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China's trade rockets to pre-crisis levels but needs structural fix
By Mei Xinyu |
August 26, 2010, Thursday
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Print Edition
Print Edition
NOW that China is the world's largest exporter, its foreign trade figures are closely monitored by observers the world over as a window into the country's economic vitality. So what can be known from its recently released trade statistics for July?
The first thing that comes to mind is that China is unlikely to experience another round of the drastic decline seen in the immediate wake of the global financial crisis in 2008. Data show that in June alone China exported US$137.4 billion worth of goods, which, combined with imports, added up to US$254.8 billion. Both numbers have exceeded historic highs in July 2008.
But the growth trajectory doesn't stop there. An economic rebound has pushed China's trade to an even higher level in July. Exports leapt 38.1 percent from the same period last year to US$145.5 billion, or an increase of 3 percent month on month. Imports and exports totaled US$262.3 billion, up 30.8 percent from a year earlier.
Industry analysts had forecast China's trade this year to recover to its pre-crisis peak level. Not in their wildest imagination did they expect China's trade to regain momentum in the first seven months and dwarf what it achieved in the same period in 2008.
Given the macroeconomic stability China manifested in weathering the crisis, we have good reason to believe that even if uncertainty lurks ahead in the second half, the market share of Made-in-China products will only expand.
Skewed structure
Admittedly, China's trade surplus in the first seven months has contracted 21.2 percent to a "mere" US$83.9 billion. But for this exporting powerhouse, surplus per se matters much less than the sheer size of exports, which have significant implications for employment and income.
China's trade structure is highly skewed, with processing trade representing a disproportionate share of trade flow as a whole. For exporters, general trade is more profitable than processing trade. As downturn recedes, the rebalancing of China's trade structure is set in motion.
Another thing we can know after dissecting the July trade figures is that the interplay between China's trade and its domestic economy is becoming more complex than ever. China's massive stimulus package raised demand for commodities, especially for minerals. Due to its buying spree, global commodity prices have bounced back after staying flat for long.
The commodities China snapped up so far this year have increased in both quantities and prices. The commodity price hike has sparked widespread concerns over inflation. The resulting rise in production costs are passed on to consumers through higher factory gate prices of industrial goods. Thanks to Beijing's efforts to drain excess liquidity, the inflation genie is so far kept in the bottle.
Inflation fears
Things have changed since July. China's macroeconomic control has helped lower global mineral prices, thereby easing the pressure from imported inflation. Factory gate prices dipped 1.6 percent in July from June. Meanwhile, prices of raw materials, fuel and machinery slid 2.3 percent, which relieved the upward pressure on end products' prices.
However, extreme weather worldwide and China's aging agricultural infrastructure threaten to drive up produce prices. The sanguine notion that China will be shielded from the impact of fluctuating global food prices will likely be proven wrong. Because even if Beijing banned or restricted grain exports, speculators would find the difference between domestic and global prices an incentive for smuggling.
China's resumption of corn imports and its purchase of 600,000 tons of rice (about three times the amount of its rice imports in the first half) from Vietnam will certainly lead to higher grain prices.
In the meantime, soaring prices of imported iron ore have fueled the demand for its domestic substitute. China's output of iron ore in the first half stood at 485 million tons, a surge of 28 percent year on year. However, the low grade of domestic iron ore means if cheap foreign supplies are available, manufacturers will favor imports, leaving domestic mining companies high and dry.
(The author is a senior researcher under the Ministry of Commerce. The views are his own. Shanghai Daily reporter Ni Tao translated and edited his article originally written in Chinese.)
The first thing that comes to mind is that China is unlikely to experience another round of the drastic decline seen in the immediate wake of the global financial crisis in 2008. Data show that in June alone China exported US$137.4 billion worth of goods, which, combined with imports, added up to US$254.8 billion. Both numbers have exceeded historic highs in July 2008.
But the growth trajectory doesn't stop there. An economic rebound has pushed China's trade to an even higher level in July. Exports leapt 38.1 percent from the same period last year to US$145.5 billion, or an increase of 3 percent month on month. Imports and exports totaled US$262.3 billion, up 30.8 percent from a year earlier.
Industry analysts had forecast China's trade this year to recover to its pre-crisis peak level. Not in their wildest imagination did they expect China's trade to regain momentum in the first seven months and dwarf what it achieved in the same period in 2008.
Given the macroeconomic stability China manifested in weathering the crisis, we have good reason to believe that even if uncertainty lurks ahead in the second half, the market share of Made-in-China products will only expand.
Skewed structure
Admittedly, China's trade surplus in the first seven months has contracted 21.2 percent to a "mere" US$83.9 billion. But for this exporting powerhouse, surplus per se matters much less than the sheer size of exports, which have significant implications for employment and income.
China's trade structure is highly skewed, with processing trade representing a disproportionate share of trade flow as a whole. For exporters, general trade is more profitable than processing trade. As downturn recedes, the rebalancing of China's trade structure is set in motion.
Another thing we can know after dissecting the July trade figures is that the interplay between China's trade and its domestic economy is becoming more complex than ever. China's massive stimulus package raised demand for commodities, especially for minerals. Due to its buying spree, global commodity prices have bounced back after staying flat for long.
The commodities China snapped up so far this year have increased in both quantities and prices. The commodity price hike has sparked widespread concerns over inflation. The resulting rise in production costs are passed on to consumers through higher factory gate prices of industrial goods. Thanks to Beijing's efforts to drain excess liquidity, the inflation genie is so far kept in the bottle.
Inflation fears
Things have changed since July. China's macroeconomic control has helped lower global mineral prices, thereby easing the pressure from imported inflation. Factory gate prices dipped 1.6 percent in July from June. Meanwhile, prices of raw materials, fuel and machinery slid 2.3 percent, which relieved the upward pressure on end products' prices.
However, extreme weather worldwide and China's aging agricultural infrastructure threaten to drive up produce prices. The sanguine notion that China will be shielded from the impact of fluctuating global food prices will likely be proven wrong. Because even if Beijing banned or restricted grain exports, speculators would find the difference between domestic and global prices an incentive for smuggling.
China's resumption of corn imports and its purchase of 600,000 tons of rice (about three times the amount of its rice imports in the first half) from Vietnam will certainly lead to higher grain prices.
In the meantime, soaring prices of imported iron ore have fueled the demand for its domestic substitute. China's output of iron ore in the first half stood at 485 million tons, a surge of 28 percent year on year. However, the low grade of domestic iron ore means if cheap foreign supplies are available, manufacturers will favor imports, leaving domestic mining companies high and dry.
(The author is a senior researcher under the Ministry of Commerce. The views are his own. Shanghai Daily reporter Ni Tao translated and edited his article originally written in Chinese.)
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