US economic recovery boosts Chinese exports

Today’s trade data makes China’s export sector one of the best performing sectors in the world, according to Capital Economics.

Chinese exports rebounded sharply during the final month of 2014, beating expectations from economists and analysts. Export growth increased sharply from 4.7 per cent in November to 9.7 per cent in December. This was stronger than the Bloomberg median forecast of 6 per cent.

Today’s trade data makes China’s export sector one of the best performing sectors in the world, according to Capital Economics, a London-based global economic consultancy. The rebound in the export sector is indicative of a slowly recovering world economy -- especially in the US, which is regaining its momentum.

The slowdown in Chinese imports also moderated in December, rising from a 6.6 per cent decline in November to a 2.4 per cent drop last month. The growth in Chinese imports has been weighed down by sharp falls in global commodity prices such as oil and iron ore. The oil has price dropped below $US50 per barrel for the first time since April 2009 and the iron ore price has also dipped below $US70 per tonne.

Apart from declining global commodity prices, Chinese demand for capital goods, such as machinery, is also moderating due to a combination of import substitution industrial policy as well as more subdued domestic demand. Import growth for electronics and machinery goods increased by just 0.9 per cent during the first 11 months of 2014.

The December trade surplus of $US49.6 billion was only slightly smaller than the historically high trade surplus of $US54.5bn in November. China’s foreign exchange reserve is approaching a record high of $US4 trillion. Believe or not, this vast war chest is becoming a nasty headache for the country’s central bankers, as they find it difficult to manage such a large holding.

The deputy governor of the central bank, Yi Gang, who is in charge of managing the foreign exchange reserve, has said repeatedly he wants the country to import more goods from abroad to ease the pressure on increasing the size of the reserve any further.

Looking ahead in 2015, China’s export industry is expected to perform better as key export markets, including the US, gain more recovery momentum. In addition, Beijing’s grand strategy of building better connectivity between China and emerging economies in Southeast Asia and Central Asian countries has the potential to boost Chinese exports -- especially for capital goods such as construction machinery.

As far as imports are concerned, don’t expect Beijing to unleash another round of reckless stimulus to boost its slowing economy despite media reports of a planned $US1.1 trillion infrastructure splurge in 2015. Officials from the powerful National Development and Reform Commission, the country’s key planning agency, went on record to say the spending plan was fundamentally different from the 4 trillion yuan rescue package during the financial crisis.

Continuous falling commodity prices and weak Chinese demand will further weigh on the country’s import figures. For 2014 as whole, China's imports only grew 0.4 per cent, with the sluggish import performance playing a key role in missing the trade growth target of 7.5 per cent.