• Fri
  • Dec 19, 2014
  • Updated: 3:26am

Chinese exports jump 14.5pc

Despite a 14.5pc rise last month, doubts remain over whether the rebound can be sustained

PUBLISHED : Friday, 08 August, 2014, 12:02pm
UPDATED : Saturday, 09 August, 2014, 3:39am

The mainland's surprisingly robust export data bolstered hopes for a further economic rebound, but analysts and industry players say the strong momentum may be hard to sustain.

Analysts say falling imports pointed to persistent downside risks, indicating authorities may maintain the intensity of stimulus measures, as leaders are believed to be discussing policies on the economy and politics at their annual meeting at the northern coastal resort of Beidaihe.

Exports soared 14.5 per cent last month, greatly exceeding market expectations for a 7 per cent rise and also double the 7.2 per cent growth in June.

The data came as analysts questioned the sustainability in the rebound of the economy, which picked up slightly to 7.5 per cent in the second quarter from 7.4 per cent in the first.

Imports, however, dimmed the rosy picture by showing a 1.6 per cent decline in July, in part due to a high comparison base and weakening commodities prices, after rising 5.5 per cent in June. The data trailed the market consensus for a 2.6 per cent gain.

The trade surplus surged to US$47.3 billion in July as a result. The surplus was 1.7 times the level a year earlier and compared with US$31.6 billion in June.

"I have been pondering what has pushed exports in July to grow so fast. The reasons appear to be scarce for such a decent performance, although a recovery was well expected," Mizuho Securities' chief China economist Shen Jianguang told the South China Morning Post. He said growth of about 7 or 8 per cent for exports would be "good enough".

Royal Bank of Scotland economist Louis Kuijs also said "it is too early" to judge the trend of global demand based on China's single-month data. He believes Beijing will continue to roll out measures to support growth, "without resorting to a major general stimulus."

Exports to the euro zone and the United States both accelerated last month to 17 per cent and 12 per cent respectively, compared with 13 per cent and 8 per cent in June. Shipments to South Korea soared 32 per cent, while exports to the Association of Southeast Asian Nations grew 12 per cent.

Xu Wenbin, chairman of Shijiazhuang Artweaver, an exporter of Chinese handmade rugs, told the Post that he felt "there's not any reason to be optimistic" about the mainland's long-term trade growth as he was more concerned about rising domestic costs. Each year, labour costs climbed about 10 per cent, he said. Moreover, the government's intensified anti-pollution campaign made many small raw-material suppliers struggle to cope with a sudden rise in environmental-related costs, he said.

The value of imports of goods such as crude oil, iron ore, and coal fell sharply last month as commodity prices declined.


