On Monday Rio Tinto chairman, Paul Skinner said in the company’s 2006 annual report that the company expected the resources boom to continue because of the strength of demand from China.
Yesterday we got a further confirmation of that strength with the news that China’s trade surplus in February ballooned to a massive US23.76 billion, (that’s around $A30 billion). It was the second-highest monthly surplus ever and compares to $US 2.5 billion a year ago.
The Chinese Customs Bureau revealed the figure on website.
There was a simple explanation for the sizeable increase: exports jumped 52 per cent in February, the biggest increase in 12 years while imports rose just 13 per cent.
The February figure means the surplus for the first two months of this year was $US 39.6 billion, more than three times the amount for the first two months of 2006.
Analysts said the February surge was despite the month seeing the number of working days cut by the Chinese New Year holidays which ran across January and February in 2006.
According to a statement issued before the figures were released China’s central bank said it was still committed to making the Yuan more flexible gradually.
That won’t please the US and other critics of China who want them to hasten on moving to full convertibility of the Yuan.
But China will do it at its own pace.
Analysts in Hong Kong now say that China’s trade surplus may top $US200 billion this year from the $US177.5 billion earned last year.
It’s clear that attempts last year to rein in exports of steel and textiles has flopped and plans to boost imports of raw and manufactured commodities (such as coal, ores, metals, textiles etc) will be easy to announce but hard to do in reality.
The attempts to control investment and lending by state banks is also looking a bit ‘rubbery’.
The export boom has driven China’s foreign currency reserves to around $US1.1 trillion. Despite plans to restructure financial markets and uneconomic banks China doesn’t need that much money in reserve but having capital controls and a rigid forex system means it can’t be readily recycled back to its trading partners.
So the money remains in China and finances more capacity in more and more industries, which then boost exports and the trade surplus, and the vicious circle starts again.
The huge and growing surplus and reserves are helping finance the volatile China stockmarket boom which was pricked three weeks ago yesterday.
China’s economy is forecast to grow at eight per cent this year, down from 10.7 per cent last year (and over 11 per cent in the first half of the year).
Looking at these trade surpluses for January and February, that growth estimate for 2007 is all but ‘inoperable’ unless a sharp slowdown is engineered by the authorities in the next three to six months.
Judging by their attempts to cut investment in unwanted facilities, that will be a forlorn hope: interest rates were raised twice last year and a month ago China’s central bank ordered banks to raise their reserve deposits for the fifth time in eight months.
The worrying point about the trade surplus is that China’s trade year generally starts with low export levels (and higher exports) in the first half of the year building towards a jump in exports at the end of the third quarter and through the fourth quarter as buyers in the West take delivery of goods for the Christmas retail selling period.
The biggest monthly trade surplus was recorded in October of 2006 when the figure was $US23.8 billion.
So, what of this year? No wonder the likes of Rio’s Paul Skinner can write of confidence that China’s boom will continue.
