China’s export sales unexpectedly rose for the first time in four months in June while imports fell again but posted their best performance this year, causing some optimism that tepid trade flows are picking up. SCMP, July 14 It’s time to issue my trade seismograph warning again, I see. Month to month trade figures go up and down like a seismograph needle in an earthquake. If they cause optimism one month, they will cause pessimism the next. But there are still some interesting trends to observe here. They are that the mainland is keeping up its export performance remarkably well for worldwide trade conditions but is not keeping the proceeds in the mainland. First, however, my apologies for putting three lines in a single chart. I try not to do that sort of thing. It just confuses the eye. But I need to do it in this case to show the contrasts. The chart shows you foreign trade in year-on-year growth rates. These are smoothed out with a six-month moving average to get over some of that seismograph effect. Start with the green line. This represents the combined imports of the United States and Europe, together by far the largest market for Asian-made goods, but a rather cool one at the moment. What looked like an incipient recovery in the middle of last year has stalled. Now we turn to the red line. This represents the growth rate of the combined exports from all Asian countries except China. Not surprisingly, it closely matches what is happening to imports in the major markets. Exports are sagging. And now we get the blue line, which represents the mainland’s export growth. That spikiness earlier this year is the result of the Lunar New Year Holiday falling in a different month than the previous year but overall the trend is clear. Exports are still growing. The mainland has resisted the worldwide trade slowdown. We still have the world’s industrial export leader here. The second chart, however, shows that another trend also stands out. The mainland’s imports have fallen abruptly and this has produced a sudden and large increase in the trade surplus, which is now running at US$540 billion a year, an enormous figure. It is easily explainable, say the pundits. Imports are way down because oil prices have come way down over the past year and the mainland imports a great deal of oil. Well, yes and no. Assume that oil prices had stayed at the average of US$111 a barrel at which they stood in June last year, apply that figure to the volume of the mainland’s net imports of mineral fuels and you get the red line in the second chart. Yes, the trade surplus would not be so great. It would now be running at about US$440 billion a year, not US$540 billion, but that would still be an enormous figure and still a record high. The clear implication, however you look at it, is that a big outflow is building up on the mainland’s supposedly closed capital account. Export proceeds are not buying imports but are rather going straight back abroad.