes that China may be about to post its first trade DEFICIT since April of ’04.
Now that is BIG news.
If China does start to export a lot less, let alone if it starts to run actual trade deficits, then one thing quickly happens. China will no longer have pots of foreign currency needing to be recycled back to issuer. This means China will no longer need to buy US and European debt. China has already been a net seller of US Treasuries.
For some time I have been asking who, if not China, has been buying all our debt? I have suggested that all the desperately in- debt nations have long since been secretly buying each others debt in a dishonest and doomed attempt to make it look like we can all sell as much debt as we need – no problem! Well, if China runs trade deficits then we simply do not have a buyer for our debt. SImple as that. I think the charade will become more difficult to maintain.
If China is in fact, focusing on building itself a stable domestic economy, instead of relying on exporting into a self-evidently unstable global economy of mainly insolvent importers – then there is NO ‘China’s-imports-are going-to-save-us-all-and- pull-the-global-economy-out-of-recession’.
China has over a Trillion on foreign reserves it can now use to buy all the commodities it wants. That seems to me to be enough cash to create a domestic economy. Whether they can hold off their own property and bank crash is another question. But even if they can’t it won’t alter our predicament.
We need to stop listening to those who repeat ‘China will save us’. China is NOT here to save us from the catastrophe our financial class and their political servants have created for us.
"…many economists don’t expect any trade deficit to last long, and China is still likely to post a large trade surplus this year. The World Bank forecasts that China’s current-account surplus, the broadest measure of its trade position, will rise this year to $304 billion, after dropping to $284.1 billion in 2009 from a record $426.1 billion in 2008." Wall Street Journal, 24/03/2010.
oldgustaf,
Could be. I don't seriously expect CHina to go from over all export surplus to deficit in one quarter and stay there.
But it doesn't have to be an absolute deficit for this to make a big difference. It's all about IF China stops relying so much on exports and starts to re-shape its economy to focus more domestically.
We rely on them buying debt. That only has to slow to be important. Narrower trade surpluses, never mind actual deficits, at a time of ballooning debt sales would be trouble.
The only other thing to keep in mind is that Current Account surplus isn't the same thing as trade with us. It is a measure of all trade with all foreign partners. I think trade with Asia and oil nations will indeed go up. I don't think we should assume trade with the US, Europe and GB will all be on the up.
I might well be completely wrong. Please don't forget I'm not an insider nor an expert. All I'm doing is thinking out loud. I'll be as interested as you to see what really does happen.