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The crash of falling China

China, which is now the world’s third largest economy, saw its exports drop by 25.7% in February compared to a year earlier. Imports also fell by 24.1%. This meant that the country’s trade surplus fell from $39.1 billion in January to $4.8bn last month.

 

China is very dependent on its manufactured exports, and the sudden global recession has seen the demand for these goods hit a wall. The Chinese commerce minister was quoted as saying that the slump in exports is unlikely to end soon and he warned that there would be a “grim picture” for trade in the coming months.

The picture will be "grim" over the coming months.

The picture will be "grim" over the coming months.

 

 

The country has approved a fiscal stimulus composed of tax cuts and increased spending on the infrastructure amounting to $586 billion. In fact, latest figures show that investment in roads, railways and power grids actually rose by 26.5% in the first two months of this year compared to the same period in 2008.

 

Some good news is that February saw a 25% increase in the sale of new cars compared to the same month last year. This is because the government has made large cuts in sales tax on small, fuel-efficient cars.

 

However, prices in China actually fell for the first time in over six years in February, raising the spectre of deflation. The consumer price index actually fell by 1.6% in the month compared to a year earlier, which followed on from a rise in prices of 1% in January. In fact, in February last year the index recorded a rise of 8.7% which reflects a very sharp turnaround in inflation. Also, factory gate prices fell by 4.5% in February. The official statistical agency claimed that it was too early to start talking about deflation and that the falls in prices were mainly due to lower raw material prices and statistical distortions.

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Posted in Balance of Trade, China, Deflation, Fiscal stimulus, Inflation, World Trade

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