Steep drop in China exports shrinks balance surplus 32 % YTD

Discussion in 'Economics' started by ASusilovic, Aug 20, 2009.

  1. China's net flow of goods and services, or its current account surplus, shrank 32 percent this year to June as the global recession clamped down on exports for the world's third largest economy.

    It is the first decline in the nation's current account surplus since 2004.

    Current account surplus is the difference between a nation's sum of exports of goods, services and gifts between countries, and its total imports.

    The surplus dropped to $130 billion in the first half of this year from $191 billion in the same period of 2008, according to preliminary data released yesterday by the State Administration of Foreign Exchange (SAFE).

    The capital and financial account surplus also shrank to $33 billion in the first half of 2009, SAFE said. The decline came largely as net direct investment fell 50 percent in the first half year-on-year.

    China's trade surplus is decreasing, especially in terms of percentage of gross domestic product (GDP), said Stephen Green, head of China research at Standard Chartered Bank in Shanghai.

    The country's trade surplus fell to 4.4 percent of GDP in the second quarter from 8.4 percent in the first quarter of this year.

    "Obviously, this is a combined result of the sharp drop in China's export and a moderate drop in imports as a result of slowing global growth," said Zhuang Jian, senior economist with the Asian Development Bank.
  2. I'm no clairvoyant, but I see a magnificent bubble in looking at China.

    The government is constantly jiggering and rejiggering the deck that is their economy.

    There are all sorts of disequilibriums that the government is creating.

    Unlike our nation, China has a massive surplus of cash, but the fact that a huge % of it is USD may be the giant white elephant (panda?) in the room.
  3. pitz


    Where the h*ll will China get USD$ to fund the US budget deficit then if these surpluses are dropping (meaning, less USD$ available for Chinese investment.)??

    Something tells me this cannot end well.
  4. xenix


    And as exports have dropped, they've been buying every kind of shelf-stable commodity. I don't know how much of that is pure speculation and how much is for delivery, but my impression is that they've been taking delivery.

    I wonder what happens when they figure out that what was previously a 3 year supply of copper or nickel turns out to be more like a 10-year supply.

    Metal traders have reported incidents when “a rich man walked into our office and asked us what had been the lowest and highest prices of nickel,” Scotia’s Liu wrote. “After telling him those prices, he said the current price was low and he placed an order.”

  6. Obviously the biggest reason is the global recession but dont forget that the trade surplus as a percentage of GDP will expectedly shrink further in the future as the domestic economy grows and continuously replaces production meant for exports.

    The reduction in loan growth shows that most banks are well aware of a possible bubble in credit and everything points to the fact that only a further global reduction in economic activity can push China down again. I dont see any domestic factors that may endanger the Chinese growth.

    For those who love to bash the Chinese economy, a run up of 100% and cooling by some 20% is totally normal, its the same as Coca Cola advancing some 35% before people took cash off the table and pushed down the price by some 7% or so.

  7. you are completely omitting that contrary to the rest of the world the Chinese consumers are still spending and with that comes demand for base materials. And yes, they are sitting on a pile of commodities. But guess what, they now got the power to break all 3 global resource titans together, unless those return to the negotation table and charge realistic prices for iron ore and the like. What do you think Rio is gonna do if China stops purchasing from them 6 months straight? Their stock price will proabably drop 50% +.

  8. xenix


    Maybe so. If you have some hard figures on commodity utilization, stockpiles, etc. then please share.

    All the media reports I've seen and heard either state or imply that China has been pigging out at the commodity trough and amassing multi-year stockpiles.

    Some things are understandable, like steel. Infrastructure and construction are still booming in China so that makes sense.

    As far as boycotts go, that's a double edged sword. OPEC tried that in the 70's. Ask them how that worked out. It forced the US to use fuel more efficiently - well, by 1970's standards - and the price of oil dropped below what it was before the embargo. You only get to play that card once.

    I don't have any dogmatic views regarding China. So any skepticism shouldn't be read as bias. Don't make assumptions about my attitudes.
  9. fair points, but this way its the other way around. With those stockpiles China can indeed keep on building with letting Rio and others stand in the rain for several months. The relationship has not been the best between the two anyways, referring to the arrested Rio official in China. Guess who backed down and apologized and promised improvements.

  10. It has very little to do with boycotts and fuel efficiency, it has every thing to do with interest rate. If Fed jack up interest rate to 18%, everyone will rush into usd and commodities will crash like before.
    #10     Aug 21, 2009