China posts a surprise trade deficit as exports slow

Discussion in 'Economy & Infrastructure' started by Daredevil, Mar 10, 2011.

  1. Daredevil

    Daredevil On Vacation! Administrator

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    China posts a surprise trade deficit as exports slow

    China has reported a surprise trade deficit in February after exports slowed.

    Shipments grew at a weaker-than-expected 2.4% in February from the same month a year ago, latest figures show.

    Imports on the other hand increased by 19.4%, resulting in a trade deficit of $7.3bn (£4.5bn).

    The news comes at a time when China has been facing criticism over its export-led growth policy.

    Easing pressure

    The US has led criticism of China, claiming it keeps the value of its currency, the yuan, artificially low so that it can boost foreign sales.

    A weaker currency makes Chinese goods more affordable, giving the country's exporters an advantage over many competitors.

    In recent years there have been repeated calls for China to let its currency appreciate against the US dollar.

    Analysts say February's surprise deficit numbers may ease that pressure.

    "A trade deficit offers relief to the international trade imbalance, and it may help to reduce pressure on the yuan to appreciate," said Wang Jianhui of Southwest Securities.

    Mr Wang also said that as China works towards rebalancing its trade and increasing domestic demand, the slowdown in exports could continue in coming months.

    "The Chinese government will be happy to see a modest trade deficit for a while," Mr Wang said.

    Misfiring?

    China's growth over the past years has been powered by its surging exports.

    But as demand in its key markets such as the US and Europe has slowed, China has said it will focus on increasing domestic consumption in order to maintain economic growth.

    However, analysts say that the latest numbers may point to deeper problems, not least the fact that domestic demand is not picking up as much as first hoped.

    Imports are considered a good measure of domestic demand. In February, while they were expected to grow by more than 30%, they rose by 19.4%.

    "It is definitely not a good sign," said Xu Biao of China Merchants Bank.

    Mr Xu said that the latest figures may show that demand in mainland China is faltering.

    "Imports have dropped significantly, and it points to a serious weakening in domestic economic activity," he said.
     
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  3. Daredevil

    Daredevil On Vacation! Administrator

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    So, is this the beginning of the end of Chinese export story and the export based growth story?. I think China will do well once the domestic consumption increases and the profligacy on mindless infrastructure is controlled.
     
  4. SHASH2K2

    SHASH2K2 New Member

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    There goes down the great story of China shining . USA and Europe are not fools to let china surpass them due to their high domestic consumption. I am sure this export growth will go down even further with almost all countries going after china and chinese exports. Global slowdown is over and now its time to go for the kill.
     
  5. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China is never going to fix their consumption problem and I will tell you why. Chinese banks make their exorbitant profits off the backs of their depositors through negative interest rates. Chinese can't grow money as letting it sit in the bank is actually a net loss thanks to high inflation. Fitch ratings agency says China has a 60% chance of a banking crisis in the next two years. The last banking crisis in the 90s effectively killed domestic consumption by keeping low rates so the banks could recover. It dropped private consumption from 55% to 35% in ten years greatly unbalancing the economy. When this next banking crisis hits, they will do the same thing so any growth they hope to get with higher wages are just going to go back to the banks to cover their bad debts. If anything, you can expect domestic consumption to fall even further as millions lose their jobs and inflation runs rampant.
     
  6. Daredevil

    Daredevil On Vacation! Administrator

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    What is the interest rate given to the people who deposit money in Chinese banks?. I think in India you get around 6-8% interest rate if you save your money for long-term, say 5 years and ever more for even longer-terms. Interest rates will give an indirect indication of how productive Chinese banks are.
     
  7. badguy2000

    badguy2000 Respected Member Senior Member

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    well, can you tell me which item should China consume more?

    China is already the global largest consumer of almost all products ,from ore, steel, concrete, electricity to cloth and auto.

    Chinese consume/buy more raw resource and industry products almost 10 times more than India.

    the topic that "CHina should consume more" itself is just one “pseudo-proposition”,which is distorted by exchange rate.
     
    Last edited: Mar 10, 2011
  8. sob

    sob Moderator Moderator

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    Slowdown in Chinese Economy

    The slowdown in the US and European Union is now appearing to affect the Chinese economy. As exports slow down and the domestic economy not picking up the news is not good for China as they have shown a small trade deficit. However this will lead to easing of pressure somewhat on China to let the Yuan float upwards.

