The world’s second largest economy is a major exporting nation and a major consumer of the commodities needed to produce these goods in Chinese factories. We are currently experiencing the second global stock market downturn within six months provoked by falling stock prices in China and linked to concerns that the Chinese economy is slowing. Consequently, news that shows a pick-up in Chinese exports should “steady the ship” and trigger a rebound in global stock valuations, at least in the short term.
Chinese exports unexpectedly produced their first growth since June in December with a 2.3% rise in their year-on-year (Yuan denominated) level. This contrasted with market expectations where a further retrenchment of 4.1% had been predicted. The extent of the decline in Chinese imports was also better than expected, slipping by 4%, roughly half of the 7.9% figure projected. Taken over the full year, exports declined by a modest 1.8%, but imports dropped by 13.2% over their 2014 level. The sharp fall in imports goes quite some way to explaining the tumbling prices for commodities and raw materials since China is a major import market for them. As demand dwindles, commodity prices fall in response.
The People’s Bank of China has been actively depreciating the Yuan to help support the country’s exporters. The Yuan has long shadowed the US Dollar which rose significantly against other major currencies last year, taking the Chinese currency with it. The hike in the relative value of the Yuan was enough to persuade the IMF that it was no longer (so) undervalued, but this analysis overlooked the Yuan-Dollar pair. Critics within the US have long complained that the Chinese are currency manipulators and that the Yuan was 20 to 30% undervalued against the Dollar. Current moves to devalue the Yuan will exacerbate these concerns as the US moves into an election year.