Realistic expectations for China flows

Recently there have been signs of economic recovery in China. For example, here and here and here. It is a huge economy that has demonstrated considerable resilience despite several very hard knocks (some self-administered). It would be a mistake to under-value current conditions or future potential. But I don’t yet see evidence for much sustained, significant improvement in domestic demand, European demand, or US demand (for China’s output). Ergo, why should we expect major growth in outbound flows? I also see plenty of cause for continued — even systemic — sluggishness. This morning I heard Leland Miller give a great summary of a reality that fits what I seem to perceive — and unlike me he has the chops to offer more than wild guesses. The interview begins at about the 40:15 mark. [Please see update below video.]


October 31 Update: The Financial Times reports, “China’s manufacturing activity unexpectedly contracted in October, damping hopes of increasing momentum in the world’s second-largest economy. The country’s official manufacturing purchasing managers’ index came in at 49.5 this month, missing forecasts and trailing a reading of 50.2 in September. A reading below 50 marks contraction against the previous month.” Reuters offers this explanation: “The weak PMI data may reflect some of the weakness in demand related to the housing slump and a slowdown in infrastructure spending,” said Xu Tianchen, senior economist at the Economist Intelligence Unit. “Although there are signs of exports bottoming out, a strong recovery in external demand is probably elusive,” he added. Both new export and imports orders shrank for an eight consecutive month, suggesting that manufacturers were struggling for buyers overseas and ordering fewer components used in finished goods for re-export.”

November 7 Update: The Wall Street Journal reports, “Chinese exports fell 6.4% in October compared with a year earlier, to $275 billion, China’s General Administration of Customs said Tuesday (November 6), a steeper decline than the 6.2% fall recorded in September… Diminishing exports show global demand for Chinese goods is subdued as consumers and businesses contend with slowing growth and higher borrowing costs. Other Asian export powerhouses, such as South Korea and Taiwan, have also reported months of feeble overseas sales.”