China facts of the day

As far as China’s involvement with the rest of the world goes, the real story since the worst of the crisis is not China’s recovering exports but China’s strong imports. The forthcoming trade release – interestingly due a few days before the Treasury report – is likely to demonstrate enormous import growth again, absolutely and relative to exports. This is seen not just in Chinese data, but in those from many other important trading nations. Indeed, quite remarkably, Germany’s trade with China is showing such strong growth that by spring next year, on current trends, it might exceed that with France. China last year reported a current account surplus of 5.8 per cent of GDP, significantly lower than apparently assumed as the current level by many people in Washington. In 2010, it could be closer to 3 per cent – incidentally below the 4 per cent level deemed as “equilibrium” by the Peterson Institute for International Economics.

There is more here.  Resist the call of those who would have us start a trade war with China.  Some of this is tasteless and stupid, but other parts are right on the mark.


China ran a trade a deficit in March for the first time in six years, coincidentally the month before the US Treasury has to decide whether China manipulates its currency. So now China can say "see, see, the Yuan is not undervalued, we just ran a trade deficit". What China actually did is recycle its natural trade surplus via the trade account by importing and stockpiling commodities, as opposed to recycling via the capital account and purchasing US Treasuries. This explains why the Treasury auctions went poorly this month, as many observers noted the lack of foreign official demand. Additionally, rumors of the March trade deficit first started circling around the 18th of March and the Baltic Dry Index peaked for the month on the 15th-17th, showing that China was importing heavily in the early part of the month.

I like the tasteless parts actually. :)

I hope that means that my Diana shipping stock will soon reinstate a divided.

Ironman, thanks for the link. I like the last paragraph:

"One wonders when the apparent lack of confidence by the Obama administration in its economic policies might instead be converted into a realization that the administration's economic policies may be their real problem...."

because in Argentina some economists have been making the same point for the past 60 years.

Other economists, however, have been arguing that successive governments have preferred to ignore that their policies were time inconsistent: good to keep them in power but at the cost of increasing the probability of a large economic crisis. When the Army was a large force (until December 1983), governments were overthrown but since then the timing of presidential elections has become the adjusting variable to time-inconsistent policies (for example, these days there are rumors about the timing of the next election). This is one of the many ways in which a Banana Republic adjusts to prevent "males mayores" like a civil war.

1. Krugman used to be "let's nationalize the banks" guy, till he & stiglitz were invited to that white house dinner. Now that we know he isn't afraid to advocate risky & off the charts ideas, should we be worried about banks. What does he know that made him shut up.

2. Does this mean If/when chinese real estate bubble bursts, china would be ok to devalue yuan.

Barkley Rosser, sorry but I think the word causation should never be used in the context of accounting. At best accounting provides measures of concepts that could be relevant to economic analysis.

Anyway, let us remember that the People's Bank of China buys dollars from a variety of sources --some recorded in the trade account, others in the capital account-- to pay for its purchases of US treasuries.

German manufactures apparently have a lot of cachet in China. Audi for example is pretty much top of the heap in terms of status cars. I would think that explains a lot of the surging trade on that front.

Barkley Rosser,
1. On accounting. It's not my intention to question your "philosophy" of accounting but I hope you agree with me that regardless of any causal process underlying accounting --and we don't know most of these processes-- the "logic" of accounting holds as long as the standard principle of double-entry bookkeeping is correctly applied. I know hundreds of accountants (my father was an accountant) and they know little or nothing about the underlying processes (you should know that in Argentina the Italian tradition of accounting can be learned in high school as I did).

2. I still remember how I used to sell my dollars to PBC when I lived there. As any other central bank, PBC buys dollars in the foreign exchange market and the sellers may have earned them from any legal or illegal transaction with residents and non-residents of China. How these people got their dollars (exporting Chinese goods and services or borrowing them abroad or carrying them when visiting China) is totally irrelevant, except for "balance of payments" bookkeeping.

3. I hope you agree with me on (a) a point that Don Boudreaux has often made about how irrelevant bilateral trade, current and capital account balances are to understand how the global economy works, and (b) how irrelevant any macroeconomic analysis of exchange rate determination is if capital flows are regarded as temporary financing of current account balances.

I don't understand why people are surprised by this import data, if China is building 10 000kms of electrified railroad, all that heavy power equipment, locomotives etc has to come from somewhere, then there are the commodities.

No one reasonable wants a trade war with China.

But how do we get to freer trade? Is blithely accepting the the 40% tariff that is China's current currency policy good free trade policy?

This need not be an arms race. After all, we'd only be trying to get China to act in their best interest as well as ours and the rest of the world.

This explains why the Treasury auction went poorly this month, as commentators have noted the lack of official foreign demand. In addition, rumors of the trade deficit has begun to turn around Mars on March 18 and the Baltic Dry Index reached a record high for July 15 and 17, indicating that China has imported heavily in the first half of the month.

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