Bad News for China: Bad News For The World?

How serious is the current crisis plaguing financial markets? Yesterday a new country was officially declared in recession, and that country was nothing more nor less than Italy.

The Federal Reserve, in an unprecedented, is considering issuing debt as a way to have a new tool to assist the markets in a time of extreme tension for the latent risks of new episodes of crises and depletion the benchmark interest rate as monetary policy tool when it is getting closer to being neutral.

Also yesterday it emerged that China had during the month of November in its exports fall 2.2% year on year, this being the first fall recorded since 2001.

All these facts show largely depth that is reaching the international financial crisis, although they are not enough to have a clear idea of ​​whether or not it can be even worse.

The fall in exports from China in November, but still does not mark a trend is an alarm signal and makes it clear that China's economy largely feel the effects of the crisis, being forgotten the famous decoupling theory.

While surprise has caused this decline in foreign sales of the eastern economy, it should not have taken by surprise as exports from China are largely dependent on demand from both the U.S. economy, as European countries and Japan all economies are now in recession.

The impact of the crisis on China's economy makes us forget the GDP growth rates in double digits and specialists predict Chinese GDP growth of 7%. Given this risk, the government of China was designed to maintain at least an increase of 8%.

Changing economic environment facing the country is such that it no longer concerned about inflationary pressures but the issue further is the possibility of price deflation, a situation that would affect debtors in the economy of China, causing potential default that may aggravate further risks to economic growth.

The Chinese Government last month launched a public aid package to boost consumption and infrastructure works for U.S. $ 586,000 million, while the Central Bank of China, made his own by cutting the benchmark interest rate in four opportunities.

But perhaps more serious for the global economy has not been the fall in exports from China, but the strong contraction of imports that fell literally on-year fall by 17.9%. According to Reuters, the decline in imports was the steepest since 1993 when records began to be held monthly.

The dynamics of Chinese exports and imports resulted in a trade surplus rose sharply in the month, reaching U.S. $ 40,100 million. And what would be a good news for China, is bad news for the global economy.

Is that, since the probability that the global economy into recession was becoming more concrete, market expectations about the possibility of a factor that mitigates the fall, represented the Chinese economy with its potential absorption, enhanced with the economic stimulus plan launched by the government that focused on strengthening domestic demand.

To make matters worse, the direction that economic policy would take the eastern country to this crisis context, would further disruption to the global economy.

That, given the economic situation being experienced by China, yesterday met leaders of the country who traced economic policy guidelines for next year. The information that emerged about reproduced by Reuters, stated: "The general requirements for economic work next year are to maintain a stable but rapid economic growth by boosting domestic demand?.

The drop in the volume of exports to the Chinese authorities concerned have agreed on the need to take action to recover exports. Potential actions to be taken, may bring an implicit threat to the tradable sectors of the countries most vulnerable to a potential invasion of Chinese products, as these measures may seek to improve the competitiveness of Chinese products to enter to compete in markets those who do not have a significant presence.

The threat of an invasion of Chinese products product of government action to support their exports is exacerbated by the Chinese government's decision on the value of the exchange rate, which they consider to be kept stable (despite the pressures for appreciation suffering).

These measures would take the government of China to support external demand affected by the impact of the crisis, together with the reduction in Chinese imports, undermine the rest of the economies whose companies see that it has reduced the Chinese market and that can reduce its local market following the entry into play of Chinese products.

It is clear that the efforts of the U.S. Treasury secretary, Henry Paulson, to ensure that the Chinese government to appreciate its currency, have failed to result.

But not only China with its economic policies affect other nations. Several governments have taken steps in these times of crisis is clearly affecting other economies as was the case decided by deposit insurance in Europe Ireland when that possibility is not shuffled. You can also find cases in Latin America, as it was Argentina's decision to limit grain exports to Brazil to preserve domestic prices under control given the context of rising international prices.

Seeing the negative consequences of the various measures adopted by countries on the rest, attaches great importance to the coordination of macroeconomic policies among countries. So far, efforts in this direction seem to be insufficient and that the end of the crisis will be reflected in a higher cost of it.