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Global Trade, Demand Continues To Dry Up As China's Exports Miss For Fourth Straight Month
When China moved to devalue the yuan on August 11, there was some debate about whether the PBoC was acting to promote renminbi internationalization (thus bolstering Beijing’s IMF SDR bid) or simply attempting to play catch up in the global currency wars.
When you’re the engine of global growth and trade and you’re an export-driven economy, just about the last predicament you want you find yourself in is a situation where your REER is appreciating by double-digits because you’re pegged to a surging currency (yes, that's right, sometimes a better "REER" is a bad thing). Add in the fact that your trading partners are engaged in a global currency war and you have yourself a decidedly untenable scenario.
So, China fired what was perhaps the loudest shot across the bow to date in the ongoing worldwide FX melee and indeed, quite a few analysts and commentators think we haven’t seen anything yet. The ubiquitous of “people familiar with the matter” think Beijing may be targeting a 20% devaluation by the time it’s all said and done.
Still, trillions in DM QE has failed to revive aggregate demand and indeed, lackluster global trade seems to be the new normal, and the weakness appears to be structural and endemic rather than cyclical and transitory. China’s hard landing is both a cause and a symptom of this and given that, it’s not clear that a deval of any size will be enough to jumpstart the Chinese growth engine.
Throw in the fact that declining purchasing power (for a citizenry that's already rattled thanks to social tension and an absurdly volatile stock market) invariably leads to import contraction and one might reasonably suspect that trade data out of China will disappoint for the foreseeable future even if the whole “let’s pray for terrible-er-er imports so the current account doesn’t look too bad” helps the optics.
Sure enough, we got the latest data out of China on Sunday and the numbers confirmed that i) the deval isn’t a cure-all, and ii) global growth and trade are collapsing.
Here’s WSJ:
China’s exports fell in October for the fourth consecutive month, as a once-powerful engine of the country’s growth continued to sputter in the face of weak global demand.
The world’s appetite for China’s goods—the world’s second-largest economy accounts for nearly one-fifth of global factory exports -- has been lower than expected this year. Meanwhile, weak domestic demand continues to reduce imports. Both are contributing to China’s growth slowdown.
Sunday’s results suggest the export scene is worsening. China’s General Administration of Customs said October exports fell 6.9% year-over-year in dollar terms, after a drop of 3.7% in September. The October figure was worse than the median 4.1% decline forecast by 11 economists in a survey by The Wall Street Journal.
Imports in October fell by a sharper-than-expected 18.8% from a year earlier, following a 20.4% decline in September. China’s trade surplus widened in October to $61.64 billion from $60.3 billion in September.
China’s Commerce Ministry said Thursday in a report that exports are likely to see little increase in 2015, while imports will likely report a “relatively big” decline as falling commodity prices continue to weigh on trade flows.
Exporters at the massive Canton Trade Fair in southern Guangdong province this month said the recent modest depreciation of the yuan has provided little relief.
“A lot of Westerners think this helped us out a lot,” said Chen Shuming, sales manager with Fujian Furniture Industry & Trading Corp. “But the 2% depreciation actually hurt us. It was in every newspaper and customers called us within hours pushing for 6% discount, so we had to give them 4%,” he said.
Right, which means the deval has forced exporters to meet buyers' expectations of what's coming next, even as it depresses mainland demand. Here's Goldman's take:
October export growth was below market and our expectations. Exports by destination data showed that yoy growth of exports to G3 all deteriorated: exports to the US contracted 0.9% yoy, vs. growth of 6.7% yoy in September. Exports to Japan fell 7.7% yoy in October, vs. -4.6% yoy in September, and exports to the Euro area went down 2.9% yoy, vs. -0.2% yoy in September. Exports to ASEAN declined 10.9% yoy, a particularly sharp reversal after a +6.0% yoy reading in September. Growth of exports to HK and Taiwan turned less negative: yoy growth of exports to Hong Kong was -17.4% yoy, vs. -23% yoy in September, and exports to Taiwan fell 6.6% yoy, vs -13.7% yoy in September.
Commodity import data were mixed. Iron ore import volume was down 4.9% yoy, vs +1.7% yoy in September. In value terms imports of iron ore were -32.7%yoy, vs -33.4% yoy in September. Refined petroleum product imports fell 53.6% yoy by value (-11% yoy by volume), vs -43.8% yoy in September (+9.2% yoy by volume in September). In contrast, crude oil imports were -45.2% yoy (but +9.4% yoy by volume), vs -49.9% yoy in September (+1.4% by volume).
Weak import data likely reflect both lower upstream (PPI) prices and sluggish domestic demand growth. Despite a fading of drag from pollution-related shutdowns in northern China and from summer market volatility, and more policy support, the evidence of a domestic demand recovery remains mixed. The shift of the focus of the anti-corruption campaign to the financial services industry, while undoubtedly justified and beneficial over the long term, may add some additional uncertainties to financial conditions in the near term.
And a bit more color from Bloomberg:
China’s exports declined for a fourth straight month in October, adding to signs of mounting headwinds facing the world’s second-largest economy.
Overseas shipments dropped 3.6 percent in October in yuan terms, the customs administration said Sunday, compared with a 1.1 percent decline in September. Imports fell for a 12th straight month, declining 16 percent in yuan terms, after a 17.7 percent decrease the prior month. The trade surplus was 393.2 billion yuan ($61.9 billion).
