Last week, China’s General Administration of Customs released July trade data showing that China’s exports slowed to a 1% year-over-year growth, down from 11.3% in June, while July imports grew 4.7% as compared to 6.3% in June. Meanwhile, China’s trade surplus fell a whopping $6.6 billion, from $31.8 billion to $25.2 billion.
To put it into perspective, this drop in China’s trade surplus is similar in size to the JPMorgan Chase’s “whale” trading loss over the first and second quarters, and the $5.2 billion loss that the U.S. Postal Service announced for the third quarter.1 But China’s trade data has perhaps validated some investors’ worries with regard to China’s outlook: the U.S. and European slowdown is taking its toll on China’s export growth engine. After 2009, when many investors felt that China saved the world by outgrowing widespread global economic malaise, this data has created some nervousness in the market by showing that China can’t come to the rescue this time.
Should Investors Be Worried?
We certainly aren’t.China’s export engine has become a smaller driver of growth in recent years. This has been in line with policymakers’ goal of stimulating investment in the country from 2008 to 2010, and, more recently, trying to bring the Chinese consumer online over the past year or so. It was China’s large infrastructure spending which brought its ownGDPgrowth higher after the Lehman crisis, which, in turn, fueled commodity demand that pulled many emerging markets and commodity producers such as Australia higher. Since China’s property markets began to bubble, policy has been rejigged to slow this sector down while keeping overall growth high through incentivizing consumption. Wages grew, and Chinese consumers are already showing their force in the domestic and global marketplace. As such, import growth is still growing positively—and significantly—this year.
The silver lining in the “bad” export data is that we feel more comfortable than ever that policy in China will turn more stimulative in the near term. Monetary authorities will likely deliver another interest rate cut, and perhaps two or three more Reserve Requirement Ratio cuts this year. Continued measures for non-speculative property purchases are probably in the pipeline, along with incentives for local infrastructure projects and fiscal measures. The leadership transition this fall may cause a delay in implementation of key initiatives, but most leaders recognize the importance of growth. All in all, we expect China’s GDP growth for 2012 to be about 7.5%, presenting a stabilizing factor for the global economy this year. Perhaps China won’t save the world this time, but it shouldn’t derail it either.
- USPS.com, 8/9/12. (http://about.usps.com/news/national-releases/2012/pr12_091.htm)