No details up yet on my cheapie version of Bloomberg, will update when more is in.
Recall, however, that many analysts foresaw a fall in China’s surplus. It had stayed at near record levels despite falling volumes of trade overall because imports fell faster than exports.
Well, many imports are used to produce exports. As forward orders decline, manufacturers would buy less in the way of inputs, while still in the process of completing existing orders.
Update 12:10 AM: OK, sports fans, we now have more meat. Note in particular how the decline was way above consensus forecasts. The fall in the surplus plus dollar strength (ie little/no need to intervene to keep the RMB from rising) also says China will have much less reason to buy dollar assets like Treasuries
China’s trade surplus plunged in February as exports fell by a record, adding pressure on the government to spur domestic consumption to prop up the world’s third-biggest economy.
The trade gap narrowed to $4.8 billion, about an eighth of the amount in the previous month, the customs bureau said in a statement. Exports tumbled 25.7 percent from a year earlier. Imports fell 24.1 percent.
The government has halted the yuan’s gains against the dollar and plans to cut export taxes to zero as demand dries up because of the global slump…
“There’s no hope for export demand to recover any time soon,” said Wang Qian, a Hong Kong-based economist at JPMorgan Chase & Co. “How fast imports recover depends on how soon the government’s stimulus package kicks in and creates real demand in major industries.”
The timing of a Lunar New Year holiday masked what would otherwise have been a steeper decline in trade, said Mark Williams, a London-based economist at Capital Economics Ltd. The holiday meant that there were more working days in February this year than in 2008.
The median estimates in a Bloomberg News survey of 16 economists were for a $28.3 billion trade surplus, a 1 percent decline in exports and a 22.5 percent drop in imports.
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In late january and most of February some of the container ships moored in Singapore since last September left (about 30% is my estimate). Since one week ago, they have returned! Not sure where they went during that period, but nopt a good sign. And folks working at or close to the port also commented port capacity utilisation is around 50%, some of it due to mindless capacity expansion coming online, but still the activity in the port is depressing. I think we can forget about that sharp rebound of global trade in 2H of the year if by now we still do not see the effects of re-stocking. Maybe we just have to get use to a reversion to 2004 or 2005 levels of GDP for the next few years here.
Timy said,
Maybe we just have to get use to a reversion to 2004 or 2005 levels of GDP for the next few years here.”
Probably more like 1999-2000 levels, if you strip out all the effects of the now imploding shadow banking system.
The velocity of change in trade gap is pretty remarkable. We’ll have to see where it goes next month. Huge implications for both Chinese and American economies.
this will be the new reality going forward. where is the all understanding Ph.D. Brad Setser to tell us again that the trade surplus will be growing as the commodities prices are falling further than exports?
ahhh, i suggested him taking an accounting class. maybe he’s got a midterm to study on.
I worried that retailers had not done enough to impress upon their suppliers the full extent of the drop in demand, but it now seems to be catching up. I wonder if real inventory levels are high enough that foreign manufacturers will be on hold for some months while inventory gets worked down.
I agree with Brad Setser’s in not being so sure that the surplus will continue to decline. What is obvious is that import declines must lead export declines and I think this is showing up clearly in these results. What is less clear is how much internal consumption for building has dropped off affecting imports and we need to take into account commodity price drops and the stimulus package.
My feeling is that imports may have been boosted a little by steel production being upped in January on the back of the stimulus. The fact that the demand has not materialised does not bode well for imports in the coming months. I also expect exports have not fallen to their full extent yet, with firms readjusting their expenditure policies during the early months of the year ,I would expect an order book step down to start to work through in the coming months.
When the Chinese stimulus does start to bite and commodity prices start to creep up then we may get into the situation that the surplus begins to switch to a deficit. We are not there yet and I don’t think it will become clear until towards the summer. The long view is that this is unlikely to be good for US treasuries without the FED starting to buy them.
exports caught up
What is unspoken is that the net trade surplus is a paltry $5 billion.
Even if this number is gospel, that means the Chinese are not generating sizable amount of funds that the US is expecting to finance the $1.5 to $2 trillion deficit this year.
The US need for funds is not just government, but also agency paper, commercial paper, etc.
The even larger issue is capital outflow from China. While nominally capital flows are banned, in practice, it happens routinely via “other channels” like Hong Kong, or from gaming export / import prices.
If you take the hidden capital outflow into account, a reasonable guess is that the Chinese trade surplus’s net contribution after capital outflows is now close to zero (or negative).
Take this with an anticipated rise in import prices as commodity markets recover in 2H, and China will have to start draining down its forex reserves just to stay afloat.
Or to devalue the RMB.
D
Hopefully, another sign that the faux “trade” economy is rebalancing. I never could get in line with the long term viability of trading income and jobs for trinkets then borrowing back the loot to buy more trinkets. Always seemed like a runaway train on a busy siding.
The treasury will have to offer savers more incentive than zero % interest when trade rebalances. Perhaps all those dollars spent on useless imports can be invested at reasonable rates of return. Hopefully, the governments war on savings will also end soon.
The cause of the current economic crisis has been the resurfacing of risk, with a vengeance. Like the lagoon creature, hiding in the swamp quietly doubling in size as the village slept. The Bush government was all about diverting savings into risky asset exposure to an increasingly voracious and crooked elite on wall street and the board rooms of corporations.
The most obvious symptom of the financial disease is the ability of the Fed and FDIC insured banks to offer, and get, near zero percent interest rates while capital is so dear.
Have a look at the trade balance numbers over the last few years. There is a strong cyclicality in February or March due to the Chinese New Year. The current drop is more or less in line with the drops of the previous few years around the same time. Which forecaster expected China to have a stronger surplus during this Chinese New Year than the last few years? If you have bloomberg, look CNFRBAL$ Index
Nick,
you apparently skipped the last 2 paragraphs. here they are again for you:
The timing of a Lunar New Year holiday masked what would otherwise have been a steeper decline in trade, said Mark Williams, a London-based economist at Capital Economics Ltd. The holiday meant that there were more working days in February this year than in 2008.
The median estimates in a Bloomberg News survey of 16 economists were for a $28.3 billion trade surplus, a 1 percent decline in exports and a 22.5 percent drop in imports.
China is now officially in deflation:
CPI, PPI both Negative: Lower Interest Rates a Possibility
By CSC staff, Beijing
Published: March 11,2009
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article_adverstiment.
China’s National Statistics Bureau announced on March 10 that February’s consumer price index (CPI) fell to a negative 1.6% year-on-year. (Figure 1)
This is the first negative growth since China recovered from the Asian financial crisis, and the indicator is 2.6 percentage points lower than January level, which was 1% year-on-year. The last negative CPI growth occurred in December 2002.
As the CPI has fallen, the producer price index (PPI) has also dropped to negative 4.5% year-on-year. The figure slid 1.2 percentage points from the January level, also negative, hitting a new low since 1999.
http://www.chinastakes.com/Article.aspx?id=1058
D