Jake's View

Don’t rush to blame slow ‘external demand’ for China’s trade woes

The nation’s exporters may have undermined their own competitiveness over the last three years by keeping their sales proceeds abroad, setting themselves up for future problems

PUBLISHED : Sunday, 15 January, 2017, 2:30am
UPDATED : Sunday, 15 January, 2017, 2:40am

Rising protectionism and sluggish external demand will weigh on China’s trade this year, the Ministry of Commerce warned yesterday ...

SCMP, January 13

Not quite so. The figures are beginning to suggest that sluggish external demand is not a culprit and that the mainland is losing export market share.

My evidence lies in the two charts. The story they tell is simple although my definitions may be long. Herewith (bear with me) a definition: The blue line in the first chart represents a three-month average of the year-on-year growth rate of total exports in US dollar terms from all of Asia other than the mainland, with the last data point extrapolated from a partial sample. Phew! Draw breath.

I don’t have Laos in these figures but I do have Vietnam and we are talking here of a total of about US$2.3 trillion worth of exports a year.

The red line represents that same growth rate for the mainland and the mainland’s total exports amount at present to about US$2.2 billion a year.

So, yes, the mainland is almost as big in foreign trade as the rest of Asia combined, but the difference is that the rest of Asia shows a three-month average export growth of 6.5 per cent at present while the mainland’s exports are still declining by about 5 per cent.

And now to the second chart. Once again that blue line represents the export growth rate of Asian countries other than the mainland. But the red line this time represents the average import growth of Europe and the United States combined. This amounts to about US$4 trillion a year, only a little less than all of Asia’s exports.

The important point about this second chart, however, is that it shows that the recovery in exports for Asia outside of China is right in line with recovery in import demand in the developed world.

In other words, it looks like the “sluggish external demand” of which the Ministry of Commerce complains is not really that sluggish after all. It seems to be recovering quite handily. The problem is that the rest of Asia is participating in this recovery but the mainland is not.

I hear your objection – everyone knows that mainland exporters under-invoice their exports as a way of hiding their export earnings abroad. That’s why mainland export numbers are down.

With rising costs at home and hostile peers abroad, China’s trade troubles set to stay

But it is not a recent phenomenon. It has been happening for years. We are thus comparing under-invoiced exports with previous under-invoiced exports, which means that the growth rate is probably still about right.

I also accept that there are two kinds of lies, common and statistical, and much of the mainland’s economic data falls into the second category.

But I largely exclude trade data from this observation. We are talking of hard declarations backed by physical goods and the numbers can be checked against similar declarations from trading partners abroad.

The possibility here is rather that exporters have undermined their own competitiveness over the last three years by keeping their sales proceeds abroad rather than using the money for necessary imports. The trade balance numbers certainly lend themselves to this view and it does not augur well for the future.