From Japan, a cautionary message for China

The economies of China and Japan are different. Both are large exporters, but China does not have to import as much as Japan. It has vast natural resources and a huge manufacturing capacity, so it can supply goods to the rest of the world. These goods are also bought by China's large middle class.

Japan lacks these attributes, but nonetheless, its trade deficit is growing. There may be something for China to learn from that.

According to the Financial Times, "Japan last month suffered a fall of nearly 50 per cent in exports, leading to the country's worst trade deficit ever and fueling fears that the recession will be longer and deeper than previously anticipated."

China could be heading in the same direction. The major reason that Japan is suffering is that demand for its products in the West is shrinking at an alarming rate. Japanese finished goods are generally more expensive than those made in China. But when consumer spending the the U.S. and EU drops to unheard of levels, imports of almost all goods will suffer more.

China may not be Japan, but both countries are facing the same problem. A world in recession does not buy as much -- no matter how attractive the prices.

Watch for China's balance of trade to get much worse as the first quarter progresses.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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