Submitted by Taps Coogan on the 23rd of March 2016 to The Sounding Line.

Despite surging oil imports and refined product exports in China (link here), both Chinese imports and exports of goods are experiencing the first sustained decline since the 2008 financial crisis. In fact, the decline in Chinese imports is the second largest, after the 2008 crisis, since 1992.

Despite the nearly constant stream of economists writing articles, each proclaiming that plateauing Chinese exports are signaling that China is transitioning from an export driven economy to a consumption based one, the facts simply disagree. As show below, China’s positive balance of trade in goods is accelerating, not declining. What’s more, the acceleration in China’s balance of trade is not because exports are surging, but because imports, i.e. consumption, are falling faster than declining exports. In an economy transitioning to consumerism, imports should be growing faster than exports.

According to the World Bank, exports accounted for approximately 22% of Chinese GDP in 2014 and manufacturing accounted for 36%. While investors have long acknowledged that official Chinese GDP figures were somewhat exaggerated, China has nonetheless been growing rapidly for decades. However, even the Chinese government is now officially acknowledging that GDP growth has slowed to a rate below 7%. With both imports and exports in decline, the debate about Chinese growth and the sustainability of the Chinese export driven economic model in an era of anemic global growth gains substantial relevancy. With reports that the Chinese are planning to lay off as many as six million state workers in the next three years owing to massive industrial overcapacity (link here), it seems that even Chinese central planners aren’t planning on a future of robust consumption. Unrest has followed these announcements and, with news of government led labor “crack-downs,” turmoil may be in the cards.