By: Dr. Mike Campbell
Figures just released show that the trade surplus that China enjoys with the rest of the world has fallen from $20 billion in August to a mere $16.9 billion last month; a five month low. The reasons for the retrenchment seem to be a slowing of Chinese exports and an increased appetite for imported goods.
China’s exports actually rose, year-on-year to September by 25% (and were worth $145 billion), but the rate of increase is slowing. These very healthy figures are compared to a background level where the global economy was still struggling with the acute consequences of the global recession twelve months ago.
Chinese imports were also up in September by 24.1% to a record high of $128 billion. However, the news that Chinese markets have opened further to the rest of the world will do little to deflect the chorus of criticism in America and Europe which claims that China is manipulating the currency markets to keep the Yuan undervalued. A cheap Yuan helps to boost the competitive edge that Chinese goods have in their export markets.
China has consistently denied that it manipulates its currency, but a quick look at historic records of exchange rates makes this hard to believe. The Yuan has been in lock-step with the Dollar and has traded lower despite economic indicators which say that the value should be rising.
The Chinese authorities have signalled that they will allow the Yuan to rise, but the extent of the appreciation and its speed are unlikely to satisfy their critics. In the longer run, it will be a question of what leverage the world’s other leading economies can bring to bear on the Chinese that will dictate the value of the Yuan. It is a safe long-term bet that the Yuan will appreciate, however.