Chinese economy not really as bad as it’s made out to be. Here’s why
China’s exports plunged more than 20 per cent in February, falling on a scale not seen since the 2009 financial crisis.
SCMP, March 9
It’s not that bad.
For starters we have a Lunar New Year anomaly here. The mainland’s exports are routinely way down in February, not only because it is a shorter month of the year but because of factory down time for the New Year holiday.
Occasionally, however, the holiday falls in late February and this affects shipments in March. It happened last year and March was consequently the month last year in which exports were way down.
Thus we are comparing low figures for February this year, low as usual, with a February last year when they were higher than usual, and, of course, you then see a big plunge. I confidently predict that the trade figures for March will see a surprising element of export strength. Anyone care to take the bet?
Then we have the question of pricing. The latest figures show mainland China’s export unit price index falling by six per cent year over year. Such a steep drop has not been seen since the 2008-09 financial crisis.
But this is a worldwide trend following on the slump in commodity prices since mid-2014 and it affects everyone. In volume terms, the mainland’s export growth is stronger than in value terms.
I think the most important thing to remember here, however, is that foreign trade is driven by the buyers, not the sellers.
Yes, if the sellers do not supply enough to meet demand then this equation is instead supply-led. But tell me where in the world consumer rubbish is in short supply at the moment. It has not happened for a long time. Look in a mirror and you will see who drives the trade cycle.
Now turn to the first chart. The blue line shows you a six-month average of the year-over-year growth rate of all imports by the United States and the European Union in US dollar terms. The red line shows you Asia’s year-on-year export growth rate in the same terms.
That they are so closely matched should be no surprise. When the buyer buys, the seller sells. What is important here is the trend at the right side of the chart. The buyers are buying less. The sellers are consequently selling less. The export slowdown is common across Asia.
And now to the second chart. Here the blue line represents export growth in Asia outside of the mainland. The red line shows it for the mainland.
It’s a clear story. Yes, the mainland’s export growth is declining but it has consistently been stronger than the rest of Asia and continues to be so now. When the trade cycle turns again, the mainland’s exports are like to recover faster than the rest of Asia’s. China is still gaining market share.
“Really frightening,” said one investment bank economist we quoted about these latest trade figures. Methinks investment banks should hire economists who do their homework. The figures are all in the public domain. What’s frightening is how few professional pundits look at them.