It’s true, exports aren’t even that important anymore for China’s dwindling GDP growth. However, trade in general is still hugely important for the world’s second largest economy and the most recent numbers don’t look pretty.
Exports were down 5.5 percent in August compared to last year, but imports, down 13.8 percent, are more important.
Earlier this month, Korean trade statistics already pointed toward a marked slowdown of Chinese imports—Korean exports to China dropped 8.8 percent over the year.
Imports are a better gauge of the overall economic picture than exports. This is because China spends roughly half of its GDP on fixed asset investment (houses, airports, factories) whereas net-trade only represents 3 percent.
In order to build everything China builds, it needs to import vast quantities of raw materials from other countries.
Out of the world’s total production, China consumes about 54 percent of Aluminum, 48 percent of copper, 45 percent of steel, 23 percent of gold, and 12 percent of oil.
So if imports are down 13.8 percent and exports are down 5.5 percent, it means that China’s trade balance is actually going up ($60 billion compared to $43 billion in July).
However, China is importing much less because it is using much less for its infrastructure projects, factories, and real estate, the key drivers of economic growth since 2008.
The fact the trade balance went up also doesn’t really help because total volume of exports also decreased, which is bad news for employment in that sector.
Source: tradingeconomics.com
“There is a regional conflict between the mainly privately owned exporters, heavily concentrated in Guangdong and Fujian provinces, and the state sector in the north and center of China [importers],” writes Andrew Collier, managing director of Orient Capital Research who points out that these private companies are critical for holding employment stable.
Given this backdrop of ever declining trade and a structurally overvalued currency (15-20 percent), China eventually had to devalue its currency and most likely this was just the beginning.
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