No doubt it is a bad news that China has a large $31.5 billion trade deficit for February and definitely it is a bad news for the global economy as commodity markets can crash.
Commmodity markets were heading Northward due to consumption demand from China whereas China’s big trade deficit to an “export slowdown” can lead to global economy or commodity market also to start cooling.
How China is Justifying Slow Growth Rate?
- China stated that it would purposefully slow its economy to a more-manageable 7% average growth rate from 2011 to the end of 2015.
- The leaders stated they would actively “build” a domestic consumer economy - and that they will do so by raising minimum wages and narrowing the income gap between rich and poor, rural and urban.
- China has specifically stated that it wants to reduce its dependence on exports - i.e., shipping cheap goods to America - and instead increase its dependence on growing a domestic consumer. That’s exactly what the world and the U.S. need.
Contrarian View that Trade Deficit is Good for China
A trade deficit means China is spending its stock pile of cash on foreign-made goods. Much of that spending is on oil and other commodities, no doubt. But that’s simply an indication that energy demand is rising as local consumers spend more money on cars and whatnot. It’s an indication that China’s economy is healthy and moving in exactly the right direction for us, the investor.