China Exports Drop, But Production Rises On Domestic Demand

August exports in China plummeted 23.4% from a year earlier as the global economic crisis continued to take its toll on developed countries. However, industrial production in the Red Dragon still managed to grow, indicating the best is yet to come for the world’s third largest economy.

Boosted by a $586 billion (4 trillion yuan) government stimulus package that is stoking domestic demand, output at China’s factories gained 12.3% year-on-year last month. A poll of 15 economists by Bloomberg News showed a median estimate of 11.8% production growth.

“Exports won’t truly recover unless China’s main trading partners such as the U.S. and Europe regain growth next year,” China International Capital Corp. economist Xing Ziqiang told Bloomberg, adding that trade “will continue to be a drag on the recovery.”

Still, the production growth is a testament to China as a market in its own right, as its middle class continues to expand and consume goods:

• Auto sales in the nation are surging and may reach 12 million this year, surpassing the United States as the No. 1 market.
• There’s more than twice as many wireless phone users in China as there people in the United States.
• And Snow beer, which supplanted Bud Light as the world’s most popular brew earlier this year, comes from the Red Dragon.

Additionally, retail sales climbed 15.4% in August from a year before, beating the median estimate of 15.3% by analysts polled by Bloomberg. South Korea’s largest carmaker, Hyundai Motor Co., upped its 2010 production capacity in China to 600,000 from 500,000. And new loans in August were 410.4 billion yuan, up from 355.9 billion yuan in July.

Any concerns about inflation amid the huge stimulus package were momentarily quelled in August, when consumer prices fell 1.2% from a year earlier and producer prices showed a 7.9% decline. China will raise interest rates “around next spring” when inflation will rise to as high as 5%, BNP Paribas SA economist Isaac Meng told Bloomberg.

When western economies do recover, China, where everything from iPhones to desktop fans are made, will return to its status the export powerhouse of the world.

China expects its economy to grow 8% this year and that growth will almost certainly accelerate when a recovery takes hold in the United States and Europe.

China said Friday the flood of positive indicators has it on the right track to achieve its expected 8%growth for the year.

“The data from January to August has laid a good foundation for realizing the eight percent economic growth target for the full year,” Li Xiaochao, a spokesman for the National Bureau of Statistics (NBS), said in a press conference. “So far, the main reason why the overall economy is stabilizing and starting to recover is that we adopted the stimulus package to expand domestic demand.”

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