“Chinese exports continue to face structural headwinds due to weak demand in key markets” such as the European Union and Japan, said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. "Exports have also been impacted by the more recent growth slowdown in emerging markets, which had become fast-growing markets for Chinese exports in recent years.”
The report signals that the People’s Bank of China is still struggling against economic headwinds even after cutting the main interest rate six times in the last year, most recently in October, and a surprise devaluation of the currency in August. The economy grew 6.9 percent in the three months through September from a year earlier, the slowest quarterly expansion since the first three months of 2009, and full-year output is on pace for the weakest growth in a quarter century.
The latest data - to the extent it's accurate - underscores the notion that China's economy probably isn't growing at anywhere near a 7% clip, but nevertheless, the excess capacity problem means the country can't really adjust to the new global reality and that, in turn, means exported deflation. Case in point:
So get ready world, global demand and trade isn't going to witness a renaissance anytime soon which is horrible news for AsiaPac and for EMs in general. It also means that the global deflationary supply glut is set to persist for the foreseeable future which is precisely the opposite of what the Haruhiko Kurodas and Mario Draghis of the world want to see. So expect to see more of this...
...and this...
...and this...
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We ARE at a tipping point...
A "Balancing act", where some unforeseen event can knock things over, pretty easily And to the comment below, war drums are indeed a pounding in the not so far distance. An absurd situation.
Market Capsized.
Global economy declining, war potential rising. It's the historical inverse thing.
The consumer (credit) will save us!
Meanwhile, Tata Steel is demanding a reduction of 30% in prices from suppliers - or else!
http://www.bbc.com/news/business-34759970
That's an audacious tata.
I know a number of major suppliers that simply refuse to deal with big indian companies. And many that do deal with them, intentionally price their bids much higher, and then "let" themselves be bargained down. There is a huge aggravation factor built in to pricing.
Same ol same ol. Let's just put this site and King World Snooze and the others on pause. Let's live our lives and come back the the CRASH hits. The suspense is killing me.
Seriously, I could have learned Russian by now.
this "Crash" is laden with molasses.....SLOW
People,imo, are tapped out financially and sick and tired of buying Chinese junk. Yet the economic rocket scientists can't figure out why people are prioritizing buying food and paying the rent instead of buying shit they don't need. You need to be on LSD to believe fairy tales like China's 7% GDP and Amerika's 5% unemployment.
NOBODY but the brain-dead believes those figures. USA unemployment more like 15% and China's GDP like 2%.
It is a very sombering reality that we live in.
BTD!
I dare ya!
We are always looking at various levels in the economic pyramid to judge its health.
Let's have a look at its foundations, the global consumer:
1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.
2) Japanese consumers have been living in a stagnant economy for decades.
3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.
4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.
5) South American and African consumers are busy struggling with economies that are disintegrating fast.
Until someone starts rebuilding the foundations of the global economy, its consumer base, everything is going to go to hell in a hand cart.
In a nutshell the whole point of trillions in global QE was a massive demand pull forward to paper over the 2008 crisis.
Nothing structurally was addressed and now we're looking at a good 20 years to get back to any sort self sustaining business cycle.
But before that we're probably going to get a hot war that will collapse global trade - history is unequivocal on that score.
Much like the tsunami wave pulling back from shore before the real action moves inland.
Hey Kids!!! Don't buy that iGadget *Today* - it will be MUCH cheaper tomorrow!! Or the day after Christmas!! Trust me :-)
And as for cars, there is certainly going to be a fire sale on certain brands that start with V and end with n, Volks!!
Cool by me, I like TDIs and German engineering more than I like emissions regulation compliance.
Perhaps they should have focused on quality as well as quantity...
If the value of their imports has dropped substantially (18%) but they're only passing 6.9% on surely they're winning with bigger margins on exports?
Everyone gets long here and nobody gets hurt
The problems in China is starting to take its toll on Japan and expect it to get worse. Japan probably slipped into technical recession again in July-September due to a combination of soft external demand, weak private consumption, and a drop in capital spending. This is expected to keep policymakers under pressure to put forth additional monetary and fiscal stimulus in the coming months to again bolster flagging growth.
With its huge debt and reliance on exports it is beginning to look like Japan is a problem that can't be fixed. The massive trade deficit America has with Japan of around 76 billion dollars a year feeds large amounts of money into the country, but its population is aging and shrinking, and Japan's public debt stands at around 230% of its GDP. More on the woes of the worlds third largest economy in the article below.
http://brucewilds.blogspot.com/2015/11/japan-economy-ready-to-enter-recession.html
Recession in Japan is nothing like recession in USA. You don't have massive store closings, foreclosures, etc.
More than Japan, USA and China are on the brink. There is little that can be done now to save those two. I am afraid that the collapse of either USA or China will bring the rest of the world into depression.
In addition, USA debt is much more than Japan. The difference is that USA hides its debt.
http://thehill.com/blogs/blog-briefing-room/news/259476-ex-gao-head-us-d...
If any country is up the creek, it is USA. If you are in USA I would seriousy consider getting out the way we did. Soon you will not be able to.