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While revaluing the yuan may reduce China's trade surplus, it may also raise the amount of carry-trade hot-money inflow into the country, especially if the interest-rate differential is still there.
The renewed hot-money inflow, if any, may explain the recent rise in the country's stock market.
The private sector in response will also hold less foreign exchange.
The resulting rise in the amount of funds outstanding for foreign exchange will require the PBOC to issue more yuan to mop them up, thereby increasing the country's inflationary pressure and sustaining the should-be-cooling property market.
Which means the PBOC's recently resumed monetary independence is lost once again.
Perhaps the simplest way to lower the country's trade surplus is to gradually eliminate the exports tax rebates.
I can't resist asking the following important question.
On what criteria does the country's daily mid-price of the yuan/US dollar exchange rate depend ?
Is it a state secret ?
It's quite impossible for the PBOC to fully know daily all the relevant and available market information which affect the yuan's exchange rate.
The information, when available to the central bank, is already bygone, not to mention the more elusive future expected information.
Communism wouldn't have failed if the government's visible hand could have grasped all the useful information more effectively than the free market's invisible hand.
Indeed, it's exactly because communism has eradicated the invisible hand, and hence all the market signals it sorely needs for her extremely complicated planning, that had made the jobs of the visible hand too misguided and difficult as to be completely unsuccessful --- by destroying its enemy the 'ism' has created its very own grave-digger at the same time.
If the banking officials in charge know more than the free market they would have been richer than Warren Buffet.
If A implies B, not B implies not A.
They are not richer than Warren Buffet, so they have no way knowing more than the free market.
It may be much better for the PBOC to stabilise the mid-price of the exchange rate, rather than moving it up or down almost daily, for we-don't-know-what reasons.
The world is already confusing enough, there is no need to add any extra confusion to it.
By the same logic, the government or the PBOC may not know (better than the free market) what kind of private industries their expansionary monetary policies should be targeted at.
They may not fully know why 7.5% is the correct price floor for the country's annualised GDP growth rate, or whether this target should be flexible or not.
Or why 3.5% should be the price ceiling for the country's CPI.
Or exactly why the country's unemployment rate should not exceed a certain specified level.
Or why at least 1.8 billion mu of farmland must be maintained for the future benefits of the country.
Or how long the present birth control should be maintained.
Or why the country's biggest cities already have enough population and should not accept too many farmer workers from the other parts of the country.
Or how high a city's minimum wage rate should be.
Or what the various market interest rates should be.
Or how many IPOs should be allowed in the country's stock market every year.
Or what kind of industries they should subsidize and promote so that they will become world-competitive and global brands years later.
And so on ad infinitum.
Not even the fastest supercomputer together with the best statistics department in the world can enable the sincere and fatally-conceited government officials to make the right or best choices regarding all the above jobs.
Is China's NDRC better than Japan's MITI when deciding what should or should not be done ?
Where is MITI right now ?
'If the market is left to her own, can we put our heart at ease ?'
This is the question many Chinese government officials usually ask themselves.
The correct question to ask is,
'If the government is like a too-caring father, is it really good for the country and the next generation ?'
Of course, economically, all the economy's public goods and services can be supplied by the government more efficiently than the private sector.
In particular, the government has the authority to redistribute the country's income or wealth to make the society a fairer place to live in.
In the US, the anti-trust laws have already been well established to guard against any problems raised by Thomas Piketty in his book 'Capital in the 21st Century'.
In China, there are also her own anti-trust legislations, but they seem to be used against the foreign monopolies, not the domestic ones, like some of the SOEs.
This is not surprising.
While Antichrist is well-known, 'one's being anti-oneself' is unheard of.
Hong Kong's Victoria Harbour is one of our city's must-see tourist spots.
Victoria was the Queen when the British Empire was in her heyday.
The Victoria Era was great partly because the Queen had positioned herself correctly in the kingdom.
Her biggest success was not a result of her hard work.
Instead, she had done very little, and in this way, she enabled the normal operations of the parliament and sustained the country's political stabilty.
Consider the following identity (I think the symbols are self-explanatory) :
EX - IM = (S - I) + (T - G - Tr),
or, net exports is the sum of excess private savings (personal savings plus the retained earnings of firms minus private investment) and government savings (the government budget surplus).
(Adapted from 'A Concise Guide to Macro Economics')
To reduce the trade surplus so as to rebalance the economy, it is better to lower the size of the government's surplus budget, or raise the size of her deficit budget, by lowering T, or increasing G and Tr (transfer payments), or both, rather than further increasing I, which is not recommended, for obvious reasons.
Expansionary fiscal policies, in the form of rising deficit budget, can increase the country's aggregate demand, sustain the country's GDP growth rate and employment level, encourage more domestic private consumption (through lower T and greater Tr), increase the private firms' retained earnings and hence their ability to repay their debts, and reduce the need of further using expansionary monetary policies to prop up the economy, because the extra money, targeted or not, will probably spiral back to the black hole of the SOEs and the local governments' financing platforms.
In other words, the public sector needs to absorb some of the debts of the private sector, to reduce the private economy's overall leverage --- this leverage should not be further increased through more helicopter monies.

