20 January 2019
China's trade performance in January was quite robust even with fewer working days. Photo: Bloomberg
China's trade performance in January was quite robust even with fewer working days. Photo: Bloomberg

Too early to celebrate China trade triumph

While many regard China’s January trade figures, which easily surpassed market expectations, as a sign of global economic recovery, they may not accurately reflect the truth.

Several puzzles remain, and we need more data to see whether the latest figures are trustworthy and the improving trend is solid.

Chinese exports for the month amounted to US$207.13 billion, a rise of 10.6 percent from a year ago, much faster than the 4.3 percent growth in December. Imports increased 10 percent to US$175.27 billion, the fastest pace in six months. Total trade was up 10.3 percent year on year at US$382.4 billion.

The increase is remarkable because of the high base of comparison. In January 2003, China’s trade was US$187.4 billion, already a rather high figure.

Last month’s trade growth was also super-robust because it defied a seasonal trend. This year, the Spring Festival fell on Jan. 31, compared with Feb. 8 last year. This means the past month had fewer working days than a year ago because Chinese workers usually leave factories for a family reunion days before the festival. It is indeed impressive that the trade performance last month was so robust with fewer working days.

Many have cited the growth as proof of the recovery of developed economies, as reflected in the extraordinarily high growth in trade with the United States and Europe in particular. Trade with the European Union, the country’s largest trade partner, surged 14.6 percent to US$341.19 billion, with exports to the 28-nation bloc up 18.8 percent. Trade with the United States rose 8.8 percent to US$299.23 billion.

But the figures, while impressive, also raised some doubts.

First, transit trade with Hong Kong declined significantly. The number dropped 18.3 percent, which is against the common trend: When China’s trade with the US and EU jumps, trade with Hong Kong should also go up.

One explanation for this strange, if highly suspicious, incongruity may be that the transit trade with Hong Kong was over-invoiced in January last year, when speculators moved their money across the border under the guise of trade. This resulted in a large trade figure between China and Hong Kong. So one year later, when there were much fewer speculative activities across the mainland-Hong Kong border, the trade figure declined.

Second, overall trade figures were inconsistent with other economic indicators.

The purchasing managers’ index (PMI) in recent months showed that manufacturing activities were slowing down and new orders were not increasing rapidly.

The manufacturing PMI dropped to a six-month low of 50.5 in January, from 51 in December. The PMI for services, released by HSBC Holdings Plc, eased to 50.7 in January from 50.9 in December. Clearly, the trade and manufacturing figures don’t match. One reason could be the time-lag effect: trade data will reflect the manufacturing figures only after some time.

Third, China’s exports of labor-intensive products jumped surprisingly. January is traditionally a weak month for shipments of these goods after they peak before the Christmas season. But last month, growth in shipments of cases, bags, clothes and shoes all hit double-digits. By comparison, neighboring markets that are also famous for exporting labor-intensive products such as Vietnam saw their exports slowing or declining in January. In this sense, China’s bullish performance is a bit weird.

Fourth, imports of raw materials saw astonishingly high increases. Imports of iron ore, copper and copper ore, and steel in January jumped 36.8 percent, 24.3 percent and 25.6 percent respectively. They only saw single-digit growth in the previous month.

There’s one way to explain all these strange phenomena surrounding the January trade data: a lot of fake trade went into it. Just like what speculators did a year ago, they have changed their way of moving money in and out China under the guise of trade. But this time, they didn’t take the traditional route, which is through Hong Kong. What’s more, they probably used bills of raw material imports as financing tools to help Chinese companies, battered by the most serious credit shortage in years, to raise money.

As all these conjectures must be backed up by proofs, it is too early to celebrate the January triumph. Let’s wait for at least another month — when the January and February figures can be added up to iron out the Spring Festival distortion — to get closer to the truth.

– Contact the writer at [email protected]



The writer is an economic commentator. He writes mostly on business issues in Greater China.

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