China’s Economy Unexpectedly Stumbles Again
By KEITH BRADSHER
Published: May 8, 2013
HONG KONG — Brightly hued men’s underwear in a rainbow of colors is no longer selling well in Europe for the Zhongtian Garments Company in Xiamen, China. Exports are down 30 percent in the last year.
Children’s guitars with bodies resembling cats and cartoon characters are no longer selling well for Yuesen Musical Instrument Factory in Huainan, China. And at the Yuzhongniao Outdoor Products Company in Jinjiang, domestic sales and exports alike are declining this year. The Canton Fair, China’s biggest export event, ended on Sunday with depressingly few new orders. “We are not even getting many people browsing this time,” said Alice Hong, Yuzhongniao’s sales manager.
After a powerful recovery through the autumn and winter from a V-shaped downturn last summer, China’s economy is unexpectedly faltering once again. Exports are weak. The country’s domestic economy is still growing mostly because of huge increases in lending by state-controlled banks and a surge in off-balance sheet lending. Consumer spending is rising, but not fast enough to offset weakness in other sectors.
That combination has prompted growing concerns among economists and business executives about the sustainability of even 7.5 percent growth in China in the coming years, the government’s current goal after three decades of double-digit growth with only a few interruptions.
The latest sign of trouble came on Wednesday, when China’s General Administration of Customs announced export and import figures for April. On the surface, they looked fairly respectable: exports were up 14.7 percent from a year earlier, and imports were up 16.8 percent.
But April 2012 was an exceptionally bad month for Chinese exports and imports — indeed, dismal trade statistics for that month were the first sign that economic weakness during the preceding winter was turning into a precipitous decline.
This April’s trade figures appeared even weaker when economists looked closer and found that the export growth had been largely propelled by growth in exports to Hong Kong, up 57 percent, and to special customs zones in China for export later, up even faster.
Since Hong Kong’s own data has not been showing large increases in imports from China so far this year, the Chinese government has already opened an investigation into whether exporters are overinvoicing for shipments; overstating exports can allow companies to evade currency controls and move money into China to profit from the gradual appreciation of the renminbi against the dollar.
Louis Kuijs, an economist in the Hong Kong office of the Royal Bank of Scotland, estimated that with the exclusion of overinvoicing, export growth came to only 5.7 percent.
Over the last few years, economists have tended to pay less attention to China’s exports because they were declining as a share of China’s total economic output, because of weak overseas demand. But newer research suggests that China’s may still be quite dependent on exports.
The reason is that multinationals have been rapidly localizing their purchases of everything from computer chips to auto parts in China instead of importing them from other Asian neighbors. So while total exports may not have been rising quickly in recent years in China, the Chinese content in each dollar of exports has been increasing.
Mr. Kuijs estimated that 20.7 percent of China’s economic output came from exports last year, a figure that had bottomed out in 2009 at 19.7 percent.
In a bad sign for exports in the months ahead, the Canton Fair announced early this week that export orders placed at this year’s spring session had fallen 1.4 percent from a year ago. It was the latest sign that steeply rising blue-collar wages in China and a gradually appreciating currency are starting to erode the country’s international competitiveness; foreign investment in China has also begun to level off, while surging in lower-wage countries in the region, like Cambodia and Vietnam.
What has kept the economy running is the huge volumes of cash being pumped into it. Total social financing — a measure of all nongovernment borrowing from banks, bond markets, trusts and other sources — surged 58 percent in the first quarter of this year from the same period last year. Off-balance-sheet financing from the so-called shadow banking sector has been particularly active.
Local and regional governments have also been borrowing heavily, as have special financing units that many of them have set up. The central government is now trying to rein in this borrowing, said Terry Gao, an associate director of international public finance at Fitch. It downgraded China’s local currency debt on April 9 by a notch.
Borrowing — by a range of local, regional and national government agencies as well as many state-owned enterprises and some private businesses — is increasingly a concern. While total government and private sector credit in China as a share of economic output is still lower than the United States or Japan, it is rising steeply. It has already climbed to roughly 200 percent now from 120 percent in 2007.
The efficiency of heavy lending across the entire Chinese economy has plummeted, raising worries about the sustainability of Chinese credit-fueled growth. Through 2007, each dollar of additional credit set off an extra dollar of economic output. But now $3 to $4 of extra credit is extended before the same increase in output takes place, an indication that less economically viable roads, rail lines, business expansions and other investments are being financed.
China’s current economic model, with its swift buildup of debt to stave off a steeper decline in economic growth rates, “can probably go on for a while, certainly through this year and into 2014, but the potential financial stress in this is clearly going to rise,” said George Magnus, a senior economic adviser to UBS.
To be sure, China is borrowing almost entirely in its own currency. It also has virtually no foreign debt and a high savings rate.
China’s growing ranks of skeptics are unconvinced by these arguments.
“You could have this same conversation about Japan in 1989,” Mr. Magnus said. “The fact Japan was a creditor country with a lot of savings did not stop a major bust from taking place.”
Hilda Wang contributed reporting.
C'est bien cette doctrine, défendue par cette dame, qui est responsable de la situation catastrophique de l'économie mondiale "présentement". Elle qui a cassé de l'ouvrier et du travailleur pour passer d'une économie productrice de richesses (celles des industries, de l'innovation, de la justice sociale) à l'économie des finances, de la bourse et de la spéculation (en somme celles de la destruction des outils de production, de la rentabilisation à outrance et déshumanisée, de l'exploitation de la main d’œuvre et par extension de l'homme par l'homme en Asie notamment).... non merci 
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