China records a monthly trade deficit?? (ALARM BELLS)

[agamemnus]

Interesting, no?


But is it true?

(CNN) -- China recorded a $7.24 billion trade deficit in March, the General Administration of Customs announced Saturday, according to state media Xinhua News Agency.
It was the country's first monthly trade deficit since April 2004, Xinhua reported.
China exported $112.11 billion worth of goods and services in the month of March -- an increase of 24.3 percent year on year, and imports rose 66 percent year on year to $119.35 billion, Xinhua reported.
In March, imports and exports increased by 42.8 percent year on year to $231.46 billion, according to the customs statistics.
Combining the first three months, China still recorded a trade surplus of $14.49 billion in the first quarter, a fall of 76.7 percent from the same period of last year, Xinhua reported.
In the first quarter, China's imports and exports totaled $617.85 billion -- a rise of 44.1 percent year on year, Xinhua reported.

http://www.cnn.com/2010/BUSINESS/04/...ef=igoogle_cnn

[Cracky]

I think it was to be expected in a largely manufacturing focused economy. Nobody has enough money to buy their stuff.

Of course, this doesn't mean there's anything wrong with the Chinese economy. A trade deficit need not be a bad thing, it's just a measure of data.

[agamemnus]

It gets even more interesting when you account for the artificially low price of the yuan. If it was allowed to float, the deficit would have been enormously bigger.

[Hazir]

It could be true, it could be just cooked figures. But it's not entirely improbable. The trade deficit of China is AFAIK mostly generated in its trade relation with the US. They import a lot of raw materials from other countries.

[Dreadnaught]

Agreed with Hazir -- either the cost of certain raw materials shot up, they are hoarding raw materials as a price hedge (as they apparently did with iron ore) or these numbers are cooked for some particular purpose.

Not to sound America-centric, but maybe they are particularly worried about being labelled as a currency manipulator by the US Treasury.

[CitizenCain]

Not to sound America-centric, but maybe they are particularly worried about being labelled as a currency manipulator by the US Treasury.

Probably not. Why now? I remember complaints about that sort of thing during the Clinton administration, so it seems unlikely that they'd suddenly start caring about it now. It's probably entirely a function of the Great Recession we're all in - demand for their manufactured goods, which make up ~103% of the Chinese economy, have dropped off, so dramatically less exports, so trade deficit.

[Dreadnaught]

Been reading some analysis suggesting that exports in China typically slow down in Springtime, so this is likely just a seasonal thing.

[wiggin]

I would be skeptical that this has much to do with the yuan - an interesting bit I saw in the WPost indicates that while the yen *doubled* in value in the 80s, but Japans' trade surplus was unchanged. I think letting the yuan float more freely is definitely a good idea to address long-standing trade imbalances, but it not a major factor in their trade surplus or deficit. This is almost entirely driven by drastically higher costs for raw materials (which they are importing at a record rate for all of their infrastructure building and government stimulus) coupled with significantly depressed demand for consumer goods in most Western nations. It also may be driven to a small extent by increased domestic demand for goods, which is the real culprit (though one can always argue that the artificially low yuan is helping suppress demand).

[Hazir]

Probably not. Why now? I remember complaints about that sort of thing during the Clinton administration, so it seems unlikely that they'd suddenly start caring about it now. It's probably entirely a function of the Great Recession we're all in - demand for their manufactured goods, which make up ~103% of the Chinese economy, have dropped off, so dramatically less exports, so trade deficit.

Actually back then they did give in after the US started to apply serious pressure.

[agamemnus]

I think letting the yuan float more freely is definitely a good idea to address long-standing trade imbalances, but it not a major factor in their trade surplus or deficit.

Of course it is. If it was floated, the yuan would be twice as expensive, they would export less than half as much, and the deficit would be much more.

[wiggin]

There are compensating factors that would work against such a direct change in valuation. Note my reference to Japan in the 80s. Obviously a stronger yuan would have some impact on trade flows, but I strongly suspect the bigger effect would be through increased domestic demand. Additionally, while their export market would be hurt by a stronger yuan (though perhaps not as much as we think, if the increase is gradual - they still have a competitive advantage in terms of labor markets and the like), their imports might also be much cheaper in the end.

[RandBlade]

Of course it is. If it was floated, the yuan would be twice as expensive, they would export less than half as much, and the deficit would be much more.

That is insanely simplistic.

For everyone saying that exports are down due to the recession . . . they are lower than they might have been otherwise most likely, but actually the article states that exports are up by 24.3% - not bad going in a recession!

As China becomes a wealthier and healthier economy they ought to start importing more, this could be a part of the factor. Higher commodity prices I suspect are a big factor too. I would not consider this to be an alarm bell, quite the opposite. Combined trade being up 44.1% is very healthy indeed and it not just being exports is longer-term a good sign.

