What latest Chinese trade stats reveal about big picture

  • 12/7/2020
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The latest Chinese trade statistics threaten to be drowned in the headlines of the Brexit drama and the hopes over vaccines for the coronavirus disease (COVID-19). They are very important nonetheless, because they illustrate the story of a world divided into two halves: East of the Suez Canal where normalcy is starting to return and nowhere more so than in China; and west of Suez where the virus is ripping through countries. New cases reach sad records day after day and ever more stringent restrictions and lockdowns take a toll on economies. China’s November exports reached $268 billion, a jump of 21 percent year on year, while imports only rose by 4.5 percent, which is relatively low, but comes on the heels of the strongest-ever recorded import numbers in September. They had been fueled by manufacturers stocking up components ahead of the Huawei sanctions. November’s trade surplus stands at a staggering $75.4 billion with the world — the largest on record — and $37.4 billion with the US. The reason for the stellar export performance lies in China producing the goods a pandemic-stricken world needs — personal protective equipment for healthcare workers, and electronic equipment enabling working, learning, and playing from home. There was also a whiff of shops ordering goods earlier than usual for the holiday season amid uncertainty over restrictions. The question is how these exports will develop going forward. A Bloomberg poll of economists expects them to be less strong for December. However, high growth rates in the first quarter of 2021 are likely to be seen because they will be compared to the weak baseline of last year’s first quarter when China was in the midst of the COVID-19 outbreak. The strong export performance and high trade surpluses are a blessing in disguise. For one, the US is watching these numbers with eagle eyes. American President Donald Trump plans to sanction at least another 10 Chinese officials over the disqualification of legislators in Hong Kong’s Legislative Council, the territory’s parliament. While that seemingly has little to do with trade, markets fear that Trump may not yet be done with imposing sanctions on China, and corporate entities such as banks might come next. US President-elect Joe Biden will in all probability not alter the current China policy much. He said that he would not rush to remove the Trump administration’s Phase 1 tariffs. Biden is expected to be tough on China, the difference with his predecessor being one of style, tone, and consistency rather than of substance. The bigger the trade surplus, the more his hands are tied domestically, where anti-Chinese sentiment runs through both the Republican and Democratic parties alike. These numbers impact on the currency. The renminbi has so far appreciated 6.4 percent against the dollar this year alone, which is of concern to the People’s Bank of China (PBoC), the country’s central bank. The appreciation of the yuan will in all probability continue, as investment restrictions for foreigners have been loosened and international financial institutions are queuing to get part of the action. Over huge stretches of 2020 the Shanghai composite has outperformed its peers overseas and is among the clear winners of this year. The fact that China is able to raise export levels despite the strong yuan may help lessen the PBoC’s concerns a little though. The question is, where do we go from here? In the short run, Chinese exports are bound to be affected by restrictions and lockdowns west of Suez. In the medium-term, the Chinese leadership has its work cut out in placating world leaders, who look with jealousy at how the Middle Kingdom could decouple itself from the economic devastation caused by the virus west of Suez. The recent trade numbers have given a glimpse of the strength of the Chinese economy and the country is expected to become ever stronger. Cornelia Meyer In the long-term, China is addressing these issues with the 14th Five-Year Plan (FYP) starting 2021 and the economic blueprint stretching over a 15-year period until 2035. The proposed dual-circulation economy will put greater emphasis on domestic consumptions, while still considering exports as a cornerstone for economic growth. The country’s leadership has also learned the lesson of over-dependence on the West (particularly the US) when it comes to its technology supply chain. It therefore aspires to become the global leader in artificial intelligence, quantum computing, and robotics. The recent trade numbers have given a glimpse of the strength of the Chinese economy and the country is expected to become ever stronger. This is not further surprising when several economists forecast that the country’s nominal GDP could dethrone the US from the No. 1 spot in the league table as early as 2024. All of the above matters to the world. It especially matters to nations which export the commodities that fuel China’s growth. Oil is one of those commodities, which makes it very important for oil-exporting Gulf Cooperation Council countries to closely monitor China’s economic path going forward. Cornelia Meyer is a Ph.D.-level economist with 30 years of experience in investment banking and industry. She is chairperson and CEO of business consultancy Meyer Resources. Twitter: @MeyerResources Disclaimer: Views expressed by writers in this section are their own and do not necessarily reflect Arab News" point-of-view

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