Foreign trade is not the big weakness in China's economy
Jake van der Kamp
An unexpected 3.1 per cent fall in June exports from a year earlier ... and a 0.7 per cent fall in imports left in tatters official forecasts of an 8 per cent growth in total trade this year and prompted economists to revise their overall economic growth calls.
South China Morning Post, July 11
Hang on a moment. I'm not sure I buy all of this just yet. There is a bit more in this picture and the biggest weakness in China's economy is not foreign trade.
First of all, pardon the way that the bit more in my first chart confuses the eye. I generally take the view that three lines in one chart is too much but I need all three this time. They represent year-on-year growth rates of trade and I have put them on a six-month average basis to smooth them out. Not to smooth them would have the chart looking like a seismograph record in an earthquake.
We start with the blue line. This represents the growth of United States and European imports combined and clearly indicates an overall foreign trade slowdown. It's the basis of the story as foreign trade is primarily driven by the importer's willingness to buy rather than the exporter's willingness to sell.
What immediately stands out about this line on the chart is that it differs very little in trend from the red line representing the export growth record of Asia, excluding China. This is hardly surprising. When the importer imports the exporter exports.
What is noteworthy, however, is the green line representing China's export growth record. It is still in positive territory and showing a much better performance than the rest of Asia.
In other words, the trade slowdown we see is not the result of Chinese exporters losing competitiveness but of a market slowdown. The chart suggests that Beijing still has the competitive advantage and any market revival could see these exports boom again.
It is also interesting to note in this context that despite all the gloom talk of Guangdong pricing itself out export competitiveness, the latest figures show Shenzhen exports rising at 51 per cent year over year on a six-month average basis and overall Guangdong exports at 35 per cent.
No, I can't make sense of it either.
But there is more to tell here. The contribution of foreign trade to economic growth is the contribution in net trade, exports less imports, and, as the second chart shows, the annualised total of this trade balance is considerably greater than it was a year ago. I see nothing in these figures to prompt economists to revise their economic growth calls.
The simple fact of the matter is that China's foreign trade is still doing quite well for the overall market circumstances with which it must contend.
The real weakness of its economy remains the continuing misallocation of capital into infrastructure and other capital projects that have little prospect of providing a return on the investment. This spells an impending financial crisis. It's a much bigger danger than anything happening in trade.