This chart from Calculated Risk shows the surplus and deficit as a per centage of GDP since 1960.
Howard Rich mentioned in his post that the deficit was a function of “the leak in demand of the American economy.”
Juan reminds us that China is not a passive player to our ‘demand’ pull’.
Juan points out that (lifted from comments):
Here’s a bit of context from the Chinese side:
“(Caijing.com.cn) Chinese bank lending increased to more than 5 trillion yuan between January and April, nearly three times the credit level reported during the same period last year. …
… A National Statistics Bureau survey of 22 regions found industrial profits totaled only 323 billion yuan during the first quarter, down 32 percent from a year earlier. That means annual profits for all industries will amount to only about 1.6 trillion yuan this year.
Outstanding loans currently stand at 35 trillion yuan. Assuming companies have kept a moderate debt ratio averaging less than 50 percent, their capital investments now exceed 35 trillion yuan. And profits of 1.6 trillion yuan versus 35 trillion in capital investment means an annual return rate of only 4.57 percent, below the weighted loan interest rate of 4.76 percent we saw in March. In this sense, companies seem to be in a rather weak position to finance debt with earnings. …”
Such a profit collapse and not too effective policies would, I think, increase pressure to export, i.e. it is not simply a demand-pull situation, not simply demand ‘leakage’ from the U.S.
Adding to the ‘push’ side:
Quote: “China has increased tax rebates for exporters for the seventh time since August 2008, as part of the effort to support exporters hit by the collapse in overseas demand. Food companies, electronic and digital media product makers, as well as the ceramics and plastics industries will benefit from the policy, according to the statement. The new rebates are effective from June 1. The Ministry of Finance boosted the tax rebate for exporters in labor-intensive industries in a move designed to minimize job losses, the ministry said in a statement posted on its website on June 8. Export volumes dropped nearly 20 percent year-on-year in the first quarter.”
The Chinese political economy is not at all so robust as many still believe — economist Lu Lei, author of the first article, even mentions the possibility of ‘negative growth’.