Chinese CPI falls for the first time in six years

Confronted with a gargantuan crisis in exports — a 25.7 per cent year-on-year plunge — the temptation might be to lump China in with the rest of the world and declare yet another dark victory for the global slump.

That may be missing the whole point about what sort of an economy China has become.

On the surface, there are good reasons for concern. Chinese exports are descending at that record pace for much the same reasons as all the other East Asian economies: the US and European markets are no longer vacuuming up the products that the Asian manufacturing whirlpool was specifically born to regurgitate.

And there is also cause to focus on China’s specific spasms of pain. The legitimacy of the Government rests heavily on the promise of economic advance and the highly visible streams of migrants — 20 million by most estimates — heading back to their parents’ homes in the sticks is the stuff of legitimate headaches for Beijing. The suggestion that as many as 70 million jobs are dependent on those plunging exports seems equally ample cause for alarm.

So exports were terrible, but not all of Wednesday’s numbers landed so squarely on the panic button because China’s most dependably overlooked feature is that it is not really an export-led economy at all. Over the past decade, net exports have accounted for about 7 per cent of Chinese GDP. Domestic investment — infrastructure building that has still barely scratched the surface of what needs to be done — accounts for 40 per cent of Chinese GDP. Even when the West was at its peak of credit-fuelled consumption, Chinese exports accounted for only about a fifth of its GDP growth. The blazing double-digit growth rates of which Beijing was so proud were 40 per cent derived from domestic investment.

Andy Rothman, chief China economist of CLSA, believes that the country’s GDP composition may indeed return to the days when exports made no contribution whatsoever to GDP growth, and the entire show was driven by domestic investment and consumption. That time, by the way, was only eight years ago.

And that is why Wednesday’s fixed-asset investment (FAI) numbers were very much more relevant to the broader question of China’s economic fate. Urban FAI was up 27 per cent year on year between January and February far better than the pre-Olympic 24 per cent surge recorded in the same period last year. Investment in metals and cement soared while rail FAI was up 210 per cent — evidence that when Beijing orders a stimulus, things move remarkably quickly.

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