Wednesday, October 13, 2010

China International Trade Review - September 2010

China's trade rebound continued in September as global demand normalised as businesses churn through inventory and consumer spending slowly edges up (but well below trend). The September quarter saw trade rising on a quarterly basis with all exports, imports and the trade surplus rising vs the June quarter; with both exports and imports hitting a record high quarterly result in September. Thus marks China's return to pre-crisis levels, but with global demand potentially slowing - led by the subdued recoveries in Japan and the US - China will increasingly need to look internally to drive economic growth (short of further expanding market share of exports, and selling higher margin goods).

Of course the highlight of the September result, or perhaps more - the standout - is the recovery in the trade surplus. The trade surplus is still relatively low historically on both a quarterly, monthly, and rolling annual basis - but is certainly trending upwards. It would still take a significant mentality shift or significant global structural economic changes for the Chinese trade surplus to turn significantly negative. But a negative trade balance should actually be an objective in China's 5-year plan. Such a shift would be the most sustainable for China - perhaps it would also mean that the environmental sacrifice that China has made in the name of economic progress could be reversed or slowed. But in any case the economic and environmental sustainability of the Chinese miracle is a game of huge stakes that the Chinese leadership will need to play carefully and resolutely.

The strategic implications or themes from the trade results include:
1. A continued rise in demand for imports (lead by inputs for production), providing opportunities for trading partners at the country and firm level - which will lead to flow on benefits to those economies and financial results respectively.
2. A continued rise in the trade surplus, which will weigh in on global politics and rhetoric around the so-called currency wars (providing ammo for critics, and raising further the China trade surplus scape-goat flag for US politicians).
3. A strong recovery in volumes for Chinese exporters, which will lift profits for those companies - and potentially lead to eventual wage rises; thus lifting average wages and potentially stimulating domestic demand (and price pressures).
4. The broader threats and opportunities for China and its trading partners at a country and geopolitical strategy level (in terms which direction the leadership of China will focus policy e.g. at an economic level; trade driven or domestic demand driven).
5. The imperative for boosting domestic demand; and the ultimate inevitability of it. This will provide opportunities for those who serve the Chinese consumer, whether they do so from within China (probably the greatest opportunity), or from elsewhere.

Econ Grapher Analytics
China Customs

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