For such a big country, China moves surprisingly fast. So do the big numbers that preoccupy its economists.
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Figures released this week showed that wholesale prices increased 2% in November relative to the same period last year, compared with an annualized increase of 6.6% the previous month and a peak of 10.1% in August.
Exports fell sharply, and so did imports. Official data showed exports fell 2.2% in November year-on-year. Imports plunged by 17.9% year on year, which caused the trade surplus to widen to a record $40.1 billion (Rs1.9 trillion). The real figures could be even worse than the official ones.
Testing times lie ahead for China’s policymakers.
In a sense, falling exports should be healthy. China’s exporters have gratified foreign consumers with too much stuff, too cheaply, for too long. As the US and European Union, who buy 40% of that output, pull in their spending, prices get slashed on products intended for export. In time, production should turn towards higher-value products for Chinese consumers, at a higher??profit.
That’s all right for the long term. But China has a serious short-term problem. Domestic demand is still weak to replace exports. And it’s widely believed that sustained growth below a certain level—often given as 8%—will lead to social unrest.
That connection hasn’t been put to the test, despite some minor spats in the south and Shanghai. But unemployment is already a threat. The communist party’s main think tank has suggested a real rate of 12%—three times the official figure. Widespread bankruptcies in key industries such as toys, shoes and electronics aggravate the problem by sending disgruntled workers back to the countryside.
There are some levers the state can pull. One is to keep the renminbi (Rmb) low against the dollar, making exports more competitive. But China is already so competitive that the effect is likely to be marginal. Another is to cut interest rates, already hacked four times since September, to stimulate demand. But Chinese borrowers don’t seem terribly sensitive to rates so far.
That leaves fiscal stimulus. The government has announced a Rmb4 trillion package to create investment and demand, but it’s too early to see how—or if—it will work. If it doesn’t, the state will have to find a way to square a vicious circle.