Weak export growth was a consequence of weak recoveries in the European Union, United States, and Japan, which accounted for 46% of China’s exports in 2008. Even though exports to the EU, US, and Japan increased by 25%, 17%, and 19% YOY in March 2010, these gains barely made up for the decline during the previous year. In other words, exports to China’s major trading partners have remained flat since 2008 .
...While export growth remained subdued, import growth has surged. But the increase in imports reflects an intensification of investment-driven growth and demand for commodities and materials, not a move to greater consumer demand. Fixed asset investment grew 25.6% in the first quarter of 2010 compared to the first quarter of 2009. Partly as a result, China imported $27.6 billion more commodities and materials in March 2010 than in March 2009, an increase of 77.1% YOY. This was the major driver of the $25.8 billion decline in the trade balance during the same period.
...China’s trade balance has declined because China’s stimulus program intensified investment-led growth, increasing demand for commodities and capital goods. Based on our analysis, it is not evident that China has made progress toward rebalancing to a more consumer-oriented economy.
Excessive bank lending since the beginning of 2009 incentivized stockpiling of commodities and materials and the development of spare capacity. A tightening cycle could force enterprises in China to reduce imports and rely on existing commodity stockpiles and excess capacity to increase exports, leading to a rise in the trade surplus.
...The important point, but one that the article did not explicitly make is that China's demand for commodities is hugely artificial, predicated on round after round of stimulus and outright monetary printing that has also fueled massive property bubbles and speculation.
So before one can even talk about ways to rebalance, global stimulus needs to stop. Yet, China Business says Another $586 billion "Stimulus" Coming to China.
...Here's a question to ponder: What would happen if China stopped its stimulus cold turkey, pricked its property bubbles, and allowed the RMB to float freely, and in response the Chinese stock market collapsed, social unrest picked up, and hot money poured out of China? _Mish
China has to maintain the image of a prosperous nation in control of its own destiny. Anything less would risk popular discontent, and loosen the hold of the CCP on the reins of power.