China Trade Surplus Hits Record Just As US Trade Deficit Rises To All-Time High

China Trade Surplus Hits Record Just As US Trade Deficit Rises To All-Time High

Amid widespread power shortages, a sudden surge in new covid cases and lockdowns…

… and an accelerating collapse in China’s property sector, overnight Beijing reported yet another record monthly trade surplus in October as exports surged despite global supply-chain disruptions.

China’s export growth moderated slightly to 27.1% yoy in October, above the 22.8% consensus expectation, implying a sequential gain of 2.6% in October (a modest slowdown from +3.0% in September) despite electricity constraints in October. At the same time, imports rose 20.6% yoy in October, missing expectations of a 26.2% surge, but fell 3.2% sequentially in October (vs. -0.7% in September). As a result of the far bigger growth in exports over imports, the monthly trade surplus rose further to a record high of $84.5bn in October, supporting the appreciation of the Chinese yuan in October, even as China’s economy has slowed down sharply in recent months.

While China’s trade growth has remained well above pre-pandemic levels all year, its exports through October have already surpassed all of 2020 as the world just can’t get enough of goods made in China (even if they have to wait months in the Port of LA).

Digging into data, we find that China’s exports to the European Union and the U.S. have grown fastest among its major trading partners this year. The nation’s trade surplus with the U.S., a source of trade tensions between the world’s two largest economies, rose to 2.08 trillion yuan ($325 billion) in the 10 months through October from 1.75 trillion yuan a year earlier, partly because Chinese imports of U.S. soybeans slowed due to weather-related issues in recent months.

Broken down by major export destination, export growth to South Korea was resilient and picked up to 33.1% yoy in October (vs. 27.9% in September). Exports to India also rose 46.4% yoy in October, similar to 46.2% yoy in September. Growth of exports to ASEAN edged up to 18.0% yoy (vs. 17.3% in September). Among major DMs, growth of exports to the US slowed meaningfully to 22.7% yoy in October (vs. 30.6% yoy in September) while exports to EU accelerated to 44.3% yoy from 28.6% yoy in September. Exports to Japan grew 16.3% yoy (vs. +15.2% yoy in September).

Incidentally, it’s hardly a coincidence that just days after the US reported a record trade deficit (so much for all those China tariffs), China posted the biggest trade surplus ever. As we reported last week, in October, the US reported a trade deficit of $80.9BN, the highest on record, and double the pre-covid levels.

Also, curiously, as we have pointed out previously, a look into the bilateral trade deficit between the US and China shows that the recent divergence in data continues, with China reporting a greater trade surprlus than the US reports as deficit, a reversal from the trend observed pre-covid (we discussed this extensively in “A Bizarre Discrepancy Is Blowing Up The Trade “Data” Between US And China“).

By major export category, machines and electrical products accounted for almost 60% of Chinese exports by value this year, the customs administration said. Labor-intensive products such as clothing and plastic products made up another 18%. Goods such as household appliances, lightings and furniture saw the fastest export growth in October, Goldman analysts said in a note, to wit:

moving-in related products continued to outpace other major export categories in October. Household appliances exports rose 39.4% yoy (vs. 38.8% yoy in September) and lightings grew 31.0% yoy (vs. +35.1% in September), although furniture exports moderated further to +14.4% yoy from +15.8% in September. Among tech-related products, exports in electronic integrated circuits remained relatively resilient and grew 29.5% yoy (vs. 32.7% in September), and LCD panels rose 33.8% yoy in October (vs. 36.6% in September). On consumer electronic products, cellphone exports slowed sharply to 12.1% yoy from +70.0% yoy in September, while computers exports grew 19.3% yoy in October, accelerating slightly from +14.6% yoy in September.

Additionally, exports of personal protection related products (mainly plastic and textile articles) remained at high levels in absolute terms, with growth of textile & fabric goods up 7.2% yoy (-5.6% yoy in September) and exports of plastic articles increased 8.2% yoy (vs. +11.6% yoy in September).

Among major imports categories, crude oil imports grew 56.3% yoy, higher than 34.9% in September, and coal imports rose 292% yoy, accelerating further from 234% yoy in September as domestic coal inventory level remained low in October. In contrast, iron ore imports fell 1.8% yoy in October, reversing from +41.1% in September. Both lower prices and “dual control policy” targetting high-emission sectors contributed to weaker iron ore imports. Imports of integrated circuits increased 11.2% yoy in October, similar to +11.5% yoy in September. In volume terms, crude oil imports contracted further by 11.2% yoy (vs. -15.3% yoy in September) and the decline in iron ore imports widened to -14.2% yoy (vs. -11.9% yoy in September). However, coal import volume picked up to 96.2% yoy from 76.1% yoy in September.

Breakdown aside, the strong trade performance is providing support for a Chinese economy that’s slowed sharply in recent months due to weak domestic demand caused by a real estate downturn, electricity shortages that have slowed industrial output, and weak consumer spending worsened by sporadic outbreaks of the coronavirus. Just two weeks ago, Goldman slashed its China 2022 GDP estimate to 5.2%, the lowest it has ever been.

Of note, China’s coal imports almost doubled in October from a year earlier as Beijing scrambled to deal with power cuts caused by a shortage of the commodity and surging demand for electricity, especially from export-oriented manufacturers. Imports of natural gas, an alternative to electricity for heating homes, jumped 22% in the first 10 months of the year. One wonders if anyone at the COP26 will point out that China has just unleashed a tidal wave of CO2 emissions on the rest of the world just to keep warm this winter, in response to its idiotic “green” policies of pretending it could ever comply with net zero regulations heading into the winter olympics.

China coal imports rose 292% Y/Y. This is that special “green” coal that G5 globetrotting billionaires never mention when they preach against global warming (they also never mention China for some odd reason)

— zerohedge (@zerohedge) November 7, 2021

In retrospect, China’s trade frenzy should not come as a surprise – global trade has been running at record levels this year as economies around the world recovered from virus-induced lockdowns in 2020. That has put strain on supply chains in many countries due to shortages of containers and ships as well as capacity at ports, including drivers who deliver goods to retailers.

As China flooded the world with its products in 2021, it received countless pieces of non-Chinese paper in exchange, and as Bloomberg notes, dollar inflows supported China’s currency this year and added to the government’s reserves of foreign exchange, which rose to $3.22 trillion at the end of October, according to the People’s Bank of China. The dollars offer China an important cushion against any future shocks in the world economy, even as individual companies like Evergrande struggle to repay their debts.

* * *

Looking ahead, Bloomberg predicts that the nation’s strong export momentum will last at least for the next few months. Demand for Chinese products could slow if consumers in developed economies continue to shift away from goods toward services consumption, and countries in South and Southeast Asia resume factory production following pandemic-related shutdowns.

That said, even China’s trade dynamo may soon slow –  as we reported last week, China’s premier warned of “downward pressure” on the economy and vowed measures to boost domestic demand, including more supportive policies for small and medium-sized companies. Curiously, it has vowed not to use the property market to provide temporary stimulus, and the central bank has remained conservative, sticking to making short-term loans to keep interbank liquidity stable. Bank reserve requirements have been unchanged since July and policy interest rates have been steady since last year. 

Tyler Durden
Sun, 11/07/2021 – 10:41

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