China -- the export machine continues

From the Telegraph yesterday morning:

China's trade figures released this morning are shocking. They tell us that China is still flooding the world with excess goods, and is once again a net drain on global demand.

As you may have seen, Chinese exports surged 22pc in February. Imports fell 15pc.

This is exactly what pessimists feared. For all the talk of a great shift by China away from export-led growth to internal demand, the reality is that the Politburo is still propping up the same old system, still shovelling subsidies to loss-making firms and state behemoths to keeps factories open.

Investment is still 49pc of GDP. Consumption is still 36pc. China is still a massively deformed economy, and the global effects of its imbalances are getting bigger every year as the economy grows at far higher rates than the West.

For all those who insist that China is now moving towards a consumption society I say BullShit!  The immediate reality of China's government is that they don't want any social dislocation.  They know (not stupid these guys) that there is a cost to what they are doing.  It remains that the artifice of borrowings against raw material (its complicated) has more or less stopped, leading to a dramatic drop in imports (down 15%), while the "engine of growth" that is export continues on its merry way.

More from the Telegraph:

We have now reached a stalemate all too like the 1930s. The West is trying to counter the effects by currency devaluation, ie QE. This exports inflation to those countries such as China holding down their exchange rates with pegs or dirty floats. It is a way of hitting back.

Everybody knows that this is unsustainable, but no one wants to be the first to move!  First mover will get crushed.  As an example the west could start a trade war, that would lead to inflation.  If you look at certain European countries (Spain, Greece and Italy) you have tremendous unemployment, and among the young it is even worse!  Imposing trade barrier would bring inflation at home, would also create jobs as manufacturing would return, in some fashion, home.  The cost of all this would be tremendous, but the road we are on is unsustainable, the more we wait the worse the correction will be (thing US housing market).

BTW there is no easy solution here.  The reality of world trade is that inertia controls a great deal of what will happen over the next few years.  Those with economic power will retain control (and the current system) as long as possible.