China’s Export Engine Shows Resilience

A 19.2% growth in exports over the same month a year earlier and a record trade surplus paint a picture of a slowing but still growing economy. The export growth rate was its lowest in October for four months, but still better than many economists had expected. The opposite was true of imports, and those are the key number in this set of trade figures.

Their growth rate in October was down to a lower than expected 15.6%. $128.3 billion of exports but only $93.1 billion of imports, half of which are used for export manufacturing, left a record monthly trade surplus of $35.2 billion that masks the cooling of domestic demand, falling commodity prices and stumbling exports. That should concern the China-as-locomotive-of-global-growth school of thought.

The 4 trillion yuan of infrastructure spending, tax cuts and credit easing announced two days ago is meant to stimulate domestic demand and protect jobs, particularly in the export driven south which has seen a wave of factory closings and layoffs even though demand for Chinese exports has remained brisk. Interestingly, Xiao Zhiheng, vice governor of Guangdong was reported as saying on Monday that though there had been 50,000 bankruptcies in the province in the first nine months of the year, more than 90,000 new business were registered.

Meanwhile, inflation nationally has fallen to 4%, its lowest level in 17 months, providing room for another interest rate cut. The central bank has also put a brake on the yuan’s gains against the dollar since mid-July, helping to protect light manufacturing exporters from the effects of a rising currency. Those exporters have also been given higher export-tax rebates and rebates are being restored to copper and aluminum producers.

Economists at Credit Suisse forecast earlier this month that growth for the economy as a whole may slow to 5.8% this quarter and 7.5% in 2009, its slowest in almost two decades. With Europe in recession and the U.S. and Japanese economies both contracting, how much longer will exports stay as resilient as they are proving? Net exports account for up to three percentage points of China’s growth rate (discussion of that by CFR’s Brad Setser here worth the read). They are the swing factor in how rapidly the economy as a whole will slow.


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