Chinese exports plunged by a record 25.7 percent last month, but investment spending surged as the country’s economic stimulus program took hold, the Beijing authorities said Wednesday, providing conflicting signals about the health of the Chinese economy.
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Messages are mixed on China’s economy
By Keith Bradsher
11 March 2009
HONG KONG: Chinese exports plunged by a record 25.7 percent last month, but investment spending surged as the country’s economic stimulus program took hold, the Beijing authorities said Wednesday, providing conflicting signals about the health of the Chinese economy.
The data sketched a picture of a country that is spending huge sums at home in an attempt to offset steadily weakening demand overseas — with no conclusive signal yet on whether the stimulus program will succeed.
Economists and investors around the world have been puzzling over whether China can escape the worst effects of the global economic slowdown. The uncertainty has produced sometimes violent swings in stock markets, and particularly commodity markets, with each contradictory hint of the country’s economic health and speculation about further government spending.
Investors in China seemed uncertain about how to greet the latest data, with stock prices bobbing up and down in Shanghai before closing down 0.9 percent. But commodities and currency traders gave more emphasis to Chinese export data and concluded that the Chinese economy might be weaker than previously thought; copper prices fell on expectations that China might need less, and so did the value of the currencies of resource-rich countries like Australia.
Exports have been a pillar of China’s impressive economic rise over the past three decades, and the sharp drop in February, compared with a year ago, was unexpected — economists had been predicting little change. The Chinese Lunar New Year fell in February last year and depressed exports that month; this year, the holiday came in late January, which should have made it easier for factories to exceed their February shipments if they had enough orders.
“The figure is worse than it appears, as the timing of the holiday should have made January’s numbers look bad and February’s numbers look good,” said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland. China’s exports fell 17.5 percent in January from a year earlier.
Goldman Sachs predicted that exports would not recover quickly. “We believe the downside risks of weaker external demand have just started to show up in China’s exports growth and will likely weigh on China’s overall activity growth,” the company’s economists said in a research note.
But even as overseas shipments slowed abruptly for everything from toys and fashion accessories to steel and grain, investment spending strengthened. The National Bureau of Statistics said that fixed-asset investment, which has played a bigger role than exports in Chinese economic growth in recent years, had climbed 26.5 percent in the first two months of this year, compared with the first two months of last year.
The growth in fixed-asset investment was larger than expected and marginally higher than its average for all of last year. But the averages concealed a dramatic shift in what is being built in China, as the government moved swiftly to replace crumbling investment in real estate.
Railroad investment spending, a central activity of the country’s economic stimulus program, more than tripled in the first two months of this year as Beijing sought to strengthen and expand an often-rickety network that has failed to keep up with demand in recent years, particularly during bad weather and holidays.
But previously bubbly growth in the construction of office buildings, factories and apartments, which had been rising more than 30 percent a year, essentially leveled off. It was up 1 percent from the same period a year ago.
Gauging the strength of domestic demand in China is tricky because the export sector is so large — even subtracting imports that go into products that are immediately re-exported, net exports still account for a tenth to a fifth of the country’s economic output.
But imports to China are also shrinking, falling 24.1 percent in February. One consequence of decreasing trade has been a withering of the Chinese trade surplus, which fell to $4.84 billion last month, the smallest in nearly four years.
Mingchun Sun, a China economist with Nomura International, lowered his forecast for the trade surplus this year to $155 billion, compared with $295 billion last year. But because so much of what China exports consists of reprocessed imports — like assembling DVD players from imported computer chips and other foreign components — the Chinese economy may still reach the government’s target of 8 percent growth, he said.
“We believe the reduction should be easily offset by the unexpected increase in investment growth,” he said.
China has been investing its trade surpluses heavily in U.S. Treasury securities and government-guaranteed securities from the United States, helping to bankroll government budget deficits. James McCormack, a government-debt expert in the Hong Kong office of Fitch Ratings, said that the trade figures released Wednesday suggested that broad measures of China’s trade surplus for this year, and therefore the money available to buy U.S. debt and other foreign securities, “is probably going to be a little smaller than we would have anticipated.”
But the precise effect on Chinese demand for U.S. debt, and the composition of that demand, remains unclear. U.S. data show that China’s central bank was buying slightly more Treasuries late last year and slightly fewer bonds from Fannie Mae and Freddie Mac.
At the same time, traders in Hong Kong say that there are some indications that China may be increasing slightly the proportion of dollars in its nearly $2 trillion hoard of foreign exchange, at the expense of the weakening euro. If China is actually doing so — the State Administration of Foreign Exchange goes to great lengths to preserve the secrecy of its trading activities — then a shift toward dollars could offset the effect on U.S. debt from smaller Chinese trade surpluses.
Hidden in the gloom over exports were a few rays of hope. Shoe exports were down only 2.3 percent in the first two months of this year, compared with the same period a year ago, the General Administration of Customs announced.
Martin Merz, a director of NJB Merz, a shoe company headquartered in Hong Kong, said that the market for high-fashion shoes was “dead” but that mass market shoes were selling so well that a mainland Chinese factory just told him this week that they would not be able to fill his order until June because they were fully booked with other orders. Small shoe-making businesses that employ fewer than a dozen people and do outsourcing work for big shoe factories are starting to reopen in southern China after closing for more than a month for the normally weeklong Lunar New Year holiday, he added.
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