• Thu
  • Dec 18, 2014
  • Updated: 2:23pm

Chinese exports tumble in February, raising fears of economic slowdown

Trade balance slips into deficit as February exports fall 18pc and imports increase 10pc

PUBLISHED : Sunday, 09 March, 2014, 5:30am
UPDATED : Sunday, 09 March, 2014, 5:30am

China's exports fell the most since the global financial crisis in February, swinging the trade balance into deficit and adding to fears of a slowdown in the world's second-largest economy.

Despite the Lunar New Year holidays being blamed, the sharp and unexpected drop in exports follows a series of factory surveys since the start of this year that point to weakness in economic activity as demand falters at home and abroad.

Exports in February fell 18.1 per cent from a year earlier, following a 10.6 per cent jump in January, the General Administration of Customs said yesterday.

Imports rose 10.1 per cent, yielding a trade deficit of US$23 billion for the month against a US$32 billion surplus in January.

That compares with market expectations in a Reuters poll of a rise of 6.8 per cent in exports, an 8 per cent rise in imports and a trade surplus of US$14.5 billion.

Analysts cautioned against reading too much into single-month figures for January or February, given possible distortions caused by the long Lunar New Year holiday. Many plants and offices shut for extended periods during the festival.

Still, combined exports in January and February fell 1.6 per cent from the same period a year earlier, versus a 7.9 per cent full-year rise in 2013. Imports rose 10 per cent year-on-year in the first two months, compared with a 7.3 per cent rise in 2013.

"February export numbers were a surprise on the downside, and even combined January-February numbers were below market expectations," said Li Heng, an economist at Minsheng Securities in Beijing.

"The data shows that the economy faces relatively big downward pressures and macro-policies need to be loosened a bit."

The government may step up fiscal spending to support some investment projects if growth slows further, given there is limited room for the central bank to loosen policy, Li said.

Exports to the United States edged up 1.3 per cent in the first two months from a year earlier, while sales to the European Union rose 4.6 per cent, according to official data.

China's trade outlook is widely expected to be rosier this year in line with a recovery in developed countries. Li said he expected exports to pick up in March.

Ting Lu, an economist at Bank of America-Merrill Lynch in Hong Kong, said that inflated export data in January-February 2013 means a direct year-on-year comparison can be misleading.

Fake trade deals to sneak cash into China past the country's strict capital controls were rampant early last year before Chinese regulators cracked down.

After adjusting for such distortions, export growth in the first two months of this year could actually be up about 8 per cent, Ting Lu calculated.

Recent weakness in the yuan is seen as having been orchestrated by the central bank to squeeze out speculators and deter hot money inflows.

China was fully confident of achieving its 7.5 per cent growth target in total trade this year, Commerce Minister Gao Hucheng said on Friday, citing an improving global economic environment.

The country's combined exports and imports grew 7.6 per cent in 2013, just short of the official target of 8 per cent.

China's goods trade in 2013 hit US$4.16 trillion, meaning it overtook the United States for the first time to become the world's largest goods trading nation, Gao said on Friday.

China aims for annual economic growth of 7.5 per cent in 2014, after the economy expanded 7.7 per cent in 2013, close to the weakest pace of growth seen since the late 1990s.

A resilient Chinese economy is good news for the world, particularly for major commodity exporters such as Australia.

China's crude oil imports in the first two months of the year rose 11.5 per cent from a year earlier, while imports of copper jumped 41.2 per cent and iron ore shipments rose 21.8 per cent, customs data showed.

The statistical bureau will release combined data on January-February retail sales, industrial output and investment for January and February on Thursday. The figures are expected to show a slightly slower rate of growth than in December.

February inflation data will be published today.


