• Sat
  • Jul 26, 2014
  • Updated: 11:47pm

Trade data suspicions linger as China's April exports surprise

Mainland trade surplus more than doubles to US$18.45b although distortions remaindue to effect of last year's inflated data

PUBLISHED : Thursday, 08 May, 2014, 11:03am
UPDATED : Friday, 09 May, 2014, 2:14am

Mainland exports and imports are likely to improve further due to recovering demand from Europe and the United States, but the extent of the rebound remains uncertain, with analysts having a tough time making accurate predictions about the trade situation.

Last month's official trade data, released yesterday, again caught analysts off guard - although it was at least a positive surprise this time around.

Exports and imports both unexpectedly slumped in March thanks to a high comparison base caused by rampant over-invoicing a year earlier.

But exports gained 0.9 per cent year on year in April to US$188.5 billion, reversing a 6.6 per cent decline in March and an 18 per cent fall in February, the customs administration said yesterday. The result beat market expectations of a decline in exports of about 3 per cent.

Imports climbed 0.8 per cent year on year last month, helped by robust demand for commodities including crude oil and copper, after falling 11.3 per cent in March.

The mainland's trade surplus more than doubled to US$18.45 billion last month from US$7.7 billion in March, easing depreciation pressures on the yuan, according to some analysts.

However, the trade picture still appeared distorted, with the impact of the high year-earlier comparison base seen as likely to fade this month. In May last year regulators began to crack down on trade arbitrage betting on yuan appreciation.

Jin Baisong, a senior researcher at the Ministry of Commerce, estimated that exports might actually have grown by 5 per cent to 7 per cent last month if the distortions were removed.

"The mainland's exports to Hong Kong surged about 60 to 70 per cent in the first four months of last year, which was absurd," Jin said.

Mainland exports to the US grew by 12 per cent year on year last month and those to the EU by 15.1 per cent, while goods shipments to Hong Kong declined by 31.4 per cent due to the crackdown on "round-tripping" activities, according to ANZ Bank.

"China's export growth will show a marked rebound starting in May," HSBC economist Ma Xiaoping said. "Beijing's recent pro-growth policy may also exert a further impact, boosting imports over the next few months."

The State Council decided on April 30 to speed up export rebates and streamline customs procedures, among other steps, to bolster trade growth. The government also cut tax for small businesses as part of efforts to boost economic growth, which slipped to an annual rate of 7.4 per cent in the first quarter from 7.7 per cent in the fourth quarter of last year.

Jin also said he believed export growth would accelerate, while adding a note of caution about the global recovery.

US gross domestic product growth almost stalled in the first quarter of this year, up only 0.1 per cent, he noted.

Demand in Japan was "not very optimistic" following a consumption tax increase last month, although the European economy was likely to fare better than last year, Jin said.

Adding to doubts were weak export orders shown in the official purchasing managers index for April and a 12.6 per cent fall in the total value of contracts signed at the recent Canton Fair.


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China wages have been increasing a lot faster than productivity so I would expect the RMB value to decline rather than increase. China has not been investing in productivity recently, rather they have been investing in real estate and vanity projects which add little to real productivity. Real productivity increases will only happen if the private sector invests tangible good and services production and that isn't happening now.
Judging from the overvalued yuan, and the latest movement of China's GDP deflator, the recent CPI data may have understated the country's deflationary pressure.
The PBOC's non-sterilising yuan intervention should persist in the foreseeable future.
It's said that the PBOC hasn't recently sterilised the yuan supplied to the banking system through its buying of US dollar which results from its intervention in the yuan's exchange rate.
It's costly to do so.
But it's also a way to pump money into the market to keep the interest rate from rising higher --- afterall, deleveraging in a high interest rate environment is like having a surgery without using anaesthetics.
But if this non-sterilisation persists, the inflation rate may prop up in the future.
(Chinese readers: ****cn.wsj.com/big5/20140509/rec085631.asp?source=whatnews2)
Remember what happened to Japan from the 1980s into the mid-1990s when the yen went ever higher.
Japan became a higher-cost place in which to invest, so that large Japanese firms decamped to invest in lower-cost Asian countries, and in the United States itself.
Even though yen appreciation slowed Japan’s export growth, the trade surplus of the slumping economy increased.
People like Michael Pettis of Peking University argue that the yuan should not devaluate, because ‘rebalancing requires that China’s interest rates, wages and the currency rise in the aggregate in order to increase the household income share of GDP, along with higher direct and indirect transfers from the state to households.’
Well, if the yuan is now sharply revalued, turning China into a higher-cost country in which to invest, globally oriented firms would decamp and invest elsewhere, so that investment in China itself would slump.
Investment-led expenditures in China would fall, the economy would contract, and Chinese imports could fall.
But China’s domestic saving is relatively insensitive to the exchange rate --- Chinese consumers don't buy lots of expensive imported (luxury) goods.
So, China’s excess savings (S – I), and hence her trade surplus, could well increase !
Together with the lack of savings and trade deficit in the US, it would make the world even more unbalanced than before !
M Miyagi
China’s trade surplus will jump even more with the expected increase in trade with Russia and Africa. Soon China will have to export at higher prices to the US as other countries will want to buy almost everything that China exports. Good for China.
Should China lower the banks’ RRR across the board to cope with the issue of property downturn right now ?
To borrow the famous phrase from Takeda Shingen in Akira Kurosawa’s film Kagemusha, who in turn borrowed it from China’s Sun Tze in The Art of War ---
immovable as a mountain.
With the adverse expectation of continual yuan revaluation, the upshot would be further hot money inflows (which is partly sustaining the country's precarious property market).
The PBOC would be forced to intervene to buy dollars on a grand scale to prevent an indefinite upward spiral in the yuan.
But the accumulation of dollar foreign exchange reserves threatens a loss of internal monetary control and inflation,
as base money in China's banking system expands from the foreign exchange intervention --- and cannot be completely sterilized.
(from 'The Unloved Dollar Standard' by Ronald I. McKinnon)
But please don't jump to the conclusion that the yuan is still undervalued.
The exact opposite is the case --- the yuan is still overvalued at present.
The recent downturn in China's property market may reflect the fact that the hot money inflow into the country may have been greatly subdued by the yuan's recent unexpected devaluation.
But the recent rise in Hong Kong's yuan deposits shows that most people still insist the yuan will resume its revaluation later in the year, which, if realized, only makes the yuan even more overvalued.
If the yuan's exchange rate has more or less attained the equilibrium level,
as is claimed by almost everyone under the sun,
and if there are no more fake exports and imports invoices at present,
how can you explain this month's prop up in China's trade surplus,
a dominant part of the country's current account,
especially if we take into the consideration the fact that the exports figure in April last year was probably overstated by fake invoices ?


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