Astronuc said:
China is bucking that trend.
China is still in many ways a developing country, which is one reason it has a trade surplus, and it's also one that cheats. Remember, China artificially keeps its currency devalued. No matter how weak the U.S. dollar gets, the Chinese currency remains weaker, which gives China a constant artificial trade advantage over the United States, as a weak currency helps the country's exports. We have seen this with America in how a weak U.S. dollar helps American exports and American manufacturers by making our goods cheaper to export to other countries. If China was to let their currency float freely and it grew stronger than the U.S. dollar, it would be cheaper to export goods to China than to import Chinese goods.
As China evolves into a wealthy nation, with a higher GDP per capita, and is hopefully forced to stop manipulating their currency, they will likely begin to see their trade surplus shrink and possibly a trade deficit occur. I also do not believe China is prospering right now in the way many think. There is this perception that the Chinese "model" of economy has proven resilient to the global recession, but I think think that's a bunch of nonsense. Their economy has shown itself to be very tied to the global economy. When demand for Chinese goods declined dramatically because of the global recession, China enacted a massive stimulus to counter it. Basically, much of the economy's demand right now is being driven by the government. I think this is because the Chinese government is terrified of what will happen when the economy really tanks, because of the massive civil unrest that likely will break out (the Chinese government already has been censoring about the uprisings in the Middle East for example). There are zero social safety nets in China. So when mass unemployment begins to occur, all hell is likely going to break lose.
Unlike America, China can make a stimulus work, at least for the short-term, for a few reasons:
1) No environmental laws or protection of private property. If the government says they're confiscating your farm to build a road through there, tough potatoes. If environmentalists complain about some habitat or ecosystem being destroyed, tough potatoes. So it's a lot easier to engage in infrastructure building very quickly.
2) No needing to run a deficit and take on debt at the moment to spend on stimulus---this undoes two reasons as to why stimulus in America may not work, which are that stimulus takes money out of the economy in one form to inject it in another form (by taking on debt), and also, no one panics over seeing a massive debt or deficit run, because there is none, as the government is using reserves. The government can also lie about the statistics if it wants to. China is likely burning through its huge cash reserves though.
3) Around 2/3 of the economy is still nationalized. The banks are nationalized. So the banks are ordered to give huge amounts of loans, and the construction companies and other nationalized enterprises are ordered to take the loans and build, build, build. Imagine if the U.S. government nationalized the banks and the construction industry, and then decided to engage in $2 trillion worth of building skyscrapers. It might well create the illusion of economic growth while it was being done, but then you are stuck with $2 trillion worth of useless infrastructure. This is likely going to happen to China, which is building whole cities that are empty right now.
China likely has a property bubble going on that is more massive than the one the U.S. had. Their stock market and their real-estate market can't just keep going up forever. But of course, just like with the Dot Com bubble, just like with the housing bubble, just like with pretty much every major bubble in history, and now with China, we hear, "This time is different." All new nations on the scene economically tend to look invincible and think they are invincible until the dynamics of the market slap them in the face. Happened with America with our housing bubble (where many economists thought we had reach a new era, in which major recessions were a thing of the past), to Dubai, to Ireland, to Japan at the end of the 1980s, to South Korea, to various other nations, and it will happen to China at some point.
China right now lacks the domestic demand to drive its economic growth. It's growth has been from exports (which have declined because of dried up global demand), and infrastructure building (much being driven by the government to make up for the drop-off in exports). Building infrastructure can give the illusion of GDP "growth" that isn't real. I also think China's stimulus to a good amount is driving the German economy, as they are exporting a lot to China at the moment. But the Chinese government can only do this for so long. If their economy truly was strong, it should have been able to just contract along with the rest of the global economy IMO, as economies are cyclical.
I also think the whole notion that the Chinese government focuses on the long-term economically, whereas in America, with our chaotic democracy, we only focus on the short-term, is nonsense. The Chinese are very focused on the short-term, as local and provincial governments have economic growth targets to meet, which they do usually through infrastructure building, which has resulted in them building up nearly $2 trillion in liabilities that the Chinese government may now have to assume. The Chinese stimulus also displays a major focus on the short-term.
