China's Recovering Export Sector: Less than Meets the Eye

It's early in the trading day, but the bulls are already charged up by apparent good news out of China. According to Bloomberg,

production rose 16.1 percent from a year before, the most since March 2008, the statistics bureau said in Beijing today. Retail sales gained an annual 16.2 percent in October, it said. The trade surplus almost doubled from September, to $24 billion, as the slide in exports eased to the slowest pace this year.

On its face, the data gives cause for optimism. Yet like much of what we've lately been seeing and hearing from that part of the world, some things don't add up.

For example, although analysts have interpreted strong imports of industrial materials as a sign that China's factories are humming again, reports also note that there has been tremendous speculative stockpiling of copper and other metals by pig farmers, among others.

Moreover, when it comes to the supposedly recovering export sector, the following report from ChinaStakes.com, "China's Export Pickup Still Slow Due to Cautious Christmas Shopping Season," suggests there is less there than meets the eye.

"The whole supply chain is changing and export volumes find it difficult to return to original levels," says Wu Zhenchang, chairman of Guangzhou ChuangXin Shoes Industry Co., Ltd. Earlier this year, the company's export orders, annually averaging over $100 million, decreased 30%-40%, and its workforce was reduced by 1/3. With Christmas orders now coming in, the factory is encountering a worker shortage, but unlike in previous years, Mr. Wu is in no hurry to recruit. "The annual shoe export volume of China is eight billion pairs. Five billion pairs are in circulation and the other three billion are in inventory warehousing," he says.

At the just-concluded 106th Canton Trade Fair, foreign buyers were very cautious. EU and the US purchasing volume picked up a bit, with export turnover increasing by 16.2% compared with the spring fair, but it was still down 3.4% compared with last autumn's fair.

In this year's second half, China's export decline has narrowed. The MoC says China's current import/export situation is showing positive changes. The foreign trade decline may further slow or even slightly recover later this year. The decline of imports and exports is expected to drop to 20%, year-on-year. Still, compared with the V-shaped rebound of China's GDP, exports are experiencing quick decline and slow rebound.

Comments

[HaavBline:]

The slower rebound in Chinese exports is consistent with the reality of slow recoveries of US and EU economies.

From Bloomburg:
"Alibaba.com Ltd., China’s biggest online commerce site, expects the nation’s trade recovery to weaken in the first quarter of next year because of “flat” overseas demand", according to its CEO.

This is noteworthy because Alibaba.com is a dominant e-commerce platform used by Chinese small and medium exporters and enjoys a first-hand knowledge of export status months before any meaningful statistics become available.

Nov 11 12:42 PM

[James Lewis:]

It will take many years for the go-go years of 2000-2007 to come back in export trade terms. However this will not be as important in the GDP as the property/asset markets and domestic demand pickup as china continues to reform.

From what I can see the property markets are now priced at fair value and as a result there are a lot of the lower middle class starting to have decent net worth. As this trend continues and the government carries on pushing its subsidised housing agenda. Disposable incomes will rise, especially if base wages can move up to a higher level.

Development of this size will have a very large effect on GDP.
The retail/domestic consumption infrastructure is there and ready. Habits need to change and disposable incomes need to rise.
We are seeing this on both fronts and there is no reason to believe it will not carry on happening.

Nov 11 02:26 PM

[Alphameister:]

If we are going to use anecdotal evidence to challenge official economic statistics, my take-away from this rather lame article is "the factory is encountering a worker shortage." It is not surprising that export recovery has been sluggish despite strong GDP growth driven by fiscal stimulus that has focused on infrastructure development.

Nov 12 09:54 AM