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The Canada-China Trade

Though bilateral trade between Canada and China is only in its early stages of growth, the Great White North is already benefitting from the Middle Kingdom’s appetites.

Data reported by the Customs General Administration show China has overtaken Germany as the world’s largest exporter. Skeptics will helpfully point out that this is a function of whose exports have fallen least amid the global demand destruction of the last couple years.

The numbers will be interpreted either as a sign that the global economy has turned the corner and is able to stand on its own two feet or as further evidence of government-inflated activity the substance of which will leave the world depressed in the long run. But the magnitude of the surprise suggests we’re closer than many perma-bears would have you believe to a real turn toward modest but sustainable growth.

China’s exports were up 17.7 percent year-over-year in December, while a 55.9 percent year-over-year increase pushed imports to a record. Demand from China’s two largest export markets, the US and the European Union, showed signs of returning to normal, as sales to the US rose 15.9 percent and to the EU 10.2 percent.

For the full year, China’s exports fell 16 percent and imports declined 11.2 percent. The trade surplus was USD196.1 billion, sliding for the first time since 2003.

In December, exports were USD130.7 billion and imports were USD112.3 billion. The customs bureau said the import value was unprecedented and exports were the fourth-largest on record. “The rebound in export growth is no surprise given the collapse in trade at the end of 2008,” Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong, told Bloomberg News. “But this is still good news and reflects a real improvement in external demand.”

This could be among the first of what will be a series of eye-popping percentage-terms beats for many economic indicators and statistics--December 2008 was nothing short of catastrophic as far as the slowing of the global economy is concerned. The so-called base effect is huge for December 2008 and for the fourth quarter.

The import figure, particularly compelling, suggests that, in the long term, China is capable of becoming a domestic-demand-driven engine of global growth a lot sooner than many observers forecast.  That it surpassed the US in 2009 as the world’s largest new car market is further evidence. And all this has positive implications for Canada.

If the phrase “increase in shipments to China” becomes a regular part of global market reporting, countries like Australia will benefit directly because of its iron ore, for example. Canada, though an ocean away from the Middle Kingdom, is a lot like Australia. Critically, it, too, is blessed with abundant natural resources, including base metals and energy commodities.

China’s crude oil imports hit a record 21.26 million metric tons in December, equivalent to 5.03 million barrels a day, partly on a push by state-owned refiners to have enough fuel in reserve ahead of the Lunar New Year holiday next month. For all of last year, crude oil imports rose 14 percent to 203.79 million tons, likely cementing China’s place as the second-largest importer of crude oil after the US in 2009, ahead of Japan. Crude oil accounts for more than 50 percent of Canada’s exports.

China imported 62.16 million metric tons of iron ore in December, 80 percent more than a year earlier and the second-highest volume on record. Iron ore imports were up 22 percent month-over-month. For the full year of 2009, China imported 627.78 million tons, up 42 percent from 2008. The high import volume could be an indication that traders and steelmakers stockpiling the steelmaking ingredient before the annual re-setting of benchmark prices; the market right now is pricing in a 20 percent increase. Canada is the world’s third-largest iron ore producer, after Australia and Brazil.

For all of 2009, imports of copper and its products soared 63 percent, and purchases of aluminum and its products climbed 164 percent. Canada is the third-largest copper producer in the world.

StatisticsCanada reported this morning that Canada returned to a trade deficit in November after a surprise surplus in October; this is as much about the strength and resilience of the domestic economy as it is about the health of Canada’s trade partners.

November data show imports increased by 3.9 percent. Exports still expanded month-over-month, by 1.1 percent, driven largely by rising prices for oil, among other commodities. And economists still expect exports to add to growth in the fourth quarter for the first time since the first quarter of 2009.

We’ll have a clearer understanding of the impact of China’s December imports on Canada when StatsCan reports its December trade numbers next month.

Trans-Atlantic Loonie

According to a statement posted to the Canadian Finance Dept’s website, Canada raised approximately USD2.9 billion in Europe last week:

The 10-year bond issue raised €2 billion, equivalent to about US$2.9 billion at current exchange rates. The proceeds will be used exclusively to supplement and diversify funding for Canada’s foreign exchange reserves, rather than to finance public debt or spending.

The bond transaction achieved all of the Government’s objectives, including providing cost-effective and diversified funding for the foreign reserves held in the Exchange Fund Account. The investor base for the 10-year bond issue includes more than 200 investors from a wide range of central banks, other official institutions, commercial banks and foreign-based investment funds across a diverse geographical area.

Borrowing costs came in below offerings by other developed nations. Canada is paying six basis points lower than France paid on a similarly structured issue, four basis points below the rate on a Dutch bond.

As we discussed last week, the Canadian story is generating a lot of interest all over the world: There was enough demand to fill what was eventually sold five times over.

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Roger Conrad is Editor of Canadian Edge and Utility Forecaster. Find more articles on

Disclosure: no positions