China’s Exports Off in May. What Should We Think?

Thursday, July 10, 2008 18:49
Posted in category Uncategorized

A lot of news today on China’s June numbers for the surplus.

According to the IHT coverage:

China recorded a trade surplus of $21.35 billion in June, less than expected, as slower growth in exports contributed to concerns that weakening demand overseas could be starting to hit the economy.

The surplus marked an increase from $20.2 billion in May, but it was significantly smaller than the $26.9 billion surplus recorded in June 2007 and undershot economists’ expectations of a $22.4 billion gap.

Notably, exports rose just 17.6 percent from a year earlier in June, slowing from 28.1 percent in May. Economists had expected export growth of 23.4 percent.

And everyone has their views on why it has slipped.. and what it means.

Wang Tao from UBS:

The weaker performance is closely linked to the global economic slowdown, led by the U.S. economy

Stephen Greene of Standard Chartered

The worries over the export sector get worse and political pressure for loosening rises

Lehman’s Sun

Growth is likely to outweigh inflation as the top priority toward the end of the year, leading the government to loosen monetary policy,

The outlook for exports is darker for the rest of the year and the decline in economic growth will become steeper.

Citigroup’s Shen Minggao:

The government should slow the pace of the yuan’s appreciation to buy more time for exporters to adjust

For my part, this is something we have all been waiting for, and I am a bit confused as to why everyone is now worried about the impacts. It is what many have been pushing for.. slower growth.. for a long time. that if the economy kept going at 11%, the train would derail.

One thing that I have yet to see related to this was how much domestic demand played into this. Are manufactures selling more into the local market, or are they seeing reduced orders… that is something that someone should be paying attention to.

Without a crystal ball, I would venture a guess that July will be an up month as many push order out before the Olympics.. then off in August as everyone leaves their stations to watch 2 weeks of China’s national team on TV.. and then back up in September/ October..

UPDATE: For a much more analytical breakdown of the trade statistics, see Brad Setser’s coverage at CFR. His post adds a lot of needed perspective

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2 Responses to “China’s Exports Off in May. What Should We Think?”

  1. Duncan says:

    July 10th, 2008 at 7:09 pm

    The big downward force on exports this year has been steel products, which in volume terms have collapsed. The latest breakdown for June probably isn’t available yet, but in Jan-May the value situation for a lot of other goods wasn’t as bad as you might have expected given the headlines. Furniture exports for example up 30% year on year, electrical products up 26.1% and textile exports up 20%+ (albeit with slightly slower growth in finished apparel, around 9%, and footwear, up 12%). Most of this is a price rather than volume driven story, and it’s US$ terms which look less impressive in renminbi, but it’s still not too bad given the collapse in exports to the US. Demand for Chinese exports still very strong in the emerging world (with the notable exception of the Middle East) but the risk lies in Europe where strong demand to date may ebb as the economic downturn gets worse.

    Customs data doesn’t say much about switching of production from export to domestic demand, though I’d guess it’s happening….

  2. Rich says:

    July 10th, 2008 at 8:54 pm

    Duncan.

    do you mean low end stamped steel parts or high tolerance PPAP quality auto parts?

    I had a friend 2 years ago who got clobbered by the VAT rebate reduction (13% to 0%).. and then clobbered again when the Chinese gov’t was worried about over capacity and then added a 10% tax on top of that… 23% is a lot of evaporated margin

    For me, I am actually more interested in volume numbers. being dollar denominated already gives China a 20% rise in exports by $$ over the last 2 years… and that is without selling more.

    Hope all is well

    R