The main news overnight was the Chinese February trade balance, which if the past several years were any indication, would have been a deficit in keeping with the cyclical economic weakness resulting from the Chinese Lunar New Year. Surprisingly, instead of a deficit, as SocGen explains Chinese exports came in massively above expectations in February, while imports were on the weak side. The strength of exports was bewildering, especially when it was, to a large part, a result of strong exports to the G2.
Specifically, China's exports increased 21.8% in February, massively above expectations of a 8.1% rise, and despite the late timing of the Spring Festival. Hence, export growth in January and February was sharply up to +23.6% from +9.4% in Q4 2012, very much at odds with the lack of improvement in Korean and Taiwanese exports during the same period. China's export data depicted a very different picture of the global trade from that indicated by others' figures.
And while exports were soaring, for reasons largely unknown as neither key trading partners US or Europe recorded a spike in Chinese imports, China's imports contracted a whopping 15.2% Y/Y in February, much more than street estimates of a -8% drop. Combining January and February figures, imports grew 5% yoy, moderately faster than the 2.7% in Q4. The far slower pace of import growth confirms pervasive skepticism toward the Chinese recovery. Import volume growth of many major commodities decelerated.
[10]
SocGen summarizes that as a result of the strangely strong exports, China's trade balance recorded the first February surplus in three years of USD 15.3bn, while forecasters looked for a deficit of -6.9bn. The trade surplus in the first two months was much higher at USD 44.4bn, compared with a deficit of USD 4bn during the same period in 2012, which points to a significant positive contribution from net exports to Q1 GDP growth.
Because while goalseeked Chinese GDP will surely benefit from today's trade data, in the zero sum trade world, where unlike global monetary easing where at least for now the whole world can have a free lunch (until such time as the bill comes due), China's GDP gain is its trading partners' GDP loss. Especially if those partners are desperately crushing their currency with every possible monetary intervention.
Sure enough, SocGen's conclusion is in line with these thoughts, and explains why today's superficially bullish data is really quite bearish:
Scepticism towards China's export data will certainly rise again. The bewilderingly solid export data might be the result of disguised capital inflows, as exporters could overstate export amount in order to move more yuan into the mainland. But we do not want to jump to any conclusion at the moment, as there is no clear evidence to either support or dispute such a statement.
However, if these figures were indeed close enough to the actual situation, we think such strong exports may turn out to be more of a curse than a blessing for China. Against the backdrop of a meagre global recovery and heightened concerns over potential currency wars, China's bi-lateral trade surplus with the US, as suggested by Chinese data, reached a record high in four years; and China snatched market shares from neighbours. None of these will be the most welcomed development. Particularly, there is evidence that the People's Bank of China has been intervening to keep the yuan from appreciating.
All this means that with imports due to surge in the coming months, and with rising commodity price inflation on the horizon, the global reflation party has at most a few more months to run before China, once more, is forced to tell the G-7 printers to pull the plug on this latest reflationary effort as it slams China head on (as it did previously in 2011, whose carbon copy 2013 has been so far, to the dot).
As for the US, which is implicitly on the other side of China's gains, a record high trade surplus with the US, means a record high trade deficit from the side of D.C. - something which means either someone is openly making up data, or that Q1 GDP in the US is about to be hit with a sledgehammer following a surge in the March trade deficit.