    China posts a surprise trade deficit as exports slow

     
  9. SHASH2K2

    SHASH2K2 New Member

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  10. sob

    sob Moderator Moderator

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    This trade deficit is not entirely out of the blue as analysis of the first 9 months figures had registered a drop in exports.

    China's trade surplus shrinks to nine-month low

     
  11. sob

    sob Moderator Moderator

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    The Chinese Trade deficit the largest in 7 years has an immediate impact on the Chinese Yuan, which fell against the US Dollar

    China Yuan Down Late; February Trade Deficit Surprises

     
  12. Daredevil

    Daredevil On Vacation! Administrator

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    Related Threads merged
     
  13. SHASH2K2

    SHASH2K2 New Member

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    Is China's economy slowing too fast?

    [​IMG]

    NEW YORK (CNNMoney) -- It's starting to look as if everybody's worst fears about China's economy may finally be coming true. China is slowing down.
    But how severe will the pullback be? And is it only temporary? That's up for debate.

    G-20 nations at a glance
    [​IMG]


    China reported sluggish auto sales figures for February on Wednesday morning. According to the China Association of Automobile Manufacturers, sales of passenger vehicles were up less than 3% from a year ago.
    One reason for the slowdown is that tax breaks for small cars expired at the end of last year. But the anemic pace of growth may continue.
    Economists from Barclays Capital noted in a report Wednesday that "with borrowing costs rising and credit availability falling, the fuel for rising automobile demand is running low" throughout Asia.
    The economists added that weakness could be most pronounced in China and India since their central banks are raising rates to combat inflation.
    If oil prices remain above $100 a barrel for an extended stretch, that could only make matters worse. And that may eventually be bad news for the likes of General Motors (GM) and Ford (F, Fortune 500). (Their Chinese sales did rise in February though.)
    China's auto sales news comes only a few days after the Chinese government disclosed that it was targeting an economic growth rate of 7% a year for the next five years.
    Emerging markets are hot. Place your bets.
    That, of course, is still robust growth -- even if it is considerably lower than the double-digit percentage gains that China's economy has been growing at for the past few years.
    "China is not immune to business cycles. But slowing the trajectory of growth is not the same as saying the economy is going to decline," said Art Steinmetz, chief investment officer at OppenheimerFunds Based in New York.
    Still, there is reason to be worried that China's economy may be cooling even more quickly than people expected.
    Optical networking equipment maker Finisar (FNSR), which had been one of the hottest stocks this year due in part to hopes for strong growth in China, stunned investors Tuesday evening with a weak outlook for the current quarter.
    Finisar said in its earnings report that "a slowdown in business in China overall" was a key reason for its tepid forecast.
    Shares of Finisar plunged nearly 40% Wednesday on the news, dragging down other networking equipment companies with a big presence in China, like JDS Uniphase (JDSU) and Ciena (CIEN).
    If more Chinese telecoms and tech firms start to rein in spending, that's not good news. It goes without saying that a healthy Chinese economy is key to keeping the U.S. and global recovery on track.
    China is now officially the second-largest economy in the world. Big U.S. firms such as KFC owner Yum! Brands and Caterpillar (CAT, Fortune 500) are doing more business there. China is the largest foreign holder of U.S. Treasury debt.
    We need China even if we sometimes don't agree with or understand everything their government does.
    0:00 /2:42China's economy blazes ahead of Japan
    And the biggest problem right now is that China can't afford to be lax about inflation risks. That likely will mean more monetary tightening to slow growth further -- even as the Federal Reserve seems intent on keeping rates near zero for the foreseeable future.
    "Excess liquidity is already feeding property bubbles, commercial and residential, in certain cities," wrote Andrew Milligan, head of global strategy at Standard Life Investments in Edinburgh, Scotland in a report this week.
    He noted that China is acting aggressively. There have been eight increases to bank reserve ratio requirements and three interest rate hikes in the past few months. But China probably has only just begun to tighten.
    "The latest data still suggest that the authorities are behind the curve, and have more to do," Milligan wrote.
    China's 'insatiable' demand brings inflation risk
    Despite these fears, it's worth remembering that China is clearly not on the verge of a 2008-style economic collapse. In addition, China's economy often tends to hit a soft patch around the Lunar New Year holiday.
    So what may look bad now could turn out to be just the standard Chinese New Year slowdown. That appears to be what semiconductor giant Texas Instruments (TXN, Fortune 500), a leading supplier of chips for phones in China, is banking on.
    "We typically expect to see some noise around the Chinese New Year, and that was no exception this year," said Ron Slaymaker, head of investor relations for Texas Instruments, during a conference call with analysts Tuesday.
    Slaymaker added that demand did dip in early February but strengthened later in the month. But he conceded that sales in Asia overall, including Japan, are likely to cool when compared to the U.S. and Europe.
    Still, even if China's growth slows, the bigger concern would be what might happen if China doesn't go far enough to keep pricing pressures in check. The consequences of China losing the battle with inflation would be far worse than annual growth slowing from 10% to 7%.
    "We're not worried about a hard landing in China. We're worried about China hardly landing," Steinmetz said.
     
