9 Nov 2015
China's trade surplus will be persistent - ING
FXStreet (Guatemala) - Analysts at ING explained that they expect the 2015 widening of the trade surplus to prove persistent.
Key Quotes:
"Against a backdrop of rallying A-shares we think it will finance reserve accumulation rather than capital flight.
As with inflation, the commodity price crash dominates China’s 2015 trade flows. Larger- than-expected contractions in exports and imports in October put the year-to-date declines at 2.1% for exports and 15.5% for imports.
We think most of the declines are in prices, not volumes. China’s export structure is significantly correlated (0.58) with Korea’s at the 2-digit SITC level. Korea’s export prices were down 9.7% year-to-date through September, which for China would imply mid- single-digit export volume growth.
USD-value trade growth will bounce and the gap between import and export growth that opened in July 2014 will levels will retrace when the 2H14 commodity price crash moves to the year-ago base of comparison. However, the convergence of export and import growth will halt the widening of the trade surplus, not reverse it. The pronounced widening of the trade surplus will prove a persistent feature of the 2H14 commodity price crash.
This year’s wider trade surplus has financed capital flight, which evidently abated in October judging by the 0.3% MoM increase in foreign exchange reserves, only the third monthly increase since the commodity price crash started in 2H14. In our baseline scenario the A-share rally has legs and the trade surpluses finance reserve accumulation, including of US Treasuries."
Key Quotes:
"Against a backdrop of rallying A-shares we think it will finance reserve accumulation rather than capital flight.
As with inflation, the commodity price crash dominates China’s 2015 trade flows. Larger- than-expected contractions in exports and imports in October put the year-to-date declines at 2.1% for exports and 15.5% for imports.
We think most of the declines are in prices, not volumes. China’s export structure is significantly correlated (0.58) with Korea’s at the 2-digit SITC level. Korea’s export prices were down 9.7% year-to-date through September, which for China would imply mid- single-digit export volume growth.
USD-value trade growth will bounce and the gap between import and export growth that opened in July 2014 will levels will retrace when the 2H14 commodity price crash moves to the year-ago base of comparison. However, the convergence of export and import growth will halt the widening of the trade surplus, not reverse it. The pronounced widening of the trade surplus will prove a persistent feature of the 2H14 commodity price crash.
This year’s wider trade surplus has financed capital flight, which evidently abated in October judging by the 0.3% MoM increase in foreign exchange reserves, only the third monthly increase since the commodity price crash started in 2H14. In our baseline scenario the A-share rally has legs and the trade surpluses finance reserve accumulation, including of US Treasuries."