Editor's Letter - Faltering Engine

China’s rabid consumption of raw materials has helped drive the world’s economy for much of this decade. However, recent figures indicate a marked slowdown in the country’s economic growth. This is hardly news to recyclers, who have been dealing with a sharp shift in demand for secondary commodities from Chinese consumers that began in October.

China’s gross domestic product (GDP) grew 6.8 percent from October to December of 2008 compared to the previous year. This is a decline from the 9 percent expansion recorded for the previous three-month period, according to figures released by China’s National Bureau of Statistics.

"Especially since October, the impact of the global crisis spread from small and medium-size enterprises to larger enterprises, from eastern coastal regions to China’s heartland," National Bureau of Statistics Commissioner Ma Jiantang has said.

China’s GDP for the whole of 2008 grew 9 percent, a decline from the 13 percent expansion in GDP the country experienced in 2007.

Many economists and analysts predict a further contraction in China’s GDP for the year ahead. Glenn Mcguire, chief Asia Pacific analyst with SocGen, Hong Kong, is quoted in a report by MarketWatch as saying, "It’s a question of where it goes from here, I think we will see a further slowing."

The decline in China’s GDP is largely the result of a decrease in exports from the country. (According to the MarketWatch report, exports contribute nearly 20 percent to China’s GDP growth.) Consumers worldwide have been spending less as the global financial crisis escalates. And additional softening is expected in the months ahead.

An NPR report quotes Kirby Daley, a strategist with Hong Kong-based Newedge Group, as saying Asian governments must build domestic demand to reduce reliance on exports. "Today’s data will put to rest forever the notion that Asia could somehow thrive even when the rest of the world slumps," he told NPR. "The idea that intra-regional trade will sustain growth within Asia even without U.S. demand has been debunked."

The Chinese government estimates 8 percent growth in GDP for 2009. While the government has announced a 4 trillion yuan (US$586 billion) plan in November to encourage domestic consumption through spending on construction projects, the effects of such projects are not expected to be felt for several months, according to reports.

In the U.S., the proposed $825 billion stimulus bill that Congress was working on in January could result in more domestic consumption of basic materials if approved. The Obama administration has said $3 out of every $4 in the package should be spent within 18 months to maximize the effect on jobs and taxpayers.