Chinese Exports Spell Trouble for the West

As widely reported, Chinese export figures for November, issued last week, turned out to be a blockbuster month for the country’s exporters, rising by 12.7 percent from October. But what appears to have been missed is that while the figures spell encouragement for China’s exporters, they contain the seeds of trouble for the United States and the Eurozone – and for other Asian exporters as well.

It is hard to avoid the conclusion that the strong numbers reflect a global market share for Chinese goods that is continuing to increase, to the detriment of other national exporters. If the reported 17.7 percent annual increase in exports to the US and the 18.4 percent increase to the European Union are accurate while their own export and manufacturing figures are well below those of China’s, it suggests that Chinese companies are taking market share away from their western counterparts. The Obama administration in particular has been making extensive attempts to stimulate external trade.

In the Eurozone, only Germany is keeping pace, mainly on the prowess of its car manufacturing. One of the highlights of the import statistics is the large increase in Chinese purchases of automobiles at US$4.94 billion, up 49.1 percent annually, and aircraft, by 25.4 percent to US$1.87 billion. The demand for foreign-made cars and planes reflects rising appetites for high quality transportation equipment as a result of urbanization and mounting wealth among Chinese consumers.

The slack is not being taken up by other countries. South Korean exports fell month-on-month in November and Taiwanese global exports rose by only 0.6 percent during the same period, or less than US$150 million.

In sharp contrast to the weak Korean export data, China saw accelerating shipments to its major export destinations including the US, the EU and ASEAN. Garments, textiles, shoes, computer equipment and mobile phones saw massive pick-ups in foreign shipments during the month. The strong external picture provides evidence that Beijing's policy efforts to stabilize the export manufacturing sector are bearing fruit.

At the current juncture, next month's trade report will be critical to answer whether the rebound in export momentum - currently driven by holiday shopping pre-orders - can persist into early 2014.

On the flip side, analysts’ 7 percent annual imports growth forecast into China was too aggressive – November imports were up just 5.3 percent annually. In renminbi terms, imports rose only 2 percent annually and are no higher today than they were in mid-2012, an indication that overseas exporters are having difficulty making a dent in the Chinese consumer market. Whatever growth there was appears to have been largely due to natural resources imports from developing countries in Southeast Asia.

Imports of iron ore, for instance, reached another record high at 77.84 million tonnes, up 18.3 percent annually, while buying tonnage of other key industrial consumables such as soybeans (+45.0 percent) and copper (+19.2 percent) surged ahead.

Robust imports of major commodities are in line with the consistently strong industrial production growth data points.

The data should be viewed with caution. They are open to adjustment. While the latest Eurozone data only go through the first half of 2013, they reflect a drop in imports from China, from €295 billion in in 2011 to an annual €267 billion in in 2013.

American imports from China in October, the last month posted by the US Census Bureau, were up 4.1 percent year on year. The blockbuster Chinese export numbers probably reflect some padding, but part of the story is Chinese competitiveness. In a tough market with no growth in Europe and minimal growth in the US,

Chinese Manufacturers’ Rising Market Share

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US spending has picked up somewhat, with the US Purchasing Manufacturer’s Index for November, the start of the traditional pre-Christmas shopping season, registering 57.3 percent, an increase of 0.9 percentage points from October's reading of 56.4 percent. US consumer spending rose 0.7 percent in November, the Commerce Department said, the biggest gain in five months. And spending at retail businesses rose 0.6 percent in October, higher than previously estimated.

In the Eurozone, however, spending remains largely flat from 2012. And in the UK, spending by cash-conscious households has been restrained, according to an analysis by the UK’s Office ofr National Statistics. The statistics office revealed that in real terms, Christmas spending in the average household was no higher last year than in 2006.

Thus the demand didn’t come from a reviving Europe, which accounted for just 2 percent of the increase. Another 11 percent went to the US, at US$1.8bn more than in October. Hong Kong appears to have taken the bulk of the exports, at 52 percent of the increase, for reasons that are unclear, although the territory serves as an entrepot, to a large extent transshipping Chinese imports and turning them into exports.

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November trade with Japan and the European Union continued to improve, extending the gradual upswing since early 2013. The relatively robust trend of imports from these two source countries for technology serves as a noteworthy gauge for China’s push to upgrade its industries.

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(Steve Wang is chief China Economist and head of research for REORIENT Securities Ltd. of Hong Kong. He is a regular contributor to Asia Sentinel.)