China’s swing back to a narrow trade surplus for March apparently took everyone by surprise on Tuesday. And just a day after the inflation figures had left everyone gloomy about the prospect for further easing too.
So, China’s back to being a net exporter, and the world’s on the right track… right?
Well, not necessarily. Slowing imports suggest that things might not be going well in terms of domestic demand. And it could also signify, in a roundabout sort of way, slowing export demand. As the FT points out, a lot of China’s imports don’t stay in China:
The trade figures are being closely watched for signs of further deterioration in China’s economy, which has been gradually slowing since the start of last year.
The acceleration in exports is likely to be seen as positive because of the continuing importance of the export sector to China’s overall economy, but weaker import numbers could be a concern to policy makers worried about a slowdown in domestic demand.
Cooling import growth could also presage an export slowdown as a large proportion of China’s imports are raw materials and other items that are turned into finished goods and re-exported.
This fits with a couple of themes we’ve been looking at recently. For one, there is China’s growing importance as an importer over the past four years — something that UBS’ China economist Tao Wang thinks has been underplayed. And then there is, as above, the role of Chinese imports in the country’s exports.
Concerning the state of domestic demand, it’s difficult to get a reliable read. A separate FT report on China’s puzzling data of late (see for example, the highly conflicting official and private PMIs) quotes a couple of unnamed large business owners as saying that the economy appears to be simply in a holding pattern, awaiting concrete news on Europe, or domestic housing and infrastructure. And not necessarily in that order.
China as the world’s (unreliable) importer – FT Alphaville