China seems to be gaining despite collapse of global trade

The latest statistics for global trade are very alarming. Chinese exports fell 26 per cent in February. Exports from Japan by 46 per cent. UK exports fell 16 per cent in January. And Dubai Chamber predicts a 25 per cent drop in UAE imports for 2009 with hydrocarbon export revenues down 52 per cent.

Hence the IMF is now speaking of the Greater Recession for 2009 with negative growth across the world. The global economy has fallen off a cliff.

All countries are scrambling with emergency government economic programs and it remains to be seen how effective these ad hoc and often chaotic measures prove. It is like the accident team arriving at a car crash. Stabilize the patient and get them into hospital as soon as possible.

Domestic demand

China looks to be coping best at first glance both in terms of boosting domestic demand to replace lost exports and starting new investment in infrastructure. Urban fixed asset investment was up 26 per cent in the first two months of the year to an impressive $150 billion.

Chinese car sales were up 25 per cent in February at 827,000 vehicles, beating US auto sales for a second month as the world’s largest market for new cars. In Russia, Europe’s largest car market sales fell by 38 per cent in February.

Nomura economists say Chinese infrastructure investments account for 40 per cent of Chinese economic growth against just seven per cent for exports.

Effectively China is using a part of its $2 trillion in currency reserves to fund a massive keynesian contra-cyclical spending program. It seems to be working. Local power consumption is up, and the Shanghai stock market has gained 17 per cent this year.

Chinese economy too small

However, even when adjusted for purchasing parity the Chinese economy is far too small to make up for the economic slump in the USA, Europe and Japan. Its efforts are also internally focused and do little to help the rest of the world.

On the other hand, if China manages to stay in a growth pattern while the rest of the world is sinking then its relative position in global politics and economics is still increasing. China will also be in a good position to snap up global assets at cheap prices and is already doing so.

The drift in global wealth towards China and away from the developed world therefore continues, and out of the current collapse in global trade China will be more and more a focus for global business, if there is really anything that they can not produce more cheaply themselves.