Exports Drop Further, Stimulus Spending Fuels Economy

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Jun. 13 – China’s exports for May plunged lower by 26.4 percent compared to last year; decreasing trade surplus to US$13.39 billion.

The May figures maintain the trend of slowing activity, with April exports also declining by 22.6 percent. The figures show that now more than ever, China’s economy is fueled by growth funded by its massive stimulus plan.

The stimulus plan is pouring money into public works and industrial aid. Moreover, local banks have continued to lend with RMB664.5 billion of new loans released in May, a huge increase from April’s RMB591.8 billion last April.

Direct government spending is also reflected in increasing industrial production climbing to 8.9 percent in May from a year earlier. China’s fixed-asset investment increased by 39 percent, the fastest expansion since 2004. In addition, spending spending on railroads increased by 110.9 percent in the first five months of the year.

China is now balancing a delicate act of fueling domestic growth by injecting government money into the economy and nurturing the domestic market by encouraging more people to spend. China runs the risk of making its economy too dependent on government spending.

So far, only the car industry has shown positive signs of recovering because of China’s recent subsidies for rural buyers.