$878 billion in exports and an unsustainable rate

China’s exports are up another 27% so far this year, to $878 billion for the year to date, and an annualized total of $1.171 trillion for all of 2007. IHT:

China said that it had exported $878 billion worth of goods through the first nine months of this year, up 27 percent from its record shipments a year ago. Analysts say global worries about contaminated pet food, tainted seafood and toxic toys and toothpaste are hardly enough to slow down the powerful Chinese export engine, which has quickly come to dominate everything from electronics to textiles. “You know, 40 million toys may be bad for dozens of toy makers in Dongguan,” said Dong Tao, an economist at Credit Suisse, referring to a city in southern China. “But that’s small potatoes for China’s over $1 trillion a year of exports.” The Chinese trade surplus with the rest of the world ballooned to $187 billion through September of this year, up from $177.5 billion for all of 2006…

In 1969 the US government filed suit against IBM for monopolizing the computer industry. It was thought that the marketing practices of IBM with its powerful System/360 would permit the company to put all its competitors out of business while growing to vast, unimaginable proportions. IBM’s revenues were $7 billion at the time. The fear of the awesome power of Big Blue is hard to believe, but it’s true. For 13 years, the antitrust case was big business news, and occupied half the staff of a major New York law firm. Now almost no one remembers it. The point is: there are limits to this kind of growth, and some extrapolations are foolish.

If China’s exports continued to expand at the same rate for a decade, they would nearly equal the size of the entire US economy, around $13 trillion. Such a growth rate is impossible, and indeed we think we are far nearer to the end of this dramatic run than to the beginning. Political pressure, the need to get the current account deficit under control, problems of the exporters themselves, and other factors are quite likely to usher in a new environment within a few years, not only for US-China policy, but that of the EU as well.

It would be nice if the changes on the horizon could be implemented in a sober and serious fashion, but as IBM antitrust lawsuit demonstrates, governments have a knack for folly and grandiosity. We’ll expect more of the same, and be pleasantly surprised if the future turns out better.

One Response to “$878 billion in exports and an unsustainable rate”

  1. Iqbal Latif Says:

    According to Dinocrat ‘If China’s exports continued to expand at the same rate for a decade, they would nearly equal the size of the entire US economy, around $13 trillion.’

    We are facing ‘Malthusian constraints’ not as a result of geometric progression of population but as a result of too many demanding a middle class consumption from lowest level of poverty..

    Non inflationary growth in the global economy is the key solution to impending problems of debt/liquidity when they arise. Leaderships in the growing countries should realise that: If the economy grows at least a fast as the debt grows, and inflation is low tax receipts shall grow in tandem with the growth of the debt.

    If consumption continues to grow and global GDP sees multiplication of new consumers in commodity rich countries like India, Russia, Brazil and China being added every day we will see global ability to servicetheir interest costs improve. Latin American debt crisis, Russian meltdown and Asian contagion all look far too distant but they were a threat to the global economy as recent as in the decades of 90’s, the only difference was the world economic balance had only one oasis of stability. The root of these crises also had one common denominator and that was poor commodity prices.

    Earlier these countries were impoverished countries with their commodities dependent economies facing doom as world net consumer’s post 2nd World war stagnated until around 1990 at 700 million. It is technological integration, falling of the Iron curtain and dumping of socialists’ nehruvian model that has seen new 2 billion prospective consumers on the global economic landscape since turn of the century.

    We are not witnessing a challenge from absolute poverty but a challenge from rising expectations of new prosperous masses; we are facing ‘Malthusian constraints’ not as a result of geometric progression of population but as a result of too many demanding a middle class consumption rising from the lowest levels of poverty. This change of fortune is unprecedented in the human record of evolution like the ability momentous change of China to export.

    China said that it had exported $878 billion worth of goods through the first nine months of this year, up 27 percent from its record shipments a year ago. According to Dinocrat ‘If China’s exports continued to expand at the same rate for a decade, they would nearly equal the size of the entire US economy, around $13 trillion.’ Perhaps such a growth rate is impossible, but these exports should be interpreted in context of serious transfer of wealth from consumers of the west to the poor workers of the East.

    Chinese exports are not a zero sum game, they import commodities from countries that were at the lowest rung f prosperity, they turn these commodities into efficient products some may condemn them as toxic but insatiable demand of global consumerism is fulfilled by Chinese mass production. Imagine these demands being fulfilled costly labour from the west.

    The west had taken lead in the service industry and intellectual capitalisation whereas mass productions for needs of the entire planet have moved to places where it can be efficiently produced. Charles Dickens would definitely today find heart rending stories of child labour and exploitation but breaking from the shackles of extreme poverty nations need to find new markets. We are lucky that the ‘inequalities’ that took middle ages England hundreds of years to address are now being self corrected. Without markets and consumers there is no prosperity possible, for China to have its indigenous consumer base it definitely needed export markets. The inequalities that 80’s posed were only possible to be addressed with the emergence of a new multiple system of consumers, the island of stability on which world economic balance hangs is now multi distributed.

    Low labour cost prevalent in these new BRICs countries helps ‘export’ of price stability to western established economies. This in turn neutralises the high cost of commodities that developed world is facing, however the developed world is far more productive and its ability to consume commodity at a very efficient pace is helping revive the global growth at a far higher pace. This is the first time in annals of human history that global pockets of poverty are receiving partial relief through a beneficial economic system. The 2 billion new consumers in the Brics countries are productive members of the society and they are not living on subprime credit rather in most of these countries credit is rather too limited, credit is still tied in cement in mortar, most of Indian homes are all cash homes the system of mortgage is not well entrenched, once that is released new momentum will be witnessed in the global growth. On global level productivity and stable GDP growth will keep interest rates on a stable level, the era of bust and boom is probably gone, we are at the cusp of new prosperity. It is for this global nature of consumption that MCD had to revise its earnings momentum upwards.

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