Chinese trade jumped sharply in December, showing a positive sign that the world’s second largest economy is recovering. 

Exports grew 14.1% from a year earlier, well above November’s 2.9% year-on-year growth according to the official data released on Thursday, 10 January. The increase in exports was mainly due to the rising demand from Southeast Asia, the U.S. and Britain.

Meanwhile, imports grew 6% from a year earlier after recording no growth in November. 

The Chinese economy has been gradually improved over the last three months of 2012, due to rising domestic investment, after slowing to its weakest growth level in three years. 

“We definitely saw China strengthen again at the end of the year,” said Jeff Immelt, chief executive of General Electric, which reported a 17% increase in fourth quarter pre-tax profits of USD 5.27 billion. 

“The big drivers in China continues to be healthcare and aviation. We believe Chinese momentum is likely to continue into 2013.”

December’s positive trade data may signal that conditions overseas could also be improving for China’s export sector, an employer of 200 million workers according to the Los Angeles Times. 

But a recovery is far from certain. Alistair Thornton, a Beijing-based economist for IHS Global Insight, said that last month’s strong trade numbers may be skewed by short-term orders.

“With our projection for continued contraction in the Eurozone and continued slowdown in the U.S. economy, we believe that China’s exports sector will face another uphill battle this year an even tougher one than 2012,” Thornton said in a research note Thursday, 10 January.

For the full year, China’s trade balance grew to USD 231.2 billion in 2012 from USD 154.9 billion in 2011. China’s subdued property market significantly lowered the importation of raw materials, resulting in the huge trade surplus.

Chinese exports grew by 7.9% in 2012 and imports also expanded by 4.3%. To put this figure into perspective, the economic slowdown of 2012 was not as bad as during prior crises, Thornton said.

“Put in perspective with the four previous export downturns, 2012 looks to have done quite well,” he said. “Exports grew only 0.5% in 1998 after the Asian financial crisis and 6.8% after the U.S. tech bubble crash in 2001”.

 

China’s working-age population shrank for the first time in 2012 and the trend will only accelerate and impede the future economic growth of the world’s second largest economy.  

By the end of December, China’s population of people aged between 15 and 59 was 937.27 million, a decrease of 3.45 million from 2011, according to figures released by China’s National Bureau of Statistics on Friday, 18 January. 

Ma Jiantang, head of the National Bureau of Statistics, described last year’s drop as “worrying”, even as the Chinese economy rebounded in the fourth quarter. 

China’s GDP grew 7.9% year-on-year in the final three months, up from 7.4% in the third quarter. Many economists question whether China can sustain its high growth rate, despite having a shrinking working population. 

As societies become richer, birth rates tend to decline naturally – but in China that trend has been deeply distorted by the country’s controversial one-child policy introduced in the late 1970s according to the Financial Times.

“Most projections . . . estimated that the decline in the working age population would start around the middle of this decade,” said Frederic Neumann, co-head of economics at HSBC. 

“But [Friday’s numbers] show that it has already happened, which suggests the decline over the next few decades will be faster than expected.”

We already witness labour shortage problems in many areas of China; companies often complain that it is difficult to find qualified workers, particularly in the labour-intensive manufacturing sector according to the Financial Times. 

“Most countries begin to upgrade their economic model and raise productivity when faced with declining populations,” said Vincent Chan, an economist at Credit Suisse. “Wage increases, more automation and the production of better-quality products are all likely to become stronger structural trends in China.”

The potential occurrence of high unemployment rates has been the biggest concern for China’s leaders because it is directly related to social instability. Many of China’s government policies have been focused on maintaining economic growth levels to control unemployment rate rising beyond control. 

“In the past, people always believed 8% or even 10% is necessary for China to maintain high employment and prevent mass unemployment, but demographic change is making the requirement for growth much lower,” said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. 

“Potential economic growth in China will slow to around 6% by 2020.”

 

“On Saturday [12 January] night, you’d have sworn Beijing’s streets were the middle of Mordor,” the Globe and Mail reported. 

Already renowned for its extraordinary bouts with pollution, Beijing’s air hit a new low – or, rather, a high – on the air-quality index scale, soaring to 755, or 886 micrograms per square metre. 

The U.S. Embassy puts out hourly readings of PM 2.5, the smallest and most dangerous particulate matter, on Twitter; the scale normally tops out at 500, a level they call hazardous. A popular iPhone app carrying the readings has now had to create a new category, extremely hazardous. It’s colour-coded black.

The air pollution is some of the serious side effects of China becoming the world’s second largest economy in just 30 years. 

Among the costs of this pollution, are flight cancellations and delays, major road accidents and highway closures, emergency rooms packed with gasping children and adults, and rapidly rising rates of chronic lung disease, heart disease and cancers according to the Globe and Mail.

The World Bank has estimated that in 2009 alone, air pollution cost the equivalent of 3.3% of China’s GDP, or about CNY 700 billion (over USD 112 billion).

Due to mounting public pressure, the Beijing government finally began taking measures, suspending work at more than two-dozen construction sites and ordering several dozen companies to reduce production; the Beijing Hyundai Motor Company was reported to have stopped production completely.

Government policy makers routinely talk about the need to rebalance the economy toward more sustainable growth. In December, Beijing opened a new subway line and two extensions, which is an example of infrastructure investment designed also to lower car traffic. 

 

by Hyuk-tae Kwon