China’s exports, which virtually fell off a cliff at the height of the global economic downturn last year, are now experiencing a
‘Toyota effect’ — characterised by runaway, uncontrolled acceleration — and prompting calls for policymakers to slam the brakes on fiscal stimulus or risk an overheating economy.
Trade data released on Wednesday showed exports vroomed 45.7% year-on-year in February, from 21.0% in January, while imports rose by 44.7% y-o-y, compared to 85.5% the previous month.
The export data was “stronger than expected” and implied
that industrial production and inflation data, due on Thursday, may also beat expectations, noted HSBC China economist Qu Hongbin. “This will likely increase market concerns about overheating and, hence, further policy tightening.”
China’s GDP rebounded to 10.7% y-o-y and 11% seasonally
adjusted annualised quarter-on-quarter in the fourth quarter of 2009, Qu pointed out. “Further acceleration in growth will only increase the risk of overheating.”
Given the extraordinary credit expansion last year, this overshoot in growth would likely impose greater inflationary pressure than during previous economic cycles, he added. “We expect these strong figures to reinforce Beijing’s intention to gradually tighten its monetary policy mainly through reserve ratio hikes and lending curbs.”
Deutsche Bank’s China economist Jun Ma too sees disquieting signs of an economy on overboil. “The rapid rise in exports will add to inflationary pressure and reinforce the arguments for domestic policy tightening,” he said. “Overheating in the domestic economy has led to stronger imports of commodities — so we have strong export-demand recovery as well as domestic overheating.”
Other economists, however, see the export recovery as a positive contributor to GDP growth. “We expect exports to grow by 15-20% on average in 2010, and net exports to contribute about 0.5% to GDP growth,” noted UBS economist Wang Tao. The “strong export recovery”, she added, will provide support for those who advocate for a resumption of an appreciation of the Chinese currency.
JP Morgan chairman of China equities Jing Ulrich too pointed to “rising container shipping rates, reported labour shortages in coastal manufacturing hubs and renewed political pressure for RMB (yuan) appreciation” as signs that the “export recovery” was broadening.
Some of the export acceleration is attributable to a low ‘base
effect’ arising from last year’s fall-off, and China’s commerce minister recently warned that a full recovery in exports may be two to three years away, due to the high unemployment and low savings rates in some of China’s biggest trading partners.
But China is also cannibalising market share from other Asian exporters, the data for February showed. China’s share of total imports by the US, the euro area, the UK, Canada, Australia, Japan, Korea, Brazil and South Korea rose relentlessly, said Standard Chartered economist Stephen Green.
“China has benefited by absorbing the final step of the processing chain from other Asian locations, as well as by taking market share from other Asian exporters in areas where they compete directly.”
Despite the surge in exports, China recorded a slimmer trade surplus for February — $7.6 billion, down from $14.2 billion in January. Moody’s Economy.com economist Alastair Chan in fact reckons that in seasonally adjusted month-on-month terms, imports rose while exports declined, “suggesting that domestic demand is outpacing demand from China’s export partners.” Chan sees in this evidence of a shift in China’s economic growth drivers — towards domestic demand.
Chan reasons that if February’s result continues — that is, if imports growth outpaces exports growth — calls to allow the yuan to appreciate could fade. “Chinese policymakers will be able to point to the data showing that China is doing its bit to boost global demand,” he added.
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