Sunday, February 8, 2015

China's imports drop 20% explaining PBoC action; China watchers clueless

China's trade report this weekend was dismal. Exports dropped 3.3% vs. economists' consensus of a 6.3% increase from last year. That is a 10% miss, demonstrating that the global community of professional China watchers do not have a clue about the nation's trade dynamics. This is quite unsettling given the importance of China to global growth.

A great deal of this weakness in exports was due to softer demand from the Eurozone and especially from Asia.
Reuters: - ... the data showed that while exports to the United States rose by 4.8 percent year-on-year to $35 billion, exports to the European Union slid 4.6 percent to $33 billion in the same period.

Exports to Hong Kong, South Korea and Japan were also down, with exports to Japan slumping over 20 percent.
But the real shocker came from the nation's import figures. Imports dropped by 20% from last year as the nation bought less (or paid less for) coal, oil and other commodities. Economists missed this measure by a whopping 17%!

As a result of the huge decrease in imports, China's monthly trade surplus spiked to a record of $60bn.

China's industrial demand has clearly suffered a decline in recent months - which explains the reason the PBoC chose to cut reserve requirements for banks (RRR - see chart/quote). However it is far from certain that this action will end up having the desired effect.
Fitch: - ... uncertainty remains as to whether the recent easing measures by the PBOC (including the earlier rate cuts in November 2014) will actually result in increasing credit to targeted sectors, such as small and micro enterprises. If banks utilise the monetary loosening to continue expanding credit in sectors which are already highly leveraged, it would exacerbate vulnerabilities in the system and be credit negative.
The question remains however if China watchers, both domestic and international, can develop a better insight into the nation's economic trajectory or if the projected figures continue to wildly deviate from reality.

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