China’s trade surpluses are beating all their historic records. Despite the stagnation of its national consumption, China is racking up trade surpluses in the way of US$94 billion per month. This good news is however not so good because of the strong correlation between a nation’s trade balance and its overall consumption.

These enormous figures of China’s in no way reflect the country’s industrial power. The ballooning of its trade surplus, in reality, shows only the great difficulty it has in balancing out its economy and controlling its colossal amounts of debt. While China has nearly doubled its trade surplus in the space of two years, the reason for it is a simple mechanical one, with its exports having increased compared to its imports that have been in free fall due to dwindling national consumption. And while increased exports generally mean good news for a country on a macroeconomic level, China cannot and should not be excited over its excellent figures, because they are above all the symptom of persistent — endemic, even — income inequality amongst its population.

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At most, China’s trade surpluses allow it to maintain production — and therefore to avoid layoffs — with a backdrop of debt that is only getting worse. China has now effectively reached a point where it can only control its spiralling debt with help from massive trade surpluses that have only come about due to its national consumption being in constant decline. The impasse that the leaders of China now find themselves at, after reaching the limits of their country’s growth model, has forced them to adopt a strategy of double circulation, that being rising exports combined with — and complemented — by gross national demand being relaunched with gusto. 

However, no coherent plan has yet been adopted in this regard, and at this very moment, China is suffering from a structural problem, that it also shares with the other great exporting nations like Japan and Germany. In fact, the country’s competitiveness carries with it the germs of its own contradiction and of its own precariousness, because their exports are only competitive if their workers get paid as little as possible relative to their productivity. Nations that show, with pride and arrogance, chronic and long-term export surpluses are also those where social welfare and salaries are the lowest when compared with those of their trade partners in any case.

A huge player in the export game, China has clearly not escaped this macroeconomic madness that demands that its competitiveness comes off the back and at the expense of its workers who find themselves in peril with their purchasing power compromised. Countries as differing as Vietnam, China, Germany, and Japan, therefore, owe their exporting successes to the fact that a smaller proportion of their GDP is repaid to their population, their households, and their workforce. These champions of exportation are also all suffering from the same intrinsic weakness in their stagnant, even anaemic, consumption, due to a voluntarily deficient redistribution plan. 

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Even worse in China is the repartition of its GDP towards its citizens in the way of only 55 per cent, whereas this number is 75 per cent for households of Western countries. Hence, a second structural fault — a major one, this one — adding to this country’s shocking inequalities is that the government is keeping 45 per cent of national GDP for itself to reroute to companies and to local governments. Recovering China’s consumption will therefore necessarily go through a decrease of subsidies granted to these two aforementioned actors, and notably those that have been gobbled up and mismanaged by the different provinces racking up some US$5 trillion of debt.

As it would be difficult to withdraw this aid from the business world that has already been led astray by many resounding bankruptcies and other solvency problems, it is the local governments of China that must now expect to see a gradual drying up of Beijing’s support, despite their debt having already rocketed up by 25 per cent over two years.

China’s financial stability finds itself fundamentally comprised. Hence the exhortations of “common prosperity” coming from the central authorities, pointing their finger “in Chinese style” at this squaring of the circle that they must urgently endeavour to solve, with all the political risks that come with it.

For more information about Michel Santi, visit his website: michelsanti.fr/en

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