  14. SpArK

    SpArK SORCERER Senior Member

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    China trade swings to largest deficit in 7 years

    [​IMG]


    (Reuters) - China swung to a surprise trade deficit in February of $7.3 billion, its largest in seven years, as the Lunar New Year holiday dealt an unexpectedly sharp blow to exports.

    It was China's first trade deficit since March last year and its biggest since February 2004. Economists, who had forecast a small surplus of $4.95 billion, said the sudden drop was likely to prove temporary.

    "We did expect exports to slow last month, but I think nobody had expected such a weak outcome," said Nie Wen, an analyst at Hwabao Trust in Shanghai.

    "There is little chance that China will have a trade deficit again, and the monthly trade surplus may pick up in the second half of this year," he added.

    Still, the extent of the slowdown in both exports and imports caught markets by surprise. Asian stocks tumbled on worries that monetary tightening in China and other emerging markets was taking a real chunk out of economic growth.

    The deficit will at least be welcome news on two fronts for the Chinese government, helping it dampen inflationary pressure and deflect calls for faster yuan appreciation.

    Cash inflows from the country's vast trade surplus over the past few years have been a root cause of China's recent run-up in prices.

    Inflation reached a 28-month high of 5.1 percent in the year to November. Data due on Friday is expected to show it pulled back to 4.7 percent in February.

    With tightening policies beginning to have an impact, China is confident that it can achieve its 2011 goal of holding inflation to an average of 4 percent this year, Ma Jiantang, the government's statistics chief, said on Thursday.

    His comments followed a report in an official newspaper that bank lending in February was much less than expected, indicating that Beijing has scored some success in reining in credit issuance, a crucial part of its campaign to control inflation.

    Until that number is confirmed, though, attention will be squarely on China's precipitous drop in exports.

    China exports grew 2.4 percent in February from a year earlier, the customs agency said on Thursday, well short of forecasts for a rise of 26.2 percent.

    Imports increased 19.4 percent, missing market expectations of a 32.3 percent increase.

    The data hit markets when investors are already worried that high oil prices will undermine global growth. Japan's Nikkei stock average .N225 fell 1.5 percent and stocks elsewhere in Asia .MIAPJ0000PUS slid 1.4 percent.

    "It's come on a day when commodity prices are off, and investors are worried about global growth and it's just accentuated the market pullback," said Shane Oliver, head of investment strategy at AMP Capital Investors.


    "The Lunar New Year does heavily distort Chinese trade data and I'll be inclined not to read too much into it. But the market is obviously feeling nervous and has probably read a bit more into it."

    HOLIDAY EFFECT

    The government has in the past pointed to a narrower trade surplus as evidence that it is making headway in tilting China away from excessive reliance on exports, a shift that is seen as a crucial part of putting the global economy on firmer footing.

    But many economists cautioned against reading too much into one month's trade data, especially in the first quarter.

    Chinese exports typically slump at the start of the year, with the country's factories shut or running at half speed for weeks because of China's New Year holiday, which this year fell in the first week of February.

    "We believe the trade deficit is likely to be a temporary phenomenon distorted by the Lunar New Year. During the several weeks following the Lunar New Year, the holiday distortions affect exports much more than imports because exporters have a much greater tendency to take extended holidays," Yu Song and Helen Qian, economists with Goldman Sachs, said in a note.

    Yet the holiday effect had been expected to weigh on exports when analysts made their initial forecasts, so some said that the downside disappointment in the data was, in fact, a worry.

    "Both imports and exports are lower than expected, and seasonal factors alone can't explain the sharp monthly drop," said Xu Biao, economist with China Merchants Bank in Shenzhen.

    "It is definitely not a good sign. The size of imports is already read as a measure of domestic demand. But now imports have dropped significantly, and it points to a serious weakening in domestic economic activity," he said.