[wiggin]

To be fair, RB, exports have been recovering for some time in China - they're just still suppressed compared to pre-recession levels, as I understand it, and growth in exports is still sluggish.

But in principle, you are correct.

[agamemnus]

So what again about my argument did you find incorrect? Again, the fact that exports are even close to current levels is because of their artificially deflated currency.

The alarm bells, for me, are that China can't manage positive exports even though the government is basically forcing everyone to sell at a much cheaper price than the otherwise would like. This is basically saying that China's yuan pricing policy (if this trend holds up somehow) isn't working to hold down imports as a percent of exports. (The fact that both exports and imports rose over last year is not surprising at all given that the world was in a huge recession.)

[RandBlade]

To be fair, RB, exports have been recovering for some time in China - they're just still suppressed compared to pre-recession levels, as I understand it, and growth in exports is still sluggish.

But in principle, you are correct.

Do you have any source to show that they're suppressed compared to pre-recession levels? I suspect there isn't a nation in the western world that would find growth over 24% in the last 12 months to be "sluggish" or "suppressed". I appreciate the recession started more than 12 months ago, but still it must have fallen very dramatically to have grown 24% and still be down.

So what again about my argument did you find incorrect?

The claim that a freely-floating yuan would cause exports to halve, or the claim that there are "alarm bells" in this.

Again, the fact that exports are even close to current levels is because of their artificially deflated currency.

Not just that.

The alarm bells, for me, are that China can't manage positive exports even though the government is basically forcing everyone to sell at a much cheaper price than the otherwise would like. This is basically saying that China's yuan pricing policy (if this trend holds up somehow) isn't working to hold down imports as a percent of exports.

So what? Given the rise in commodity prices and the world recession, its not at all disappointing or alarming to have one month where they're net importers. Over the quarter they're still net exporters too.

(The fact that both exports and imports rose over last year is not surprising at all given that the world was in a huge recession.)

WTF? Why would the recession cause both to rise?

A huge recession can mean a decline in trade, both fall.

[wiggin]

RB: I couldn't find all of the data I wanted, but here's some: Chinese exports to the US peaked in October 2008 at the very beginning of the recession at $34 billion (for a trade surplus of nearly $28 billion). Exports dropped to a minimum of $18.8 billion in Feb 09 (exacerbated by seasonal fluctuations, but still a 20-some percent drop from the previous year), and then slowly climbed back out (roughly the same timeline as US fiscal stimulus, which was passed in Feb 09). The last bit of data I saw was the year-on-year increase for Jan 09 to Jan 10, which was a slight increase from $24.7 to $25.2 billion exports (though still lower than the Jan 08 exports of $26.2 billion). The last year-on-year decrease was in November 2009, though of course the raw month-on-month exports have been dropping for months due to seasonal variation.

This isn't the whole picture for China, of course, but I couldn't easily find good recent English-language stats (I'm sure they're out there, just couldn't find them in a quick search). The US data is certainly instructive, though. Chinese exports hit a low roughly a year ago, so it's not surprising that current year-on-year increases are quite large. When compared to two years ago, though, they are roughly on par or somewhat lower when previously they had been increasing dramatically every year since ~1997 (with a small hiccup in 2001). The point is that exports are still definitely recovering, and China's huge stimulus and ongoing infrastructure projects produces a very large appetite for raw materials and energy. The deficit is not surprising, nor does it presage some pending doom for China. Exports will recover, and a slow revaluation of the yuan won't be the end of the world either.

Of course, the real reason for China's trade imbalance (at least vis-a-vis the US) is not the yuan's depressed value (though that helps). It's that China has low environmental standards, very cheap labor, etc. They have significant competitive advantages compared to US companies in most dirty, unhealthy, or labor-intensive jobs. This won't last, of course, but for now they are enjoying significant capital inflows to build up their infrastructure.

[agamemnus]

The claim that a freely-floating yuan would cause exports to halve, or the claim that there are "alarm bells" in this.

Well, it's interesting and I already defined what I meant by alarm bells. Also, yes, I think it would have halved exports. Even before they went from over 8 to 6 yuan (?) on the dollar, that over-8 price was still lower than the real market price. There's a tremendous difference in price here between demand and supply.

So what? Given the rise in commodity prices and the world recession, its not at all disappointing or alarming to have one month where they're net importers. Over the quarter they're still net exporters too.

Everything falls in a global recession by definition, so... Also, yes, it's just a one month "blip", but could be a sign of things to come. As the article says, it's the first time in 4 years that they have had a monthly deficit.

WTF? Why would the recession cause both to rise?

A huge recession can mean a decline in trade, both fall. [/QUOTE]

WTF? Why would the recession cause both to rise?

