China Exports Ramp

Today's Coffee

A ramp up of exports out of China helped to appease global market concerns today, but US Administration statements killed the party for the Chinese.

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China Exports Ramp

The global investment community had grown increasingly concerned about China, its building asset bubbles and its plan to control them; and the impact China might see from troubles within its most important trading partner - Europe. China eased those concerns today though, as it reported May exports surged 48.5%! Imports reportedly also increased sharply, rising 48.3%. The lifting of the China weight from investors' shoulders is helping the day's stock surge. The ESTX 50, had European shares broadly rising (+2.04%), while the Dow was up roughly 2.0% here at home. The Shanghai composite, CSI 300 Index, still fell 1.15%, as some of the news had leaked overseas on Wednesday, driving that days growth. However, this morning offered some harsh rhetoric from the US Treasury Secretary, and also a warning from US Admiral Mike Mullen that kept Chinese stocks in order.

Keying on the Economic Data

China posted its second straight month of trade surplus in May, which is saying something given its pace of domestic development. China's trade surplus jumped to $19.53 billion in May, which was more than twice economists' expectations. April's surplus only managed $1.68 billion. China's General Administration of Customs reported May exports amounted to $131.76 billion. That's a whole lot of tea leaves, and all that other stuff China produces now. China has impressively logged six months of export growth, and the pace seems to be quickening (April rose a lesser 30.5%).

It may be too early yet to look for a significant decline in European demand for Chinese goods. Austerity measures are only just passing into legislation and starting to take effect across European nations including Greece, Spain, Portugal, Italy, U.K. and Ireland. US economic revival may be enough to pick up the slack, if Ben Bernanke's assessment of 2010 - 2011 GDP growth (3.5%+) proves true, but Bernanke admits to the difficulty (and is not known for) of prescient forecasting. We should all recall the Fed's belief that the mortgage crisis would be contained within that segment of the economy. We should also be well aware of what has happened to global economies since those statements.

US Jumps at Opportunity

Treasury Secretary Timothy Geithner found opportunity in China's export data release today. Geithner, appearing before the Senate Finance Committee, said "The distortions caused by China's exchange rate reach far beyond China's borders and are an impediment to the global rebalancing we need." Geithner added, that a more flexible yuan would allow China to pursue "a more effective, independent monetary policy, which is particularly important now, with China's economy facing a risk of inflation in goods and in asset prices."

Geithner's opening statement spelled out US intentions clearly:

"Our policy is to expand the opportunities provided to Americans from a growing China. We want future growth in China to result in more exports from the United States and more jobs in the United States. We want China to change those policies that disadvantage American companies and to provide greater protections for American intellectual property. We want China to provide a level playing field for the products of American workers and investments by American companies. And we want China to change its growth strategy to rely less on exports and more on consumption."

China can be a tool for President Obama to revive the American manufacturing sector; services now make up 2/3 of the American economy. The President sees high-technology, especially in alternative energy, as America's best value-added opportunity for exporting into China. In that effort, we might help to level the trade playing field while also securing the global climate. The Chinese market has such potential, if the Chinese can keep good reins on growth and avoid deep recession, possibly depression, that could result from bubble bursts. Countering that risk, the Chinese possess that same hungry work ethic that the early wave of European immigrants provided to American industry. Thus, they should prove resilient to downturns in my view.

Geithner pointed out the importance of the Chinese domestic market, which has its economy poised to become the world's second largest soon. It will likely become America's most important export market, something many could not have fathomed when protesting against Chinese made goods and industry over the last decade. However, the Chinese are also excellent replicators, and who is to say they will need us for long. A communist, introverted nation threatens to become a reproducer of goods, driving local production of learned American technology while ignoring patents. There is little to no intellectual property protection guaranty when playing with China.

So perhaps the US should be helping India more, and leaving China in the cold until it acts more responsibly, and seems a cohesive fit with western civilization. Otherwise, our trusting of China and our fear of missing the opportunity tied to it might lead to a rude awakening one morning.

Governments matter, and governments act selfishly, as per the requirements of maintaining power. Many point to the US as a bully nation, but consider how a China topped world order might look. Thus, I applaud US efforts to reason with China while maintaining the important strategic relationship. However, if we support economic development there, might we prove communism to the people of China, and thus reinforce it? I think so, and I fear lack of cohesion might lead to major conflict later on.



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