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Newsletter 01/2015

Finance | Slump in Chinese trade


Slump in Chinese trade points to a looming global economic recession. Chinese exports fell by 3.3 per cent in January year-on-year while imports tumbled almost 20 per cent, far exceeding the most pessimistic forecasts and clearly showing that the world economy is going into a recession.

This led to the largest monthly trade suplus in Chinese history of $60 billion as the price of raw materials like coal, oil and iron ore collapsed. Global trade imbalances have never been bigger.

Analysts wrong

In a Reuters poll analysts expected exports to be up 6.3 per cent and imports to slide by three per cent with a trade surplus of $48.9 billion.

The deep slump in imports is the worst since May 2009 when Chinese factories were still slashing inventories in reaction to the global financial crisis.The figures more than confirm the Chinese economic slowdown. Imports from Australia and Russia, both major fuel and commodity suppliers, collapsed by 35 and 29 per cent respectively.

Nor could seasonal factors explain the trade slump as last year the New Year holiday idled factories and financial markets for a week in January, but this year the holiday comes in late February and January was a full month of business as usual.Investors had hoped that the announcement of domestic stimulus spending plans, combined with moves to ease monetary policy, including a reduction in banks’ reserve requirement ratios on Wednesday, would restore confidence and boost demand in China’s struggling manufacturing sector.But it may be that measures taken so far to boost yuan liquidity are insufficient to do much more than offset surging capital outflows.

Crashing volumes

There was an across-the-board fall in import volumes of major commodities. Coal imports dropped 40 per cent to 16.8 million tonnes from December’s 27.2 million tonnes. China also cut back on its strategic stocking of crude oil imports, which fell almost eight per cent in volume terms.The US economic recovery did help with US imports from China up 4.8 per cent year-on-year in January to $35 billion.

But European Union imports dropped 4.6 per cent to $33 billion in the same period. Exports to Hong Kong, South Korea and Japan were also down, with exports to Japan slumping over 20 per cent. It’s a terrible start to the year after a poor performance in 2014 when total trade increased by less than half the official target of 7.5 per cent, and even that export data was inflated by fake invoicing as firms speculated in the currency and commodities markets.

Peter Cooper is Editor of Arabian Money and an ABCD member

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