SeekerBlog

Brad Setser argues that China’s economy has not yet turned.dd

The Wall Street Journal puts a positive gloss on China’s March trade data than I would. To me the overarching story is simple: the data paint a story of deep distress in both the Chinese and global economy.

<snip most of the excellent analysis>

I found the most compelling data to be the following on the China’s import growth. Yes, China could have turned the corner in March – that would be concealed by the 3 month averaging.

Here is one way of checking: compare the y/y rate of growth in US and Chinese imports. If China was doing better than the US, one would expect its imports to hold up better than US imports, setting aside differences in the composition of the two countries imports.*

Call me crazy, but judging from the trade data alone, I would say China experienced a recession in q4 2008 and q1 2009.

* There are three reasons why Chinese and US exports could be correlated:

– some Chinese imports are an echo of US demand, as China imports components for reexport to the US. This though was more important in 2000 than it is now, as the share of China’s exports going to the US has fallen.
– The US and China both import commodities like oil, and thus both show the effect of changes in the price of oil. This is becoming more important over time, as China’s oil imports are growing.
– The US and Chinese economic cycle is correlated.

It wasn’t an accident for example that Chinese imports grew faster than US imports in 2002 and 2003. China recovered much more strongly from the 2001 downturn than the US. Indeed, China’s policy makers slammed on the brakes in 2004 (leading import growth to slow) because of concerns that the economy was overheating. That was when China first started to show a large trade surplus.

[From Big changes, but not much adjustment: China’s March trade data]