Jan 15th 2009 | HONG KONG
From The Economist print edition
Why is Chinas trade surplus growing when its exports have collapsed?
THIS week revised figures revealed that China overtook Germany in 2007 to become the worlds third-biggest economy. At the start of last year China also looked set to become the worlds biggest exporter, but a slump in exports in the final months of the year meant they remained smaller than Germanys. Chinas exports tumbled by 13% (in dollar terms) in the fourth quarter, leaving them 3% lower in December than a year earlier. Despite this, Chinas trade surplus rose to a record $457 billion at an annual rate in the fourth quarter50% bigger than in the same period of 2007. What is going on?
In the first half of 2008 Chinas trade surplus did indeed shrink (see chart). But since then, although exports slumped, imports fell by much moredown by 21% in the 12 months to December. The slide in both exports and imports was exacerbated by the global credit freeze, which has made it harder for companies around the world to get letters of credit to guarantee payment. Imports were also dragged down by cheaper oil and commodity prices, and by weaker imports of materials and components used to make exports (over 50% of total imports).
But a more worrying reason why China bought less from the rest of the world is that its domestic demand has weakened. Consumer spending and manufacturing investment have so far held up reasonably well, but constructiona big user of imported raw materialshas collapsed.
With most of the world in recession, Chinas exports will continue to slide this year. Nomura forecasts a drop of 6%the first annual decline for more than 25 years. Imports, on the other hand, are expected to increase. By mid-year, the governments planned massive increase in infrastructure spending will boost imports of raw materials and machinery. If so, Chinas trade surplus will shrink in 2009.
The collapse in exports and the consequent job losses in southern China have triggered speculation that the government might try to push down the value of the yuan. But not only would this provoke a protectionist backlash from Americas new government, it would also do little to help producers. Chinas problem is weak foreign demand, not competitiveness. The best way for China to support its economyand to help unwind global trade imbalancesis to bolster domestic demand.
One piece of good news this week is that, following interest-rate cuts and the governments scrapping of credit restrictions, total bank loans jumped by 19% in the 12 months to December, up from growth of 14% last summer. China is perhaps the only big economy where credit growth has heated up in recent months. If that is sustained, it could help to boost domestic spending.
China certainly cannot rely on exports any more. Becoming the worlds biggest exporter will be of little comfort if global trade is spiralling downwards.
A big contribution to China's import decreasing is the commodity price. China can now buy iron ore, oil and gas or any other natural resources at much cheaper price. Thanks for the American Crisis.
Even China's total exports decreased in Dec., but, that mainly caused by processing trade. The ordinary trade is still increasing at slower pace. That's a welcome trend.
The products that were made by CHinese companies and most of the components from inside China. As I said before 60-70% of China's exports was actually processing trade and most of the profits went to foreign companies' pocket. In many case China only get those salaries but China has to undertake the cost in resources and environment.
For example, foxconn is a huge exporter in China, but it is owned by Taiwan businessman. It mainly does processing trade. Its export is measured by tens of billions of US$. But it profit margin is very thin and its tax paid to China is ignorable. The main gain China gets is the salaries paid to its employees. Huawei is a smaller company but the tax huawei paid is hundreds of times of what foxconn paid and Huawei's salary is very high in China's standard.
I just want to tell you that the lost China had in the export is much smaller than many, especially westerners think.
Another big decrease in China's export is the low-level industries, such as those simple and low quality toys and the industries that use a lot of local natural resources but not too much value is added. China started to limit or discourage these kind of industries about one year ago. These are good policies but they came out in bad timing.
Chinese really are walking on a tightrope here, behind the scenes there is too much interplay with the US financial markets and if even 1 string snaps they could be in deep trouble.
China is in no worse shape than rest of the world though. Unemployment is definitely gonna be a big problem which you can't avoid with such a large population to feed, but the $2 trillion in reserves give them more room to implement stimulus plans down the road. Also, domestic consumption is still holding (auto sales expected to surpass 10 million in 2009).
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#1 way to ascertain that you've lost an argument: Resorting to personal attacks.
So far, China is the only major economy who is still talking about 8% growth.
Considering the scale of the world economy downturn caused by Americans, No one can be outsider. China will definitely suffers from it too. But relatively, China is positioned well.
China imports almost 10 million tons of oil each month, that's about 70 million barrels, China now can save US$7 billion a month (Price from US$140 to US$40 a barrel).
China imports almost 30 million tons of iron ore each month, that can save China US$3 billion a month (price changed from almost US$180 to US$80 a ton)
China uses more than 400,000 tons of copper a month, let me assume about 200,000 tons come outside. The price is now about US$4,000/ton, but the peak price was more than US$8,000. That's about US$3.2 billion savings per month.
That's only a part of goods China needs to import. Don't forget China import almost 5 million tons of soy beans a month.
Nonsense, every country with large reserves including Russia and India are very concerned with what the fed does. Devaluing the currency is a major issue.
clearly you don't know what is rassia's economy. that's on the exact other side of china's.
china buys resources from outside and sell industrial products to others.
russia? reaaly fell sorry for you russians. a real superpower now depends on resources. with today's commodity price, russians hard time is coming.
india? they don't talk about too much about their reserves since they know that they have a big debt too and are facing huge trade deficit. they depends on fii a lot. but now with crisis is going, i don't think fii can br as big as before.
Ok the truth is that China is walking out as the winner in the crisis... 1 year ago, the chinese goal was actually bringing down the Growth to 7-8% because, Chinese problem always been the overheated economy (even chinese economist fear the bursting), this crisis actually serves as a natural coolant... Chinese never like the fact that their economy grow more than 10% and they shouldnt.
In addition, the chinese unemployment cant be compared in the same manner as wester unemployment...
West: if someone in sweden goes unemployed he will no longer be able to pay tax (I pay more than 50% of everything i make to the government -this excludes VAT on the goods i buy) and has to seek social security... this will give the government 2ice the burden.
China: as most of chinese factory workers were initially from the countryside they were once farmers... during this crisis most of them simply have to move back to the village the come from... once again work in the farms (so techincally they are not really unemployed in the same sense). In addition, most of Chinese population dont pay tax anyways... So there is really no burden to the state... furthermore, the habit and mentality of chinese are that they save for rainy days... unlike most of people in sweden... I think some economist from Goldman sach once sad, china can never have unemployment rate (I disagree), however, this is exactly what he meant.
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This message has been edited by oki81 on Jan 21, 2009 9:14 PM
China certainly is in difficulty like everyone else, but we are still one of the top 5 economies that can squeeze out respectable growth. When this is all over and done, China would come out stronger on a relative basis. That's pretty much a consensus.
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