Don’t be fooled by improving Chinese exports
By guest author Nathaniel Taplin from Wall Street Journal
China’s economy has often been portrayed as yoked to both debt and exports. In March, both those old workhorses showed signs of life.
Trade data released Tuesday confirmed that China’s exports clawed back some ground last month, falling 6.6 % year-over-year, which was less than some economists expected. Imports fell 0.9 %, in line with other indicators showing the economy coming out of the deep freeze. In contrast, combined January and February exports were down 17 % from the same period in 2019, while imports were down 4 %.
Unfortunately the slight respite in exports won’t last. By mid-March the coronavirus was wreaking havoc in the U.S. and Europe. Chinese exports to those markets in April will almost certainly worsen again.
Imports are a different matter. The rebound adds to other evidence that the Chinese economy, while still hurting, is slowly reviving. And the real improvement in imports was probably even larger than it looks, because prices for so many key items fell sharply in March.
Most important, lending is now rebounding strongly as Beijing responds to rising unemployment and the prospect of months of depressed export demand. Growth in total social finance outstanding, the central bank’s preferred measure of economywide debt and equity financing, rose 11.5 % year-over-year in March, up from 10.7 % in February. In percentage-point terms, that 0.8 point bump is the largest since November 2016.
On Friday, Sun Guofeng, a senior People’s Bank of China official, boasted the central bank’s monetary policy transmission had been 10 times as effective as the Federal Reserve’s in the first quarter, with 2 trillion yuan of new liquidity creating 7.1 trillion yuan of new bank loans—a striking change of tone from an institution that was until recently emphasizing prudence.
New bank lending and corporate bond issuance led the rise, rather than government borrowing—which is encouraging, since it means businesses are taking the initiative, rather than wasteful state spending.
Household and bank balance sheets are both stretched, which makes another splurge on the scale of 2016 or 2009 unlikely. Yet despite progress on reorienting toward consumption, China hasn’t fully weaned its economy off debt- and export-driven growth. Given exports and jobs will keep suffering over the coming months, that means more debt is coming.