Tuesday, September 8, 2015

Economy: Are China´s Trade Numbers Really So Weak?

(Drivebycuriosity) - Today there is a lot ado about China´s "weak" trade numbers. "China´s exports mark latest soft reading for economy" lamments the Wall Street Journal ( wsj). China’s exports fell 5.5% in August from a year earlier in dollar terms, after a drop of 8.3% in July. Imports fell 13.8% in dollar terms. Are these numbers really a proof for a weak Chinese economy?

At least the import numbers are strongly influenced by the drop of the price for oil and other commodities. China doesn´t have much oil and other materials, so the country has to import most of the commodities it uses. The price of oil dropped more than 50% from a year earlier, other commodities got much cheaper as well. So, the sharp drop of the commodity prices reduced the expenditures for imported goods and lessened the reported import numbers significantly. The reported drop of the imports is just the result of cheaper commodities (inputs for the Chinese economy), which is good for China because it reduces the costs for companies and leaves more money in the wallets of the consumers.

Even the export numbers are influenced by lower commodity prices. For instance China imports iron ore and coal in order to produce steel for the export markets. Much lower prices for iron & coal (inputs) lead to lower prices for steel (outputs). Lower prices for imported aluminium reduce the prices for exported goods made from this metal (like computer chassis).

So, the sharp drop of the commodity prices reduced both, the values of the imputs (commodities = a huge part of the imports) and the value of the output (export). Lower imports & exports reflect cheaper commodities and not a weaker Chinese economy.

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