China December Gross Trade Surges To Record, As Trade Surplus Plunges
For all seeking a reason why China will never voluntarily drop its CNYUSD peg, and why it will now actively buy PIIGS debt indefinitely, in its attempt to keep its currency low against the EUR and fixed against that ultimate debaser of currencies, just take one look at the December trade surplus. Even as gross trade surged to an all time high with total imports and exports just shy of $300 billion, at $295.2 billion, December's trade surplus plunged from $22.9 billion in November to just $13.1 billion, the lowest since March and April when China actually had a stunning trade deficit, and a nearly 50% miss to consensus which was at $21.4 billion. The total 2010 trade surplus was $183.1 billion, down from $196.1 billion in 2009 and $295.5 billion in 2008. This means China has increasingly less linen (primarily dollars) to recycle in purchasing such items as copper and gold, and, to a much lower degree, US Treasurys. As the charts below demonstrate, the drop in exports was largest to the US (down 16.4% sequentially), the EU (down 11.5%) and, to a lesser degree, the Rest of the World (- 9.1%). Bottom line: should the EUR hit parity with the USD, and should the CNY continue appreciating vs the USD, this trend will get increasingly uglier, slowing down the Chinese economy even more, which in turn will continue to make the case for a China-led rebound ever weaker, and the case for increasing Fed UST monetization ever stronger (in the absence of Chinese purchasing power). Welcome to the connected world, where monetization is really an indication of weakness.
Some more statistics from MNI:
Exports in the month grew 17.9% y/y, with the growth rate roughly half the 34.9% expansion recorded in November. The median MNI survey forecast was for growth of 22.2%.
Imports expanded 25.6% y/y, as against a rise of 23.5% in November, and higher than MNI's median forecast of a 23.5% expansion.
For the full-year 2010, exports were up 31.3%, while imports grew 38.7%, customs said.
"China has fully shaken off the impact of the global financial crisis," customs statistician Zheng Yuesheng told state television in a broadcast shortly after the official release.
U.S. government data showed the trade deficit with China approaching $227 billion as of the end of October.
And some charts showing the surprising non-seasonal plunge in December net exports:
Total Chinese imports and exports by country:
The same, with breakdown by key trading partners:
Trade surplus by country - US:
and the ROW:
And what would a glaringly negative data point be without the requisite Goldman attempt at spin. To wit:
Exports growth decelerated to 17.9% yoy in December from 34.9% yoy in November (our forecast: 20.0% yoy, consensus forecast: 23.3% yoy). The implied month-on-month; seasonally-adjusted; annualized (s.a. ann.) growth rate was -5.2%, down from 109.3% growth recorded in November.
In terms of exports by destination, exports to ASEAN and Japan have been relatively weak with respect to the overall yoy exports growth. In terms of exports by product, high-tech products and mechanical and electrical products are the key drivers for the weak yoy exports growth.
Imports growth softened to 25.6% yoy in December from 37.7% yoy in November (our forecast: 23.5% yoy, consensus forecast: 24.9% yoy). On a mom s.a. ann. basis, imports growth was 26.6% in December, down from 126.7% in November.
In terms of imports by country/region, imports from the EU and US have been relatively strong with respect to the overall yoy imports growth. In terms of imports by product, crude petroleum oil and steel products have been particularly weak in December.
The level of trade surplus fell to US$13.1 billion from US$22.9 billion in November (the year-to-date trade surplus is US$183.1 billion). After making seasonal adjustments, the level of trade surplus fell to US$9.1 billion in December from US$12.3 billion in November.
The fall in yoy exports growth was the result of a very high base and a moderation in sequential growth after two months of exceedingly strong sequential growth in October and November. We believe the underlying growth momentum of exports remains healthy as our Global Leading Indicator and the exports orders sub-index in the PMI have been consistently pointing to stronger external demand growth. We believe policy makers will also take the base effect into consideration when they look at the data and hence a lower yoy growth does not necessarily imply policy makers will change currency and other policies because of renewed concerns on exports growth . Therefore, we are not revising our 6% annual CNY/USD appreciation forecast.
While the fall in imports yoy growth was affected by a high base as well, its sequential mom growth remained at a very strong level (unlike exports). Rising import prices amid higher upstream raw materials prices contributed to this strong reading. Given the trade price indices are typically released with a half-month lag we can not know what happened to real imports growth for sure for now. Having said that, our estimate suggests real imports growth probably held up reasonably well despite the apparent weakness in the December PMI though this estimate is subject to high margin of error.
The downward trend in the trade surplus in recent months, especially after making seasonal adjustments, appears to be a very positive development which indicates the economy is getting more balanced at the margin. However, one of the main drivers of the fall in the trade surplus was the domestic economy is facing (overly) strong demand and restricted supply, because of energy intensity goals and the Asian Games, which encourages more imports than otherwise. This means the strong imports growth currently is not sustainable. It also tends to result in higher import prices and a worsening of the terms of trade (TOT) which represents a direct welfare loss for the Chinese economy. As these supply-side restrictions are at least partially lifted in the new year and the government takes more actions to dampen domestic demand to control inflation, we may see the underlying trade surplus widening once again in the coming months (though the un-seasonally-adjusted level of surplus may still fall on seasonality).
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