Trade Data: Is China Losing Its Steam?

By EconMatters

The latest January trade data of China showed the broadest measure of China's global trade surplus fell to a several-year low to around 2.7% of GDP.  Export also collapsed to a negative 0.5% year-over-year in January, down from +13.4% in December.  Imports looked even more dire with a 15.3% year-over-year decline.  

Earlier this month, the IMF already issued a report on China stating that real estate remains the greatest domestic risk to China, and in the most sever scenario, China's growth could drop to 4%, less than half of the trend for the past decade.  According to the IMF, in this scenario, a downturn of the property market causes a sizable portion of credit to local government financial platforms, the real estate sector, and small and medium enterprises to become impaired.

With major trade partners battered by recession, the new trade data seem to give credence to a China hard-landing crash scenario by some forecasters.  However, it remains difficult to conclude a definitive pattern yet as the Chinese Lunar New Year fell in January this year (vs. February in 2011) distorting the prior year and month-on-month comparison.

Furthermore, a look at the commodity imports volume also revealed a more upbeat picture. FT.com reported that based on preliminary customs data, China’s copper imports were 413,964 tonnes, an increase of 13.6% from January 2011. Crude oil imports also rose to 23.4m tonnes, equivalent to 5.5m barrels a day, compared to an average of 5.1m barrels a day last year.  In the next couple of years, many expect China may well overtake the U.S. as the world's biggest importer of oil.

Despite the mixed bag of data points and opinions, one thing we could say for certain is that the era of consecutive annual double-digit Chinese GDP growth  has most likely come and gone.  

China is starting to shift from the construction infrastructure growth stimulus model like the one implemented in post-2008 financial crisis, to soft infrastructure—welfare, education, and alternative energy, etc.—to encourage domestic consumption, which is much harder to execute and much slower to see the results showing in the GDP.

Furthermore, China is in the year of leadership transition which means less drastic and slow policy change by the incumbents as well as the new leaders, which would also translate into slower growth, at least in 2012 and into the first half of next year.  Meanwhile, the new leadership lineup, with a diverse and prestigious educational and professional background, is quite positive for China's future.

For now, the IMF expects the growth of China to still stay above 8% in 2012-13 under its base scenario, noting that "China has room for a countervailing fiscal response, and should use that space." 

As the chart above from the Center for Geoeconomic Studies points out, with its huge population, production and consumption, the Chinese economy is now so large that it will continue to make a significantly rising contribution to global growth even if its own growth rate continues to fall off moderately.

Further Reading - Forget China, System D Is World's Second Largest Economy (Infographic)

©EconMatters All Rights Reserved | Facebook| Twitter| Post Alert| Kindle

Comments

[akak]

Where is our dear anonymous dishwasher friend to chime in on this very important Chinese citizenism topic?

Confucious say: Never approach a bull from the front, a horse from the rear, or a Chinese citizenism citizen from any direction.

[Dermasolarapate...]

Any recent accruate data on their non-performing loans?

Here is something from last August, 2011:

http://articles.businessinsider.com/2011-08-31/markets/30042983_1_chines...

I read many Chinese are complaining about these wasteful projects that lined the pcokets of local gubement officials but did not do much for the people and produce zero in return on the invested construction funds.

Ghost cities, empty parks, empty malls, and so on. I would like to see updated numbers if anyone has them.

However, these poor loans that the central gubment will eventually have to pay for may slow China down re: bailing out the EU since they have lots of CB money but not unlimited money.

[krypplephite]

I've always failed to understand predictions that China would go uscathed in this global shitstorm.

Their whole economy is based on being the manufacturing sector for EU & NA. If we stop buying their cheap extruded plastic shit, then where does their money come from?

I doubt African neo-colonialism will carry them far.

[JustACitizen]

I cannot be alone in thinking that selling cheesy crap that breaks and underperforms at the cheapest price cannot be the basis of a sound economy. The Japanese and the Koreans at least had quality going for them...

[Manthong]

US corporations and the S&P will pick up the global slack.

The sky is the limit. USA.. USA.. USA..