Friday, October 24, 2008
China slowed to 9% annual growth in the third quarter of 2008, but I expect China to be more resilient to the global slowdown than is commonly reported. Some are predicting a hard landing – 7.5% annual growth – but I expect China to survive just fine because U.S. import demand is set to remain strong.
The Yuan is appreciating against a broader basket of currencies, but remains depreciated against the U.S. dollar ($US).
As the world flocks to the safety of the popular $US, it is appreciating relative it’s other trading partners. This is going to serve as a backstop in the near term for exports to its most precious export market…the United States of America. Chinese exports to the U.S. will fall slightly with reduced U.S. income, but the reduction in growth will be mitigated by the surging $US.
U.S. import demand for Chinese goods is resilient during a recession.
In spite of an 8-month recession in 2001 and a deteriorating labor market through 2003, U.S. demand for Chinese imports remained strong. Further, and in spite of record import prices 2008, annual U.S. imports of Chinese goods surged since April 2008 to a huge 8.1% annual growth ending in August 2008.
Exports will certainly slow, as key countries – Japan, U.K., Eurozone – experience reduced growth. However, China’s export revenues coming from its golden market – the U.S.A. – are likely to remain strong. Along with new expansionary policies already being put in place.