China’s imports are slowing. This indicates that economic growth is slowing rapidly. Imports are at their lowest in two years.
Bank lending is also slowing. Because banking is run by the government, this could reverse if the national politicians decide to inflate. It has begun to do this, but not aggressively.
“I think that liquidity conditions are too restrictive. The economy is slowing down and liquidity conditions are restrictive,” said Yao Wei, China economist at Societe Generale in Hong Kong.
A fall of 15.3 percent in imports in January compared with January 2011 was the lowest reading since August 2009, while exports fell 0.5 percent over the same period, the worst showing since November 2009, customs data showed on Friday.
That was followed by data from the People’s Bank of China showing that new lending was less than 75 percent of the level expected — a big surprise for a financial system that typically sees its biggest lending splurge of the year in January.
But domestic price inflation is rising already. This is a political concern. To inflate even more now would send a signal for sellers to raise prices even further.
If China’s imports continue to fall, this will be another factor in promoting a worldwide recession. Europe is already in recession. Trade is contracting. “Exports to the European Union, China’s top export market, fell 3.2 percent in January from a year earlier, the first decline since February last year, the data shows.”
Exports to the United States rose 5.5 percent in January from a year earlier, slowing from December’s 11.9 percent rise and marking the weakest pace since February last year.
Money supply is reduced 12.4% in January, year to year. This is the slackest pace in over a decade. This points to a looming recession, according to Austrian School business cycle theory. But mainstream economists do not believe this.
China’s economic growth slowed steadily throughout 2011. But the slope of the slowdown was shallow enough for the consensus to emerge that a hard economic landing will be avoided, even though many private-sector economists forecast that 2012 will see the slowest pace of expansion in a decade.
The Communist government is trapped between economic slowdown and price inflation. It is trying to avoid both. But inflation keeps rising. This creates political unrest. The Communists fear this.