Now another strong month of exports (and rising imports) for China would normally be seen as good news here in Australia…
It would be confirmation that the resources boom is continuing, that demand for our commodities will be maintained for a while longer and that prices will not be dipping or heading south in a hurry.
And normally that would be true: but, things have changed somewhat:
The problems in the US housing market continue to deepen, slowing the wider US economy. Financial pressures are cutting liquidity and confidence in money markets to the point that we could see China and Asia as the locomotives of world economic activity for 2008, without any help from the US, and declining activity in Europe.
This is only a possibility at this stage: global demand for commodities remains solid even though there's some downward pressure on prices of metals.
It's something to consider as we look at yet another near record month of activity for the Chinese export machine: which is pulling along our resources sector, and the rest of the economy in its wake.
Last week the Chinese central bank posted a statement on its website warning that the economy was becoming overheated and dropping big hints that higher interest rates and other moves might be needed to cool things down.
Late last Friday another piece of evidence was produced to support the overheating thesis.
China's July trade surplus was the second highest ever at $US24.4 billion, compared to $US14.6 billion a year earlier.
June's $26.9 billion surplus was the largest on record, so far.
It came despite a sharp rise in oil imports and it destroyed the forecast that July would see a sharp fall in the size of the surplus after June's had jumped sharply because of a flood of shipments overseas to beat Government cuts in export rebates from July 1.
But exporters made that forecast look thin by accelerating shipments last month: they were 34% above July 2006, compared to June shipments, which were 27% above June 2006.
They also confirmed that not only are China's shipments still enormously competitive (where is the exported inflation much talked about by American economists?) but the recent spate of stories about dodgy quality food and consumer products have had little impact on demand for the country's huge range of products.
The July 1 cuts to rebates on China's 17% value-added tax, announced in mid-June, covered some of the country's largest export categories, such as apparel, shoes and toys (more in volume rather than in value per unit). China cut those rebates on 2,831 types of products.
Analysts say the Chinese are cutting prices to maintain volumes in the export market.
Domestic prices for many types of products are still falling: domestic inflation is coming from escalating food prices, especially pork and poultry. The price cuts on exports are being achieved by absorbing the impact of the loss of the export rebates.
The worrying point here is that we are yet to see the season rise from August through October to meet the Christmas selling season in the US, Europe, Australia and other parts of Asia.
That means the surplus could hit or top $US30 billion a month by October.
Imports rose 27% in July on July last year compared to June's 14%, so the export performance was much better than it first looked. A 39% rise in oil imports was the major factor in the jump in imports in July.
For the first seven months of 2007, the surplus jumped 81% to $US136.8 billion.
Inflation figures for July are due to be posted later today in Beijing and are expected to show a further rise in price pressures, caused by higher food prices, especially meat and vegetables.
The central bank, the People's Bank of China, raised interest rates three times this year and ordered lenders to set aside larger reserves on six occasions. More are likely.
