By: Dr. Mike Campbell
Figures just released by Chinese authorities show that the nation imported more goods than it exported in February, leading to a rare trade deficit with the rest of the world. China’s exports grew at just 2.4% last month whereas the nation’s imports climbed by 19.4%, leading to a trade deficit of $7.3 billion.
The rise of China to the world’s second largest economy behind the USA has largely been export driven. China has come under repeated criticism for boosting her exports by keeping the Yuan artificially low and by providing subsidies for certain industries – charges that China hotly denies. This blip in China’s trade balance is likely to do little to deflect these concerns.
A Closer Look at China's Current Situation
Demand for Chinese goods in European and American markets has slowed because of the impact of measures designed to cut sovereign debt and the weakness of the recovery following the global financial crisis. The West has long urged China to make her own domestic markets more accessible to foreign goods.
The population of China is huge and it represents a vast market which the West is keen to tap. China, too, is ready to service its own domestic demand, but so far, it remains weak. Inflation within China is running at about 4.5%, but food inflation is more than twice this. Domestic demand will only pick-up if Chinese workers have more disposable income. This requires that some of China’s new found wealth trickles down to the workers. A situation in which the common man sees that some people are becoming immensely wealthy whilst their lives are unremittingly hard is always a recipe for political unrest – even more so in a state which is founded on communist principles of equality and disdain for the excesses of the capitalist system.