Shadow on trade cast by false sum
It is not unusual in financial analysis for a firm conclusion to be based on out of date statistics but when the chairman of HSBC Holdings lends his name to it, things need to be set straight.
The International Institute of Finance (IIF), headed by the bank's chairman, Sir John Bond, has published a report saying that the mainland's current account balance is likely to suffer a 'substantial erosion' this year because weak exports have not kept up with rapid import growth.
The report also forecast that net private investment flows are set to slump as international investors continue to worry about economic prospects.
The big problem facing anyone trying to analyse the mainland's balance of payments statistics is that they are only published annually and then at least six months after the end of the year.
But good clues to what has happened so far this year are available from figures published up to August on both foreign trade in goods and on international reserves, figures to which the IIF seems not to have paid enough attention.
They show first of all that, although year-over-year import growth is indeed higher than export growth, it is largely because of a low level of imports a year ago.
Exports, however, have boomed since June this year. Even if you assume that September's exports will be lower than August's and September's imports higher, you come to a near record trade surplus for the third quarter.
The first chart sets out the picture. The top line gives you the trade balance, by far the largest component of the current account, up to the end of 1998 in annual figures divided by four to make them quarterly. Then for 1999 it shows you the straight quarterly figures.
The bottom line does the same for the current account balance. It is lower than the trade balance because its other components have been in deficit since 1995. The figures assume that this deficit will be the same this year as it was in 1998.
What this tells you is that the current account did indeed probably sink into deficit in the first two quarters this year but has come roaring back as the mainland posted the region's biggest improvement in export growth since June.
These figures should make anyone think twice before singing a current account dirge for the mainland. Now for that capital account dirge.
Once you have a current account worked out you can get to a rough capital account estimate in three easy steps.
First, take the change in foreign reserves as an indicator of change in the overall balance of payments. Second, assume that errors and omission is at the same level as 1998 and adjust your balance of payments figure for it. Third, subtract your current account figure. Hey presto, as good a capital account estimate as anyone can get. And what it shows you is that, while the mainland suffered capital outflows last year, the picture has changed back to a surge in capital inflows this year.
It's time to prod your think-tank into singing a more cheerful tune, Mr Bond.
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