China holding up better than monthly figures imply
Flagging demand saps China's trade
SCMP headline, July 11
There is a certain peculiarity of economic statistics that can really help journalists out on a slow news day. The oddity is that they rarely show smooth changes of trend. They tend instead to go up and down erratically from month to month.
This makes it easy to say that commercial rentals, for instance, are way up (or way down) this month compared with the previous month, or that restaurant sales show a startling decline (or startling improvement). Just name it and you can find it.
I'm not accusing my colleagues here. I'm just entering my own confession for days gone by when the boss hovered around with that 'What-have-you-done-for-me-today?' look on his face. It was no different when I jumped to stockbroking, by the way. All I discovered was that jumping from the frying pan puts you in the fire.
But it did teach me the use of moving averages if I really wished to see a trend. They tell you late, but they tell you true.
All of this is just to say that if you want to see the trend in a country's export figures, most times you really cannot do it with a moving average of less than six months. If you want to see the trend in a country's trade balance, and not be thrown off by seasonal distortions, you probably need to raise this to a 12-month moving average.
The first chart shows you a six-month moving average of the export growth rates of both China and the rest of Asia in US dollar terms (the benchmark for all trade figures).
Three things immediately stand out: (1) these figures generally go up and down at the same time; (2) they are all going down at the moment; (3) China's exports are holding up much better than the rest of Asia's.
In fact, the only country in Asia showing higher export growth than China at the moment is Vietnam - 28 per cent on a six-month average basis - but the absolute numbers are still tiny and you can pretty reliably attribute it to overseas Chinese investment, mostly in Ho Chi Minh City. The foreign-invested sector shows 43 per cent export growth.
It's not just an Asian story. This is the worldwide trend. Trade growth has slowed down dramatically everywhere, which leads to the obvious conclusion that there is nothing Beijing can do about it. The normal cycle will of itself take trade growth up again at some point and China's export numbers will then soar again. Intervention in the meantime will be a waste of money.
And now to those trade balance numbers. The trade surplus last month was the fifth highest on the historical record at US$31.7 billion and, as the second chart shows, on an annualised basis, China's trade surplus is holding relatively steady at US$180 billion.
Take note of this because there is a theory current at the moment that, rather than be awash in US dollars as it has been for the past six years, China is now running into a dollar shortage, which is why the yuan has been generally weak this year.
I wouldn't call a US$180 billion annual trade surplus a shortage of US dollar inflow. It may be true that the US dollar capital inflow of recent years has now turned to an outflow, but the trend in foreign reserves says it's only a flow, not a flood.
But, hey, if it's a slow news day, why not indulge in a little doom and gloom?