International Law

Is the Recession Over? Check Back at the End of the Year

By Stan

I’ve been critical of all the happy happy news items of late crowing about China’s rebounding economy. Why? Because a lot of this is based on incomplete data, much of it a result of some good March numbers.

It goes without saying that we need to wait a few months to see if these positive economic trends are going to hold up. With some more data points, we can maybe then come to some reasonable conclusions. Until then, it’s all guesswork.

There is a basic issue at play here, though, which is the subject of a lot of speculation these days. In a nutshell — to what extent is China’s economy reliant on exports?

The answer to this question is significant. If the global recession continues for some time, and China’s exports are the linchpin of this economy, then the fall in demand from overseas markets will mean that it will take some time getting back to acceptable growth levels here. (Yes, ‘acceptable’ is a vague term. At the moment, the gov’t seems to think it is 8% growth.)

On the other hand, if China’s economy has sufficiently diversified such that it has “decoupled” from overseas markets and can rely on domestic demand to get it through these tough times, then a rebound in the near term may not be a fantasy.

Good synopsis of this debate by Geoff Dyer at the FT. No real conclusions, but some interesting thoughts from some very well respected economists and analysts, including UBS’s Jonathan Anderson.

One of the interesting parts of the debate is that no one has seems to have enough concrete info to make a definitive conclusion. One camp compare export data to GDP figures — the sector looks significant. The other side argues that this fails to take into account that the value added (in China) to many Chinese exports is quite low, skewing the results.

All I can say is that as interesting as this is, we all need to excercise a bit of patience and not make rash pronouncements about the state of the economy. This is anathema to the stock market(s) and some in the press, of course, but a lot of folks making early conclusions are going to be really embarrassed if we end of experiencing a lot of ups and downs over the short, or even medium, term.

In the meantime, it’s nice to see that some folks in the press are looking at the China cheerleading with some skepticism and/or putting out balanced reports:

The FT:

Just as Goldman Sachs was seen as providing a ray of light for Wall Street, optimists are busy touting China as a spot of cheer in a recessionary world. Sure, the world?s third-biggest economy unveiled a further slowing in economic growth, to 6.1 per cent in the first quarter over the year-ago period. But that marks a stabilisation of sorts, with the deceleration in annual growth rates falling sharply. Better still was a slew of perky March data. Ecstatic analysts spent Thursday pencilling in V-shaped graphs.

The NYT:

China?s economy grew more slowly than usual in the first quarter, and joblessness increased, but fairly strong investment and consumer spending helped prevent falling exports from dragging down economic output even further, the government said Thursday.

on the other hand:

Prime Minister Wen Jiabao said after a cabinet meeting that the condition of the economy was ?better than expected? and attributed it to government stimulus measures[.]

on the (still) other hand:

But the cabinet, with Mr. Wen as chairman, issued a report warning against ?blind optimism? on the economy. The report said the foundations for China?s recovery were not solid, citing weak overseas demand, overcapacity in some industries, job losses and lackluster investment by the private sector.

Shanghai Daily:

China’s economy grew 6.1 percent in the first quarter from a year earlier, expanding at the slowest pace on record as it was reined in by the global downturn.

But analysts interviewed yesterday said the GDP figure and other recently released economic data spark hope that China’s slowdown may be bottoming out, although they were divided on how long it will take before a recovery might kick in.

And some continued to caution that China’s return to double-digit growth can’t come until the global recession runs its course and the country’s exports pick up again.

For a sampling of cheerleading stories, go to your business network/publication of choice or look at some analysis at the blogs that cover securities markets.

© Stan for China Hearsay, 2009. | Permalink | One comment | Add to del.icio.us

Full post as published by China Hearsay on April 17, 2009 (boomark / email).