Chinese banks might be largely immune to the end of the cheap flow of cash coming from the developed world. But that doesn’t mean everybody in the country is untouched.
As the Federal Reserve in the US hints at slowing the money-printing machines (although it won’t “slam on the brakes”) and tapering the injection of US$85 billion a month via treasury-bonds purchases, cash inflows to emerging markets have dried up. All the while, Chinese technocrats have mostly been mute on the subject. The country’s high savings rate and trade surplus have kept it safe from the quick drain of capital.
Overall stress in the global financial system caused by quantitative easing in the US is surfacing elsewhere in China though – and it hit no one harder last month than exporters.
September exports contracted by 0.3% from a year earlier, dumbfounding analysts that had projected a far milder slowdown on the month before to around 5.5% growth.
China’s exports have indeed been volatile in 2013. The year started robustly, or at least it appeared that way. Export growth hit 14.7% in April, but by June had reversed to -3%. That was because regulators began cracking down on arbitrage that had inflated the number. Analysts believed the figures had since leveled out.
Data released on Saturday by the General Administration of Customs showed that is not quite the case.
Exports to the US grew by 4.2% in September, a relatively small drop from 6.1% in August. Shipments to the EU saw a similar decline from 2.1% to -1.0%. Exports to Japan posted 1.3% growth after hitting negative territory in August.
The exporters left cringing in pain last month were those that ship to Southeast Asia, China’s fastest-growing destination for its products. The outward-bound trade that grew by more than 30% in August fell to 9.8% last month, a devastating drop for firms active in that new market.
Few other economies have been hit harder by quantitative easing (QE) than those of Asean, a bloc of 10 Southeast Asian nations. Economies such as Indonesia have been thrown into turmoil as they try to ease their reliance on the cheap, short-term debt that has flowed in from abroad since the Fed started printing money.
That instability trickled down into demand for imports last month, and then into the orders of Chinese manufacturers.
“Firstly, it’s QE,” said Zhang Fan, a Shanghai-based economist at Singaporean Bank UOB Kay Hian. “We see now that the economic conditions in those countries [in Southeast Asia] are not as good as before.”
Quantitative easing isn’t entirely to blame for the weak numbers. Last year, China’s Mid-Autumn festival fell on the last day of September. This year, the lunar holiday on which the country enjoyed a day off from work came a week earlier. This likely distorted some of the trade data.
In the Western world, lower demand for Chinese products was probably magnified by the unusually high amount of orders last September, according to Zhang. Orders for the Christmas season are normally placed in July and August. Last year, though, weak demand delayed many orders until September, pushing up the base on which this year’s data was compared.
There is some good news. Poor data for China-Asean trade comes on the heels of a high-level meeting between the two areas last week in Brunei. There, leaders from China and Asean nations pledged to more than double bilateral trade to US$1 trillion by 2020. This will no doubt be dominated by southward shipments.
Somber manufacturers that have homed in on the Asean market should cheer up a bit.