March 7, 2020
Most people are aware the Wuhan coronavirus has become an economic contagion within China. However, the scale of the contraction is only now being quantified and the data doesn’t match the visible reality.
When evaluating the data showing drops in exports from China is worthwhile to consider the lack of visible supply-chain disruption formerly predicted by global economic “analysts”. According to Reuters; to the extent data can be gathered from within a closed communist system; total exports from China dropped 17.2% in January and February.
The lack of factory production has cut the estimated growth rate within China by half. However, is that a cause? – or – Is that a cover? For decades corporations have moved to a supply chain process known as Just-In-Time (JIT) inventory.
If Chinese component manufactured goods were part of a critical corporate supply chain, and with more than 30-days of source disruption quantified, there would be impacts by now. Where are the crippled customers? There are no measurable, demonstrable, citations for missing component parts making downstream finished goods impossible. There are lots of anticipatory declarations, but no shortage has materialized.
(Reuters) – China’s exports contracted sharply in the first two months of the year, and imports slowed, as the health crisis triggered by the coronavirus outbreak caused massive disruptions to business operations, global supply chains and economic activity.
The gloomy trade report is likely to reinforce fears that China’s economic growth halved in the first quarter to the weakest since 1990 as the epidemic and strict government containment measures crippled factory production and led to a sharp slump in demand.
Overseas shipments fell 17.2% in January-February from the same period a year earlier, customs data showed on Saturday, marking the steepest fall since February 2019.
[…] Imports sank 4% from a year earlier, but were better than market expectations of a 15% drop. They had jumped 16.5% in December, buoyed in part by a preliminary Sino-U.S. trade deal.
[…] Soybean imports in the first two months of 2020 rose by 14.2% year-on-year as cargoes from the U.S. booked during a trade truce at the end of 2019 cleared customs. (read more)
Considering the previous questions; and evaluating what is visible – not theoretical; it seems far more likely the greatest impact from any Wuhan virus is an economic contagion internal to China.
Extending common sense, it seems more likely that Chinese consumption has stalled and dropped internal factory output, not necessarily a lack of export customers. If the world was dependent on Chinese exports that have stopped, we would see these downstream consequences in real terms of missing products; right now. That is not happening.
However, if you consider that we are in year #3 of President Trump’s maximum pressure campaign against China; and you evaluate the numerous multinational moves that took place to avoid the preceding and purposeful Trump tariffs; there’s a strong argument to be made that China’s current condition is less about Wuhan, and more an outcome of visible consequence from the internal void created by Trump’s trade strategy.
There’s not enough solid data to gauge, and it doesn’t help when analysts are over-emphasizing the minutia, but it appears to me that what’s being reported within China, about China, is more about their own economic contraction than any adverse external influence upon their largely closed system.
If I’m right, China’s lack of internal consumption is the major influence contracting their economy; and the ‘lack of exports’ are being overblown to hide that internal contraction.
The internal contraction would be a natural outcome of President Trump’s confrontation with their economic model, which was indeed heavily dependent on exports. No-one has been able to gauge an accurate number of multinationals who shifted their manufacturing as a consequence of Trump’s confrontation with Xi Jinping; but it would make sense the shift in manufacturing would be a direct impact inside China, starting an internal set of economic dominoes falling in a specific sequence, which would ultimately lead to a drop in Chinese workers being spend their wages.
Under this scenario the Coronavirus becomes a good cover story to explain an economic contraction that is actually not related…
PS. Brazil is visiting Trump at Mar-a-lago. Brazil is #2 in the world in the production of soybeans. Brazil is also in BRICS (Brazil, Russia, India, China and South Africa).
Centinel2012 