Lots of smaller miscellaneous reports over the week have been released indicating how Chinese trade is looking at the moment, and what it might look like in the future:
- China’s trade data for October came in at 11.6% increases in exports and 4.6% increase in imports (vs. expectations of 10% and 5% respectively) in YoY terms, but being down 3.2% and 11.6% MoM. The Wall Street Journal has a bit more on this and angles it as cracks of weakness growing in the Chinese data.
- The South China Morning Post reports that Xi Jinping has announced growing the New Silk Road initiative to US$40 billion (roughly RMB250 billion) to secure future trade ties. This is a very good show of force and ambition leading up to tomorrow’s APEC meeting official start.
- Also from the SCMP, China looks willing to court Taiwan over trade agreements, although the wheels of bureaucracy and public approval need to grind for a while in Taiwan first.
- This of course off the back of more ties to Japan, as discussed here yesterday.
Overall, China looks like it is in a relatively strong position on the trade balance, but the overall data components of export and imports look a bit worse. Would I put out the same worrying analysis as the WSJ? Not really. Export-import is notoriously rather fickle, and the same tendencies that has forced Macau gambling revenues to tumble 23% YOY (yes I read this when it came out, I just didn’t have too much to add to it at the time. The Forbes article here though is pretty good and worth a read!) are probably at work, given that the major imported goods from abroad to consumers are often high-value items. Putting the breaks on the official gravy-train would thus have a lot of effects and the question I have is if analysts are properly looking at this for the E/I data.
In addition, this is very much in-line with a general channel range of Chinese data for both imports and exports over the last three or so years. Looking at it all from the angle used above, that import weakness is partially a result of Xi’s anti-corruption campaign, the “mass line” will impact GDP by slowing business down, but thankfully it hits internal purchases and imports harder than production capacity and export ability, meaning that the trade dynamics of China act as a stabilizing buffer factor.
Looking to the future, China really looks eager to promote trade across the region. If it has a genuine economic “slump” then striking now when the global commodity prices are low and it’s a buyers’ market would be a good idea. Increasing trade ties to both Japan and Taiwan should ideally be something that goes both ways, and as mentioned in the Taiwan article the main effect would be to make it easier for Taiwan-based mainland companies to earn profits and reduce their red tape.
The willingness shown to lead going into the APEC summit is a strong positive, but the question is if this is a “carrot” complementing a militarily assertive “stick”, or if this is a general shift of China’s global power strategy. My money would be on the former, the world has shown that old military viewpoints die hard. However, the net effect is in the same direction, and hopefully the APEC summit will have a little bit more long-lasting effects than the 2008 Olympic Games.
Increasing the funds to the New Silk Road is showing that Xi is serious on this, and could generate a lot of added value domestically as a large part of this is set to go to inland or western provinces. It might be a little bit too early to call, but remembering that a US$40 billion project like the New Silk Road gets close to the October liquidity injections that the PBOC did, I think this is money much better spent, and could accelerate positive developments throughout China in a different way. Looking at it as a “stimulus package” is probably a bit more helpful in understanding why it happened and where the focus lies.