They're still waiting for the procrastinating shopper

Henry C.K. Liu hliu at
Fri Dec 27 18:47:10 MST 2002

China exported 4.07 billion pairs of shoes in 2001, up 2.55 percent from
the previous year. But the value of those exports, US$10.1 billion, was
an increase of only 2.48 percent over 2000. Actual value growth per
unit, then, was a negative. Guangdong province is China's largest
shoe-making region, with annual production at around three billion
pairs, accounting for almost a third of the world's total. Assuming the
number of Chinese workers making shoes to be constant, Chinese
productivity dropped in the shoe industry in 2001. The only way
productivity could have remained the same or improved would have been if
the Chinese shoe industry had cut workers, thus contributing to China's
growing unemployment problem.

Imports from China are resold in the US at a greater profit margin for
US importers than that enjoyed by Chinese exporters in production for
export. In part, this has to do with the inflated distribution costs in
the importing country (US) because of overvaluation of its currency, and
the higher standard of living in the US made possible partly by Chinese
exporter credit. Thus a $2 toy leaving a Chinese factory is a $3 part of
a shipment arriving at San Diego. By the time a US consumer buys it for
$10, the US economy registers $10 in final sales, less $3 in imports,
for a $7 addition to gross domestic product (GDP). The GDP gain to
import ratio is greater than two, in this case two-and-a-third. The GDP
gain to export ratio is zero if the $2 export price becomes part of the
importer's capital account surplus. If 50 percent of the $2 export price
is used for paying return to foreign capital, then the ratio is in fact

The numbers for other product types vary greatly, but the pattern is
similar. The $1.25 trillion of imports to the US in 2000 are directly
responsible for some $2.5 trillion of US GDP, almost 28 percent of its
$9 trillion economy.

The $400 billion of Chinese exports are directly responsible for a loss
of $800 billion in Chinese GDP of $1 trillion as compared to a GDP if
that export were consumed domestically. In other words, if it were to
not export at all, China would almost double its GDP by redirecting the
equivalent productivity toward domestic development. On a purchasing
power parity basis (PPP), the GDP loss to exports would be four times
greater. The higher the trade surplus in China's favor, meaning more
goods and services leaving China than entering, the more serious its
adverse impact on China's GDP.

Full article at:

But what is more fundamental is that as US consumers buy less, leading
to a smaller trade deficit, the US capital account surplus will also
shrink becasue foreign trade supluses shrink, causing US equity markets
to fall more.  This is why the Bush tax`cut is now thinling of geeting
money into the hands of the low income who is expected to spend it
immediately, but unless the amount of tax cut exceeds the amount of
consumer loans already in disarrears, the money merely goes to bail out
the banks. Total consumer debt now is more than $1.7 trillion,  loan to
value is 96% for new cars, according Fed data.

In 1999 more people declared bankruptcy than graduated from college.
1999, if you recall, was the year that the Nasdaq rose more than 80%:

Henry C.K. Liu

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