The External Rebalancing Continues
China’s exports came in at US$94.5bn in February, up 45.6% y-o-y and higher than consensus estimates. The data shows a continued outperformance of exports to emerging markets relative to developed markets, with exports to emerging markets such as India (up 54%), and Brazil (up 92%) showing the most impressive gains.
On the imports side of the ledger, Risk Watchdog continues to be impressed by the growth rate, with total imports coming in at US$86.9bn in February, up 44.6% y-o-y. Again, the highest growth rates were seen in emerging markets (imports from Brazil gained 54% while imports from India rose 47%).
Chia – Trade Account, US$bn
Internal Rebalancing Required
As a result of the continued outperformance of imports relative to exports, the trade surplus fell to its lowest level since February 2008, at US$7.6bn, down from a peak of US$40.1bn in November 2008. China has been showing strong signs of rebalancing on the external front, with the trade surplus declining for the past four months. As the accompanying chart shows, China in now running a deficit with the world excluding the US for only the seventh time in the past four years. In our view, this is testament to the Chinese government’s attempts to rebalance the economy more towards domestic demand. However, as my colleagues at BMI have continued to caution, this domestic demand has been largely driven by investment spending rather than consumer spending, and until the latter is achieved in a sustainable manner, any external rebalancing is likely to be transient.