China’s Staggering Growth: Reappraising My Original Position
Vitaliy N. Katsenelson, CFA submits:
I am not writing this under duress, neither my family nor I were kidnapped by the Chinese government; I simply made a mistake in my last note about China called, “Simple Math of Chinese ‘Staggering’ Growth” and would like to correct it. The Chinese non-export economy is not growing at a 23% rate. This figure would have been right if China only exported and did no imports, which is obviously not the case: imports are about 25% of GDP (exports are 35%, leaving net exports at about 10%).
If we were to assume that exports and imports are declining at the same pace of 20%, then the impact of declining net exports on the growth of the total economy would be about -2% a much lower number than the -7% I used in my misguided note. Also, the non-net-export economy (about 90% of the total) would have to grow at about 11% (not 23%) to offset declining net exports and for the total economy to grow 8%. Here I am assuming that exports and imports declined at the same rate. Chinese imports declined at a slower rate than exports in June and were dropping at about the same rate as exports in May.
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