*facepalm*

Export and import level[s] rose OVER last year [level]'s, ie: a rebound, but they both still suffered the year before.

[RandBlade]

RB: I couldn't find all of the data I wanted, but here's some: Chinese exports to the US peaked in October 2008 at the very beginning of the recession at $34 billion (for a trade surplus of nearly $28 billion). Exports dropped to a minimum of $18.8 billion in Feb 09 (exacerbated by seasonal fluctuations, but still a 20-some percent drop from the previous year), and then slowly climbed back out (roughly the same timeline as US fiscal stimulus, which was passed in Feb 09). The last bit of data I saw was the year-on-year increase for Jan 09 to Jan 10, which was a slight increase from $24.7 to $25.2 billion exports (though still lower than the Jan 08 exports of $26.2 billion). The last year-on-year decrease was in November 2009, though of course the raw month-on-month exports have been dropping for months due to seasonal variation.

2 issues. Firstly we were talking about China in general, not China to the US specifically.

Secondly its not reasonable to compare month-on-month precisely because of seasonal variation. Year-on-year or seasonally-adjusted figures are necessary. Looking back for years, it appears that October is the peak month of the year every single year, not just a fall following a recession then. In fact March is always a small fraction of October. Personally, I'd have intuitively thought that easily explainable by one word: Christmas.

Comparing like-on-like for recent months (no March figures yet) then recent months have been up on a year ago and flat on 2 years ago (either just up, or just down). Yes flat isn't the massive growth they were getting in the past, but that's just to the US too.
Source: US Census Bureau

I can't find non-US data either though.

This isn't the whole picture for China, of course, but I couldn't easily find good recent English-language stats (I'm sure they're out there, just couldn't find them in a quick search). The US data is certainly instructive, though. Chinese exports hit a low roughly a year ago, so it's not surprising that current year-on-year increases are quite large. When compared to two years ago, though, they are roughly on par or somewhat lower when previously they had been increasing dramatically every year since ~1997 (with a small hiccup in 2001). The point is that exports are still definitely recovering, and China's huge stimulus and ongoing infrastructure projects produces a very large appetite for raw materials and energy. The deficit is not surprising, nor does it presage some pending doom for China. Exports will recover, and a slow revaluation of the yuan won't be the end of the world either.

I agree with all that. I wouldn't have disagreed with you saying they're on a rough par with pre-recession levels (and lost the major growth), but I've not seen any evidence that their exports now are majorly depressed compared to 2 years ago, pre-recession.

Of course, the real reason for China's trade imbalance (at least vis-a-vis the US) is not the yuan's depressed value (though that helps). It's that China has low environmental standards, very cheap labor, etc. They have significant competitive advantages compared to US companies in most dirty, unhealthy, or labor-intensive jobs. This won't last, of course, but for now they are enjoying significant capital inflows to build up their infrastructure.

Indeed. As China's people get wealthier, they'll demand more political and social freedoms and higher standards. They're just 2 centuries behind us politically.

[wiggin]

RB - I think we agree. Obviously year-on-year data is best (February 2008, 2009, and 2010 are instructive for the recession), and obviously exports (to the US) are apparently recovering. Yet it looks like imports are recovering even faster, not surprisingly. In reality some sort of three-month moving average (seasonally adjusted) would probably be more useful, given the fact that individual events can have short-term effects on exports (e.g. extremely bad weather in the US will drop exports quite a bit more than simple seasonal adjustments). *shrugs* I think we can agree that the recovery in exports is moving apace, but has not yet shown us whether export growth will match that of pre-recession levels. I guess that's the real metric I'm interested in - import growth has really shot up in China, at least for certain materials, and for now seems to be outpacing export growth. It's hardly heralding the end of Chinese trade surpluses, but does indicate something we all knew - China has recovered from the recession faster than most of the developed world.

[ar81]

I am not sure Americans may want the consequences of revaluation of yuan.
To become competitive with chinese for jobs, Americans should lose 14/15 of buying power.

[RandBlade]

100% agreed.

EDIT: To wiggin.

[GGT]

Chinese New Year is more important than Christmas. As far as patterns go. That's when the rural workers leave factories and go home for vacation. Their export factories are (for the most part) built on migratory rural workers flooding the manufacturing cities to find work. Low paying export work, not expert work.

Whether they return to work in cities, and send money home, is another thing. Their energy infrastructure (trains running, coal shortages, etc) has as much to do with global trade as the value of the yuan.

[RandBlade]

No you're wrong GGT.

Chinese New Year may be more important to the Chinese as individuals, but as far as patterns go with international tread it is not a shade on Christmas. The exports peak at October because that's when importers are stocking up for the lead-up to Christmas. Chinese New Year has a negligble effect on orders placed by importers in comparison.