from Follow the Money

China’s October trade surplus was hardly small

November 10, 2005

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US: record trade deficit in September.  China: record ($12 billion) trade surplus in October.

Don't get me wrong - China's surplus is only a fraction of the US deficit.  Other things are going on to.  Still ... 

Chinese October goods exports are up nearly 30% y/y.  They hit $68.1 billion.  US September goods exports were a bit bigger, but only a bit -- $73.4 billion.   There is little sign export growth is slowing either.  The October growth rate is only a bit off the 31% growth rate when Chinese January-October exports are compared to exports in January-October a year ago.

Imports were up 23.4% in October (y/y) to $56.1 billion.  US goods imports, for comparison, were $144.5 billion.   That is stronger than the overall 17% growth rate for the entire year to date, compared to last year - suggesting that import growth in picking up.

What is China exporting?  Electronic and machinery exports continue to grow faster than textile export.   And importing?  Soybeans, iron ore, coal ...

The strong import growth was attributed to a large increase in imports of coal, iron ore and soybeans in the reporting period.

Coal imports jumped 43 pct year-on-year to 20.7 mln tons for the first ten months of this year, and iron ore power imports rose about 32.3 pct to 220 mln tons.

Soybean imports reached 21.42 mln tons, up 38.1 pct compared with a year earlier.

In the first ten months, imported crude oil was up 5.7 pct year-on-year to 110 mln tons, with imported refined oil dropping 15.8 pct year-on-year to 25.69 mln tons.

I'll be interested in China's October reserve increase (valuation adjusted, of course).   Market analysts have noted that the People's Bank increased its issuance of sterilization bonds ...  which may suggest higher infows.  Or may not.    But if capital inflows continue at something close to their September pace, Chinese October reserve accumulation may be closer to $25 billion than $20 billion.    No wonder the PBoC wants Chinese mutual funds to invest more abroad: more capital outflows = fewer reserves, and China has more reserves than it wants ...  or at least Chinese reserves seem to be growing a bit faster than the PBoC would like.   There is a reason why controls on capital outflows are falling ... inflow controls not so much.

And I think China realizes that growing Chinese trade surpluses and rising US trade deficits won't make it politically easy for the US to take the political heat off.  Jim Walker is right:

``This is really starting to give people like the U.S. and Europe scope to charge China with manipulating the currency,'' said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. ``I'm afraid trade tensions are likely to increase.''

The big question looking forward: is China's soaring current account surplus cyclical, and likely to start to fall in 2006 or 2007?  Or is it structural ... and something that requires policy action to correct.

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