International | Jan 12 2010
By Chris Shaw
The new year has started strongly in terms of Chinese trade data, with numbers for December released last Sunday showing phenomenal strength according to National Australia Bank. Imports rose 55.9% for the year to December, while exports were up 17.7% in year-on-year terms. The exports data were the most positive numbers since the onset of the global financial crisis.
The numbers were far higher than the market had expected, Commonwealth Bank noting its forecasts had called for exports to increase by around 4% and imports by around 31%, while consensus estimates were for increases of 5% and 32.5% respectively.
The numbers mean the Chinese economy is offering further evidence of a “V” shaped turnaround, so the big challenge for policymakers going forward in the view of Commonwealth Bank chief economist Craig James is to keep the economy growing at a solid base without causing it to overheat or allowing inflation to lift sharply.
This may be something of a challenge according to ANZ Bank as it takes the view the return of strong export growth implies overcapacity in certain sectors of the economy is likely to diminish as the output gap is closing quickly. This, plus rapid money growth, suggest inflation may accelerate through 2010, so requiring authorities to become proactive in tightening monetary policy.
It also puts pressure on to allow the exchange rate to appreciate further, especially as domestic employment conditions are improving and there is increasing trade protectionist pressures coming from overseas. Danske Bank agrees, suggesting the return of exports to pre global financial crisis levels strengthens the case for China to resume the gradual appreciation of its currency, along with further monetary tightening measures. Danske expects these will occur sometime in the second quarter of the year.
As Bank of America-Merrill Lynch notes, the data were particularly strong with respect to resources trade as copper imports were strong, steel exports increased and for the month the second highest iron ore import numbers were recorded with a 22% rise to 62.2 million tonnes, which is up 80% in year-on-year terms.
Full year iron ore imports totalled 628 million tonnes, up 41% and in BA-Merrill Lynch’s view this suggests some upside risk for its forecasts for benchmark iron ore prices, which currently stand at increases of 15% in each of the next two Japanese financial years, which run from April 1 to March 31.
Steel exports for December rose 18% in month-on-month terms to 3.34 million tonnes, though for the year exports were down 59% from the levels seen in 2008. Copper imports in December were up 27% month-on-month to 369,000 tonnes, the monthly volume coming in 5% above the 12-month average of 350,000 tonnes. According to BA-Merrill Lynch, the strong volumes are being supported by a narrowing of the price discount between Chinese and LME prices and a stronger merchant premium.
The only disappointing numbers were with respect to coal, as while exports for the month of December rose 44% in month-on-month terms to 3.34 million tonnes this is down 54% in year-on-year terms and with total exports only hitting 22.4 million tonnes China is now a net importer of coal.
This has another implication of the data according to James, as China is Australia’s largest trading partner and so its performance has major implications for the Australian economy. With the December numbers highlighting strength in consumer and business spending he sees solid prospects for Australian resource companies in 2010.