You may have heard that China just posted its biggest trade deficit figures in over a decade. Of course, this caused the usual suspects who have been expecting — some would say hoping — for a Chinese crash to jump up and down with excitement.
But not so fast, guys — one set of figures doesn’t tell the entire story. The truth is that China’s $31.5 billion trade deficit is actually a sign that things inside China are growing and that imports are becoming a more viable part of China’s future than ever before.
That’s exactly what I’ve been telling readers for several years now.
Up some 39.6% year-over-year, China’s numbers are far ahead of expectations and a good deal higher than the 15.3% contraction the nation experienced in January.
True, exports climbed at only 15.3%, versus the expected 18.4% rate, but that’s still plenty positive at a time when the so-called developed world is on track for overall growth of 1.3%, according to the Conference Board.
Get used to it.
As China’s wealth rises and its internal consumption strengthens, imports are going to decouple from exports, and deficits like these will be the norm.
If anything, these numbers reinforce the argument that investors should be actively looking to China and be accumulating Chinese investments.
What Smart Investors Recognize About China
What has changed?
For starters, how China processes its imports. It used to be that the majority of stuff we sold to China was fashioned into exportable goods that came boomeranging back to our shores as finished products.
In other words, we sold China handles and steel and they sold us shovels.
Maybe I’m exaggerating, but not by much. Today, more of China’s imports go straight to domestic consumption than we’ve ever seen before.
What’s happening is not magic or rocket science.
The country is simply becoming self-sufficient, just as the U.S. did shortly before we came into our own — summarily displacing England in the global scheme of things.
There’s no longer any question about the value contributed to export partners. The world understands that. Now it’s all about the value contributed to domestic consumption.
Smart investors already understand this, even if everybody else has yet to recognize the inevitable. More people understand this every day. They may not like it, but that’s another story.
Take shoes and clothing. China is known for sweatshops and turning out gobs of these things for markets around the world. Export growth did fall 2%, but the growth curve is still up. The drop simply means that more of China’s products are being diverted to native Chinese markets as domestic consumption rises.
Look at electronics and machinery. Year-over-year, manufacturing for exports has dropped by 23%, falling from an 11.5% growth rate to only 8.8%. But the larger truth is that actual production is still rising. Chinese consumers are absorbing the rest.
Cars, parts, blue jeans, toys, copiers –it doesn’t matter. The story is being repeated in nearly every industry in China.
As the Red Dragon’s economy accelerates and its 600-million-strong middle class comes into its own, we’ll be lucky if there’s anything left to export.