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You think? Maybe now is the time to cash out of the pyramid scheme....
Second, through China’s persistent wage inflation (in the name of rebalancing her economy toward more domestic consumption) the real exchange rate of the yuan has appreciated quite a lot already --- what really counts is the real, not the nominal, exchange rate.
I suspect that China’s CPI (inflation) figure should be much higher than the officially published one, or the interest rates demanded by the shadow banking system shouldn't have been so high.
Which means China's recent wage-price spiral has raised the yuan's real exchange rate quite a lot already.
(It's like Hong Kong's internal revaluation before 1997.)
Third, together with the falling PPI manufacturing figures announced recently, it may be inferred that the yuan is no longer undervalued, perhaps even overvalued.
(This time it's like Hong Kong's required internal devaluation after 1998).
At least we shouldn’t expect the yuan to keep on revaluing in the foreseeable future (or China's painful internal devaluation will ensue).
The PBOC then has to use a relatively tight monetary policy to calm down the economy, and discourage the policy banks to lend further,
causing relatively high prevailing interest rates in the free market, the proliferation of the shadow banking system and internet financing, and a sleeping stock market.
China’s shadow banking system, and the foreign hot money and loans (and perhaps the RQFII schemes also), keep both the property market’s Ponzi game and the local governments’ and SOEs’ wasteful investments to go on.
But now China’s (real) exchange rate may have overshot the ‘equilibrium’, so arguably everything may have to go into reverse.
In Europe, on the contrary, it’s Germany, the exports-surplus country, who’s calling the shots.
Thanks to the Euro, Europe’s trade-deficit peripheral countries have to undergo painful internal devaluation, to restore overall external equilibrium among European countries.
Once again, external stability means internal instability.
Politically this may increase the resentment toward the Germans.
Unlike 1998, the present flexible exchange rate system has greatly lessened the painful internal adjustments that have to be undergone by the EM countries recently.
Just concentrating on China and ignoring the US, one of China’s largest trading partners (second to the EU), is not enough.
This is a dangerous partial equilibrium approach.
We should fly up the sky and see the whole forest also --- a general equilibrium approach.
Afterall, it takes two to tango.
What follows is my best guess only.
Chimerica means that, if the yuan is undervalued (or the US$ overvalued), China’s managed and relatively stable exchange rate implies that, China should undergo internal revaluation, and the US should undergo (painful) internal devaluation, as the required adjustments, after the 2007-09 crash.
(Given more or less fixed exchange rate, external stability means internal instability.)
But the US calls the shots. Her three rounds of QEs, together with China’s 4-trillion-yuan investment binge, means that most of the adjustment pressure falls on China,
causing China’s overheated economy (mainly reflected by China’s overheated property market, the local governments’ and SOEs’ wasteful investments, and the rise in China’s bad loans) in the years after the crash.
It may be argued that the yuan is now overvalued.
First, the yuan’s nominal exchange rate has kept on rising against the US$ since 2005, by more than 30% already, only to be stabilized in recent days.
But at present most EM countries’ currencies and the Japanese yen have fallen quite a lot against the US dollar.
(Except for the Euro --- it’s as 'gentlemanly' as the yuan, perhaps more so.
It's argued that the Euro is now overvalued vis-a-vis the US$, the 'correct' rate should be US$1.25 per Euro.
Perhaps this is because Germany still resists European QE to save Europe's overall Japan-like economy.)
I can’t tell you the exact size of the excess saving --- it’s an ex-ante concept.
We can’t observe ex-ante saving and ex-ante investment, or their difference.
We can only observe expost saving and expost investment, which must be equal to each other --- it’s an accounting identity.
(An economics student needs a good economics teacher to understand the above.)
Just like we can’t observe ‘force’ in physics, it can only be implied by the movement or performance of the affected objects.
Similarly, whether the equilibrium exchange rate of the yuan is reached or not (whether the yuan is overvalued or still undervalued) can only be inferred from the observed performance of China’s other economic indicators.
Perhaps China’s coming export data will partly reflect the lacklustre performance of Canton Fair held last year.
China’s trade balance, a dominant component of her current account balance, won’t persistently become negative in the foreseeable future.
The current account balance is the difference between national saving and domestic investment. (Which is the same as her net foreign investment, or the difference between domestic product and national expenditure.)
In the foreseeable future, China is still expected to save more than it is investing domestically. The excess saving means that the trade balance will remain positive, unless her GDP falls (which is not allowed by Li).
A lot of factors cause China’s excess saving, which is perhaps structural in nature, like Japan’s.
One main reason is the financial repression that’s going on in China (and Hong Kong) --- the deposit rate is too low.


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