July's relatively high exports growth rate may be reflecting growing external demand coming from the US and Europe.
Hopefully it was not partly propped up by fake exports invoicing.
The drop in imports growth rate may partly reflect the present fall in the world's commodity prices, which in turn has been caused by China's recent lower growth rate.
This fall in the commodity prices is not bad for China.
If both the trends of exports and imports persist then the country's relatively large surplus trade balance will be sustained and her total aggregate demand will be better supported in the coming months.
These trends may be disturbed if the yuan resumes her persistent revaluation in the future.
The greater trade surplus may reflect the country's greater excess savings, due perhaps to a slower growth in overall investment in the country.
The PBOC will now have less pressure to have to use expansionary targeted monetary policies to sustain the country's growth rate in the second half of this year, since the yuan's resumed revaluation means a smaller demand for foreign exchange in the market, and a possible recovery of hot-money carry trades, resulting in a greater amount of outstanding funds for foreign exchange in the coming months.
The recent downturn of the country's property market may even be reversed in the future.
Right now, C, as a component of aggregate demand, cannot be depended upon.
Between I and (X - M), it seems that China is 'choosing' the lesser evil.
The CPI trend may stop falling as well.
While the government has been spending more on high-speed rails, subsidized housing, and the farming industries, the central bank's expansionary monetary policies cannot increase the economy's domestic aggregate demand by a large extent, especially in the manufacturing and property sectors, because the excess capacities in these industries means there will not be too many chances for profitable investments, and the banks are now more demanding and careful when they consider supplying more new loans to these industries.
Monetary policy should now be used to stabilize the financial system, not to stimulate or even sustain the coming economic growth.
A drug should not and cannot be used to cure a disease which had initially been caused by using too much of the same drug.
The country's recent employment level has not worsened, perhaps thanks to the growing service industries, even though her GDP growth rate has been declining over the years.
A lower GDP growth rate does not imply the end of the world, especially if this is a necessary condition for deeper structural and real reforms.
(Chinese readers : ****finance.ifeng.com/a/20140414/12109836_0.shtml)
Lower labour and environmental costs, stable exchange rate, smaller profit tax and fee payments, and lower cost of capital, may better help the country's exports sector than the persistent use of the exports tax rebates, which discourages technology upgrades.
China's PPI continues its persistent fall in the past 29 months.
July's year-on-year PPI growth rate is -0.9%, as expected.
As before, this is not bad news.
It doesn't mean the country is now affected by deflation, or disinflation --- the July y-o-y CPI growth rate is still positive, at 2.3%, as expected.
One major reason causing the consecutive drop in China's PPI is the continuing fall in the world's commodity prices in the past period of time.
This is not bad news, because the fall in PPI was partly caused by a drop in the raw material prices of the manufacturing industries, but not by a decrease in aggregate demand in which the deflationary pressure will adversely affect the factories' profit margins.
If the PBOC further relaxes her monetary policies in the coming months, the greater government expenditures may go to sustain the country's excess capacities and scale of debts, the property sector may come back with a vengeance, and the country's leverage may further rise as a result, causing greater confusion than otherwise.
Also, the local governments' tax rebates given to the factories is not helping them actually, but is instead delaying the overdue efforts to eliminate their excess capacities.
Often, the road to hell is paved with sincerity --- this problem can partly be solved by using simple economic analysis and cold logic.
Sometimes, one must be cruel only to be kind.
It's always been claimed that the yuan's exchange rate has more or less achieved its equilibrium level, but why do the latest trade surplus data seem to point to the contrary ?
Is it true there's been substantial capital flight from the country in recent months ?
Does the yuan's recent resumed revaluation mean that the currency is still under-valued ?
If the yuan is still under-valued, why has the country's PPI continued her persistent fall in the past 29 months ?
Internal devaluation, partly in the form of falling PPI, is more consistent with yuan over-valuation than under-valuation, especially if the country's persistent rise in (minimum) wage rates in the cities is also taken into consideration.


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