Markets will start wondering just how much relief there will be in the Chinese economy re-opening story after the 2022 trade data on Friday produced a stunning surplus of more than $US800 million.
That was the highest ever recorded globally by a single economy and rather a measure of China’s economic strength, it is a confirmation of the damage done to the economy domestically from Covid, higher interest rates, the higher value of the US dollar and fears about a possible economic slowdown in western economies.
The re-opening story from investors seen to be based on the belief China’s economy will get a big kick from a re-opening, which reality says the economy foundered during 2022, especially in the final quarter.
Even if China quickly gets on top of its economic woes, it has still to come to terms with its embattled property sector and undertake the necessary restructuring and huge losses to stabilise the sector. That could take several years.
Friday’s weak trade data will be further fleshed out by tomorrow’s data on 4th quarter and 2022 GDP plus the monthly and full year figures on production, investment, retail sales and unemployment.
For the full year, China’s exports rose 7% to a new high of $US3.59 trillion, topping the 2021 record of $US3.36 trillion, according to China’s General Administration of Customs. That was a considerable slowing from the 29.9% growth in 2021.
Imports rose 1.1% in 2022 to $US2.7 trillion, a faction of the 30.1% growth seen in 2021 as demand soared after the shock of the pandemic in 2020.
The customs bureau said Friday that China’s foreign trade–exports and imports combined–reached a record $US6.31 trillion in 2022.
That translated to an annual trade surplus of $US877.6 billion, surpassing the previous high of $US676.43 billion in 2021 but in no way an indication of the health of the economy but more of its weakness.
In December, China’s exports plunged 9.9% from a year earlier, down for the third consecutive month and posting the biggest contraction since February 2020 when the country was first hit by the pandemic.
The fall in exports widened from the 8.7% drop in November, but was lower than the 10.5% decline expected by economists.
Imports dropped 7.5% last month to $US2.7 billion, lower than the 10.6% decline in November and the 9% decline estimated by economists.
December’s trade surplus was $US78 billion in December, higher than the November level and market forecasts.
With the official measures for December showing a sharp slide in activity in manufacturing and services (now 55% of the total economy) to their lowest levels since early 2020.
The weak trade data for the final three months of the year and the already reported falling retail sales, lacklustre production and rising unemployment strongly suggests the Chinese economy contracted in the December quarter.
The re-opening story will be tested by the release today and tomorrow of the latest production reports from Rio Tinto (full year and December quarter) and BHP (half year and December quarter).
Their figures on production and sales of iron ore and copper in particular will tell us a lot about the health of the Chinese steel and metal processing and bashing businesses, as will Tuesday’s data releases from the National Bureau of Statistics.
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The re-opening economy story is being fed by optimistic forecasts from official Chinese sources about 2023 growth.
In typical Chinese Communist Party style, the optimistic forecasts for 2023 growth are being publicised before the grim reality of 2022’s weak to no growth – indeed Moody’s economics forecast GDP fell an annual 1.1% in the three months to December.
That could see growth for the year tumble to a range of 1.8% to 1.5%, thanks to the strong growth in the January (4.8% annual) and September quarters (3.9% annual).
Official Chinese media reported at the weekend that a total of 23 Chinese provinces, municipalities and autonomous regions have released their GDP growth targets for 2023 as of Friday, with most falling between 5%-7%.
That would still be a lot less than the 8.4% (restated from 8.1%) growth in 2021.
“In line with the priorities highlighted by the recent Central Economic Work Conference which was held in Beijing on December 15 and 16, the economic work plans of the provinces this year generally emphasize boosting consumption. A Chinese expert noted that China’s consumption growth is expected to exceed six percent this year,” the Global Times reported on its website.
The “two sessions” held by various provinces and autonomous regions have successively released local economic growth targets for 2023 over recent days. As of Friday, 23 provinces have released data, ranging from 4% to 9.5%, the Securities Times reported at the weekend.
Among these, South China’s Guangdong Province, East China’s Shandong Province and other major economic provinces have set targets above 5%. Hainan Province, set its target at 9.5%.
Shanghai, which leads the Yangtze River Delta region whose regional GDP accounts for nearly a quarter of the country’s total, has set the GDP target above 5.5%.