    CONTROLLING FOR HOLIDAY

    Because of distortions caused by the Chinese New Year, some analysts prefer to look at data for January and February together.

    On that combined basis, exports rose 21.3 percent from a year earlier and imports increased 36.0 percent, both of which were faster than December's pace.

    The average trade balance for the first two months of 2011 was a $0.4 billion deficit, far below the monthly average of a $15 billion surplus last year.

    "We look at January and February together. On that basis, growth is still quite healthy. We were expecting exports and imports to slow this year due to weak external demand, so this is line with that," said Tao Wang, chief China economist for UBS.

    With import growth set to outpace export growth, China was hoping to narrow its trade surplus for the third straight year, Commerce Minister Chen Deming said earlier this week. China's trade surplus was $183 billion last year, down from $196 billion in 2009 and a record $295 billion in 2008.

    Chen also said that the yuan was on "a gradual upward trend," but that there was no reason for it to move any faster. Although the yuan has been running near record highs against the dollar, it has only appreciated about 4 percent since being depegged last June.

    (Additional reporting by Langi Chiang and Aileen Wang; Writing by Simon Rabinovitch; Editing by Ken Wills)
    http://www.reuters.com/article/2011/03/10/us-china-economy-idUSTRE7290T520110310?pageNumber=2
     
  15. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    China needs to increase PRIVATE domestic consumption ie finished goods and services bought by households, not SOEs buying raw materials or machines to put up the next building no one can afford. The obsession with owning property is what has driven up the savings rate so you can lay a large portion of the blame on CCP'S addiction to construction. You tout buying building materials as some kind of status symbol... lol. It is a big part of the problem. The Chinese STATE needs to consume less and make the PEOPLE consume more. China has a population 22 times larger than France, yet only barely surpasses its private consumption of a nation that only works 35hrs a week, 45 weeks a year.
     
  16. Daredevil

    Daredevil On Vacation! Administrator

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    I just checked the deposit rates that the Chinese get for 1 year savings - it is 3%

    http://www.bloomberg.com/news/2011-...op-on-speculation-interest-rates-to-rise.html

    Then I checked the deposit rates in India for 1 year - it is 8.25%

    http://www.icicibank.com/interest-rates.html#fd

    This means that Chinese people are getting much lower returns on their savings compared to Indians. And despite such low returns the saving rates in China is high compared to India and on the other hand domestic consumption is much less in China compared to India and affecting their GDP. And therefore China depends, for its GDP growth, a lot on exports and mindless loss making infrastructure projects. Talk about efficiencies :rolleyes:

    All this indicates that Chinese banks are very inefficient at least as compared to Indian Banks.
     
  17. kickok1975

    kickok1975 Stars and Ambassadors Stars and Ambassadors

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    China's February slow down is no surprise. When a country was shutting down for 3 weeks for Chinese New Year and everyone was out of work, who do you expect to do exporting? My company imported nothing from China in February not because we don't want to, but because we can't. After they got back to work, companies here in US are so excited and have no hesitation to place orders. China will resume their surplus in March and US will go back to deep deficit again.

    However, it doesn’t mean China will maintain such pattern forever. China has to enhance domestic consumption and rely less on exporting business. Chinese government recognizes it and great wage increase in many part of China right now might be one sign of it.
     
  18. Ray

    Ray The Chairman Defence Professionals Moderator

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    I think that is a valid point that Kickok has made.

    During the Chinese New Years, it is true that everything sort of comes to a standstill and it is over a period of days. The whole family congregates and there is a lot of fun,activities and eating and all that.

    At least, that has been my experience.

    On the other hand, one could check the exports and domestic sale just before the Chinese New Year. There should have been a surge since the buying would have gone up as a lot of buying would have taken place for the Chinese New Year.
     
    Last edited: Mar 10, 2011
  19. SHASH2K2

    SHASH2K2 New Member

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    Agree to a certain extent with Kikock . But being a festive season shouldn't it increase domestic consumption of white goods? I mean there is no sign of any increase in domestic consumption .
     
  20. badguy2000

    badguy2000 Respected Member Senior Member

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    haha, guy, can you tell me which item of "finished products" CHina houlsholds should buy more?

    cars? AC? Tv sets? refrigerator? video? house?cell phones?PC?

    last year Chinese households buy all above toys more than the combination of UK+France+Germany+Italy+Japan.

    guy, you still can not tell us which item Chinese should buy more......
     
  21. Ray

    Ray The Chairman Defence Professionals Moderator

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    And the population of China is?
     

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