China’s February Exports Reflect Grim Trade Picture

As we’d feared, the February trade figures were grim, with exports down a quarter from a year earlier regardless of what had been expected to be a mitigating factor of a shortened trading month because of New Year.

It marked the fourth consecutive month of year-on-year declines as the global economic slowdown takes its toll. With imports down 24.1% the  trade surplus, though, shrank from $39.1 billion to $4.8 billion, easing some of the international pressure on Beijing to appreciate the yuan (but there is a seasonal effect; the trade surplus usually shrinks in the first quarter, so wait and see, especially if commodity and energy prices stay low).

If you average out January and February’s trade figures to account for New Year, you are still seeing a 21% fall in exports year on year. So more tax breaks for exporters: commerce minister Chen Deming says export taxes will be reduced to zero. But what China’s exporters most need is recovery in their U.S. and European markets.

It is the import side of the trade balance that is more interesting. If you do the same averaging out over the first two months of the year, you get a 34% fall in imports, though remember that is a value not volume number. The precipitous fall in energy and commodity prices over the past year, noted above, will amplify the percentage fall.

This Bystander’s back of the envelope calculation — his favorite sort — is that assuming the commonly used 20% real decline in raw material import prices, then import volumes are holding steady.  Given what is happening to exports, that suggests a marked diversion of resources to domestic demand. Further evidence to support this notion is the strong increase in fixed asset investment in the first two months of the year, separately announced: another sign that November’s  stimulus is starting to have an impact, and putting in place a prop not just for China’s but also the world’s growth .

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