From Reuters on Wednesday:
BEIJING, June 3 (Reuters) – China’s export sector will remain weak in the second half of 2009 even though Beijing is trying its very best to help, a vice commerce minister said on Wednesday.
Vice Minister of Commerce Zhong Shan said exporters were facing “unprecedented difficulties” at present and that the situation would not improve amid the global economic downturn. “It is increasingly difficult for us to make a quick turnaround, and the trade situation will not be optimistic in the second half of this year,” Zhong said in a statement on the ministry’s website.
Zhong made the comments at a meeting with the China Export and Credit Insurance Corp, urging the insurers to extend more help to China’s exporters. Trade has been a key engine for China’s rapid economic growth in the past few years, but a slump in global demand has caused a fall in Chinese exports since November of last year. Exports in April fell 22.6 percent from a year earlier, compared with a fall of 17.1 percent in March and 25.7 percent in February.
The above goes goes some way to supporting the notion that even if China’s industrial output is growing again, it is not a speedy advancement. It’s certainly not enough of a progression to justify the scale of recent Chinese purchases of raw material.
Stephen Lewis at Monument Securities cast his thoughts towards what might be behind the Chinese buying phenomenon on Tuesday. His conclusion appears to tie with the idea it has more to do with dollar concerns than anything else. As he wrote:
This buying seems, rather, to be related to stockpiling ahead of the projected expansion in public works outlays. China’s near-term demand for commodities on world markets is likely to depend much more on this stockpiling programme than on changes in manufacturing output on the minor scale seen so far.
The key question is whether, in their buying of commodities, the Chinese authorities have been moved not only by their concern to plan ahead for infrastructure spending but also by investment motives. Are they laying out US dollars to buy raw materials because they think commodities will be a better store of value than currencies?
They are very unlikely to give Mr Geithner any clues to their thinking on these matters in the course of his current trip to China. The risk is that, unless Beijing does have an investment motive in building up raw material inventories, Chinese demand for commodities could fall away suddenly as soon as planned requirements have been fulfilled.
Since there appears to be a non-Chinese speculative element in recent demand for natural resources, especially oil, these markets seem set to behave in a volatile fashion, however China’s policies and the market fundamentals evolve from here.
Which brings us to Dennis Gartman’s observations regarding US Treasury Secretary Timothy Geithner’s trip to Beijing this week. As we reported here, Geithner’s attempts to reassure Beijing authorities that the US government was still upholding a strong US dollar policy were met with loud laughter by an audience of students at Peking university.
This fact, apparently, went mostly unreported among the US press according to Gartman. As he surmises:
The utter and harsh reality of the US present fiscal circumstance is that the world is laughing at the Obama Administration’s handling of it. Mr. Geithner is the global vicar of the US fiscal policy, and never, ever in our lifetime have we seen or heard of a US Treasury Secretary being laughed at… until now. It is one thing to be derided; it is entirely another to be laughed at, and the US is now being laughed at.
And regarding the US coverage of the event, he writes:
What is even sadder, however, is that the American press missed the importance of this incident completely. As noted, other than the initial one sentence comment that was cursory in nature by The NY Times, nowhere else was this laughter noted by the domestic press.
The American media is, and continues to be, “in the bag” for the Obama Administration. The American media reported only that the Treasury Secretary made his case; explained the Administration’s position; informed China of the safety of its investments in US Treasury securities and moved on to his next meetings with China’s President and Prime Minister.
As far as the US media was concerned, Mr. Geithner’s speech was a rousing success when instead it was a laughable and utter failure. The American media hid the importance of what happened there in Beijing from the American people, and we believe the media did so cognisant of what it was not reporting… a sin of omission rather than of commission, but a sin nonetheless.
Meanwhile, also joining the ranks of the anti-US dollar reserve system lobby on Tuesday was President Dmitry Medvedev of Russia. In one of the clearest signals of support for a new reserve standard yet, he told CNBC’s Maria Bartiromo the world needed some king of “universal means of payment which could create the basis of a future international financial system”.
The bold assertion included the following statement:
“It’s our idea, and our Chinese colleagues support it.”Related links:
Quote du jour, Chinese snickers - FT Alphaville
China to US: We hate you – FT Alphaville
Quote du jour, China’s fake recovery edition – FT Alphaville
China’s fake recovery – FT Alphaville
A commodity anchor, or oil as money – FT Alphaville