China: Too Big to Succeed

Last week, the World Bank adjusted its 2009 growth estimate for China to 7.2 percent, from an earlier estimate of 6.5 percent. With the U.S. in recession and expecting no or very little growth this year, the upward estimate suggests that China is on track to lead a global economic recovery.

It is not. Despite the burst of stimulus-led growth, other indicators are all sharply negative. The country’s export-led economy gave China-watchers little reason to cheer, with exports down by nearly 25 percent in May from the year prior (a new record). It was the seventh straight monthly decline. The People’s Bank of China reported in late May that the “the global financial crisis is still spreading and the impact on China is deepening.” It is a view shared by careful observers; according to an April Bank of America Merrill Lynch research note, “the foundation for recovery is not very firm.”

Other economic measures are off as well. According to China’s National Bureau of Statistics, the Consumer Price Index (CPI) fell by 1.6 percent in April, the third straight decline since February, which was the first drop since 2002. Unemployment, although official statistics for it are notoriously unreliable, is certainly rising substantially.