Econintersect: China announced a blockbuster surprise with a negative balance of trade for February 2014. The deficit was reported as $23.0 billion (U.S. dollars). For the first time in two years (and only the second time in more than ten years), China has a monthly trade deficit in excess of $10 billion. There have been only four times since the first quarter of 2004 when the monthly balance of trade has been negative in any amount. A fifth negative trade balance came in Q1 2004. The biggest factor in the surprise was the 18.1% decline year-over-year for exports. A modest increase had been expected. Imports saw an increase of 10.1% from a year ago which was not far from expectations.
Exports declined to all major markets, with Hong Kong down 25%, the EU down 14% and the U.S. off 11%. One of the factors that in complicating the data is the invoicing fraud that was taking place a year ago. Exporters were booking shipments that didn't occur or over charging on invoices shipped to hide "hot money" transfers from the government. That creates a tough year-over-year comparison benchmark. According to The Wall Street Journal, this effect may continue until May.
All occurrences of a negative trade balance have occurred in first quarters, suggesting that there may be some seasonal factors involved. Winter weather and the Chinese New Year celebration are two possible factors.
With Chinese manufacturing showing signs of weakening, there will be concern that growth may slow more than the government desires. While this is something that is expected to happen as part of China's rebalancing away from investment and exports to increased domestic consumption, officials may still try to reinflate credit (that they have been trying to reign in) in order to maintain the target GDP growth above 7%.
We'll have to wait to see how this plays out over the next three months as China's balance of trade numbers move out from under the shadow of last year's invoicing scandal.
- China February Exports Slide, Trade Balance Swings to Deficit (William Kazar, The Wall Street Journal, 08 March 2014)
- China Balance of Trade (Trading Economics, 09 March 2014)
- China: More Bad Manufacturing Data (GEI News, 03 March 2014)