Free Lunch: China shocker

Δημοσιεύθηκε: 14 Απριλίου 2015 - 10:37

Reading, 'riting, and Chinese trade 'rithmetic

Investors and observers were stunned by a huge slide in Chinese trade reported on Monday. In March, the value of Chinese exports fell by 15 per cent from a year before, according to official statistics. Imports fell by 12 per cent.

Is it time to panic? It may be worth boning up on arithmetic first.

Start by averaging a couple of months' worth of data to get rid of the most short-term noise. As the WSJ points out, the export slump comes after a 48 per cent year-on-year spike in February. The FT's write-up, putting January and February together because of the distorting effect of Chinese new year, reports a 15 per cent rise in the first two months of 2015. Taking the first quarter as a whole, exports are still growing, by 4.7 per cent on the first quarter of 2014. That is still a slowing trend, of course. As the chart below shows, both export and import growth are clearly heading into negative territory if you ignore the monthly fluctuations around the trend.

There is more arithmetic to be done. Note that these data are reported in nominal value terms. That is to say, they are the current dollar value of exports and imports. Now even if export and import volumes did not change at all, we would still expect to see falling values because:

But that does not mean it's all a numerical artefact. As the chart above shows, there is a clear break in the trade surplus - which almost vanished to a monthly RMB18bn ($3bn) in March after hovering in the RMB200-300bn range for the last 10 months. Again, wait and see if this is a one-month blip or a shift in the trend. But it is clearly sensible for analysts (whose reactions have been corralled by FastFT and by the WSJ's Real Time China blog) to scrutinise the data for the long-expected changes in China's external and internal economic situation.

The external one is simple enough: if the world is slowing again, export growth is going to be hard to come by. And indeed, in the WTO's most updated monthly data from January, world merchandise trade had been shrinking for the latest four months, and the fall was accelerating. (Of course some of this could reflect the arithmetical effects I just discussed.)

But the big story is the domestic one. For some time now, Chinese authorities have wanted to shift the economy's trajectory away from the export and investment-led model to one where growth is linked more to domestic consumption demand. That is the right strategy, but also one that makes a virtue of necessity. There are a lot of reasons to think that Chinese growth is slowing, as Martin Wolf pointed out in his column last week. One is that the original growth model is wearing itself out as investment is exhibiting falling returns. Another is that the Chinese government's own stimulus policies since the global financial crisis have created risks to growth - in particular an enormous debt overhang. Add to that the current stock market frenzy and history says you will not be wrong to bet on a sharp slowdown soon.

It may be well on its way - and be playing a role in the sagging import numbers. The next GDP release on Wednesday will no doubt show that the government is meeting its planned target of around 7 per cent growth. Planned economies tend to report the results they intend to achieve, after all. Independent statistics, however, show something else. Fathom Consulting's China Momentum Index, for example, predicts the growth rate based on its historical relationship to electricity consumption, rail freight volumes and credit growth. By construction, it tracks or leads official GDP growth in the past - but since about 2012 it has fallen below official growth numbers. In February, it stood at only 2.8 per cent.