China Just Keeps Rolling Along

10/07/2008 10:00 am EST


Jim Trippon

Editor-in-Chief, China Stock Digest

James Trippon, editor-in-chief of China Stock Digest, says the Chinese economy is doing fine even during the global financial crisis.

Despite worries that the slumping economies of the US and Europe would slam the brakes on China's export engine, there's still no sign of that happening. China's trade surplus for August set a new all-time record high of $28.7 billion.

Exports to the US continued to rise and China's trade surplus with America rose more than 16% to $17.5 billion. Trade with the European Union grew even more quickly, increasing by 25% for a monthly surplus of $16 billion. While it's true that some low-margin exporters have been forced to close down due to the rising value of the yuan, the big picture is one of continuing export growth.

Imports are also increasing sharply, up more than 23% for August to more than $106 billion. The Asia Development Bank says China's economic engine has been vital to maintaining the economic health of other export-dependent economies in the region. The Asian Bank predicts that will continue to grow at a 10% rate this year and will top 9% next year.

Meanwhile, foreign direct investment continues to reflect the fact that major multinational corporations are still excited about China's expanding market and its relatively cheap, skilled labor force. Last year, China attracted more than $82 billion of foreign investment. If this year's boom continues, outside investment in China will rise by 44.5%.

How is it that China seems to defy gravity and continue expanding when much of the world is edging into recession?

One answer is coming from China's increasingly enthusiastic consumers. Retail sales in the middle kingdom are growing at a blistering pace.

Retail sales in China are now growing at the fastest pace since 1999 when China's consumers first tasted the effects of the nation's capitalist transition. In August, the take at China's cash registers was up a stunning 23.2% from a year ago. July sales increased by a similar amount.

As anyone who has traveled to China recently will have seen, Chinese people are falling in love with shopping. What are they buying? Jewelry saw a 44% jump in sales this year. Sales of clothing are up almost 30%. Appliances, high-protein foods, and other items that were once considered luxuries are all experiencing a sales boom as household income in China continues its double-digit growth. So far, automobile sales are the only key sector to experience a mild slowdown.

It's widely anticipated that Chinese leaders will announce tax cuts and a major public works spending spree that could exceed $58 billion in infrastructure investments. That means expanding markets for steel and concrete. Vast construction programs are already under way in an attempt to keep up with China's growing need for more electricity generating stations, roads, and bridges.

Earthquake reconstruction in Sichuan province is expected to require the investment of at least $140 billion. The net effect will be an enormous stimulus to keep China's economy humming.

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