Xiong Yuan: No Sign of Recovery in International Trade

2017-06-09 IMI

Xiong Yuan, Research Fellow of IMI. China's foreign trade will remain under pressure in the near future even though October's figures showed better performance compared with the same period the last year. There is no sign of recovery in the short term. Exports in October fell 7.3 percent year-on-year. The decline was smaller than that of a year ago, which was 10 percent. Imports declined 1.4 percent, which was also better than the previous number - 1.9 percent. The trade surplus increased to $49.1 billion (45.8 billion euros; 39.5 billion) from the $42 billion a year ago. The October figures were improved, but they were still less than forecast. China's foreign trade is hard to pick up, as the international trade environment remained weak and US President-elect Donald Trump vowed to push trade protection policies. The overseas market was not strong. It was forecast that the negative October exports could be narrowed to 5.3 percent, but the actual number was 7.3 percent, which was the seventh consecutive monthly decline. Depression of renminbi was accelerated. Manufacturing industries in developed countries and economies, such as the United States, the eurozone and Japan were improved. However, those factors did not boost China's exports. New export orders in October declined, even though the manufacturing purchasing managers' index picked up. China's exports to the ASEAN countries and regions performed better in October than pervious months. A 9.9 percentage point rise narrowed the export decline to 0.9 percent in this region. On the other side, the decline with South Korea expanded to 18.1 percent year-on-year, caused by the relatively high base in 2015. Exports to Brazil grew 4.4 percent as the country's economy recovered. From January to October, China's exports to major countries and regions saw declines. The poorest three were -7.7 percent to the United States, -7.5 percent to the ASEAN countries and -7.9 percent to Hong Kong. Helped by the renminbi's depression, exports of textiles, clothing, footwear, bags, luggage and toys rose in October. Exports of toys increased 24 percent year-on-year in two consecutive months. The domestic market was improved with imports performing better in October, but there is doubt whether this improvement can persist. In October, imports slowed to 1.4 percent year-on-year, slightly lower than the forecast of 1 percent. But the decline was narrowed 0.5 percentage points compared with September. That was the result of the rise of commodity prices. The import prices of coal or lignite increased 21 percent compared with September. Other commodities such as crude oil and iron ore also saw consecutive price rises in the past two or three months. However, the imported value of agricultural products such as corn and soybeans declined in the past five months. The imported value of corn, for example, dropped another 13.8 percentage points to 42.8 percent in October compared with the previous month. The poor performance indicated that domestic demand was not strong enough to push the imports. In addition, import value saw a month-on-month decline in October, the first since February. It is too early to say that domestic demand has recovered, as the improvement needs more time to be proved. Compared with September, the trade surplus increased in October, but compared with the same period last year it plunged. This indicates that the international trade environment is deteriorating. The trade surplus in October rose $7.1 billion month-on-month to $49.1 billion, but was lower than the expected $51.7 billion. It was also down 20 percent year-on-year. The drop narrowed 9.6 percentage points compared with September. However, the drop was 9.3 percentage points more than that of the third quarter. The European Union, the United States, the ASEAN group and Japan remained China's major trade partners. Exports to the EU, ASEAN and Japan continued to rise, but exports to the US saw a decline, probably due to instability caused by the presidential election. There is no sign of recovery in global trade. Data show that the growth of the global cargo trade was less than the global economic growth for four consecutive years. The latest forecast from the World Trade Organization said trade growth will be only 1.7 percent in 2016, the lowest number since the financial crisis of 2008. This indicates that the overseas market will remain weak in the short term. At the same time, trade protection and anti-globalization have begun to surge in recent years. Brexit and Donald Trump's winning of the US presidential election were the results of populism, which were partners of isolationism, deglobalization and protectionism, and will likely have a negative impact on trade liberalization. In addition, Trump is likely to promote trade protectionism after he becomes president in January, according to what he said during the election campaign. This will not only hamper the recovery of the global economy but will aggravate the trade friction between China and the US as it weakens China's foreign trade.

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Xiong Yuan: No Sign of Recovery in International Trade

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