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Do China's Strong Exports Herald Economic Recovery?

09/09/2013|Dexter Roberts |Business week

Is the economic recovery going to last? That’s certainly what some are starting to believe as China’s recent monthly surveys have reported renewed expansion of its manufacturing and service sectors.

JPMorgan & Chase (JPM)Deutsche Bank (DB), and Goldman Sachs (GS) have all revised their growth forecasts upward for the mainland over the past month. Goldman, for example, now expects gross domestic product to grow 7.7 percent in the three months from July through September, up from a previous 7.3 percent, and sees fourth-quarter growth of 7.4 percent, up from 7 percent.
Citing economic and income growth, as well as expansion in trade and tourism,Boeing (BA) too upped its estimate for China’s airplane market on Sept. 5: China will triple the size of its airplane fleet, adding 5,580 new planes costing $780 billion, over the next 20 years, says the U.S. aerospace giant. That’s 6.1 percent above what the company predicted last year.
“Our economy will maintain its sustained and healthy growth,” said Premier Li Keqiang in a commentary in the Financial Times on Sept. 9.  “With a gross domestic product growth rate of around 7.5 percent, the ‘lower limit’ is intended to ensure steady growth and employment,” Li said.
The latest ammunition for the resurgent optimists: exports, which grew 7.2 percent in August over the same period a year earlier, China’s Administration of Customs,announced Sept. 8. Growth was above economists’ expectations, and the second month of expansion, with exports up 5.1 percent in July. (Imports, by contrast, grew 7 percent last month.)
China will meet its target of 8 percent growth in trade this year, announced China’s commerce minister, Gao Hucheng, according to a report on China National Radio, also on Sept. 8. “In August exports maintained the positive momentum that started in July and that is a key driver of the cyclical recovery we observe in China,” writesHong Kong-based Louis Kuijs, chief China economist for the Royal Bank of Scotland (RBS:LN) in a research note on Sept. 9. “Better export growth in China reflects more constructive global demand.”
So where’s the demand coming from? Strengthening economies in the developed world played an important part. After negative growth from March to June, exports to the European Union grew 2.5 percent in August. Those to the U.S. were up 6.1 percent last month, and 5.3 percent in July. Meanwhile, overseas shipments to Asean nations grew a strong 30.8 percent, compared with 21 percent in July, and those to Korea, Hong Kong, and Taiwan grew 9.3 percent, up from 1.3 percent.
While exports are still below where they were at the beginning of this year, “those earlier figures were distorted by overinvoicing—of exports to Hong Kong and Taiwan in particular—to evade capital controls. This distortion now seems to have been removed,” write Mark Williams and Qinwei Wang, London-based economists at Capital Economics, in a Sept. 9 note.
Still, not everyone is certain the recovery will be sustained. “Faster export growth reduces near-time downside risks, and a growth rebound is likely in [the third quarter]. However, we continue to think tighter credit conditions since May would weigh on investment, and the growth downtrend may return late this year and early next year,” warned Minggao Shen, chief China economist at Citigroup, in aresearch note on Sept. 9.


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