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Ambrose Evans-Pritchard
Ambrose Evans-Pritchard has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London. Subscribe to the City Briefing e-mail.
Another step towards an East-West trade war
By Ambrose Evans-Pritchard Economics Last updated: March 8th, 2013
17 Comments Comment on this article
China's trade figures released this morning are shocking. They tell us that China is still flooding the world with excess goods, and is once again a net drain on global demand.
As you may have seen, Chinese exports surged 22pc in February. Imports fell 15pc.
This is exactly what pessimists feared. For all the talk of a great shift by China away from export-led growth to internal demand, the reality is that the Politburo is still propping up the same old system, still shovelling subsidies to loss-making firms and state behemoths to keeps factories open.
Investment is still 49pc of GDP. Consumption is still 36pc. China is still a massively deformed economy, and the global effects of its imbalances are getting bigger every year as the economy grows at far higher rates than the West.
The trade surplus with the US is the highest in four years. The US Treasury may well have been right to warn in its annual report on currencies that the recent fall in China's current deficit to 2.6pc of GDP is temporary, to be followed by a rise back to 4pc or more by mid-decade. And remember, 4pc will soon matter as much for the world as 10pc in 2007. It is simple compound arithmetic.
Even if you strip out the distortions of the Lunar New Year and lump together January and February, it is clear that China's trade surplus is growing again.
Perhaps there is a lot of hot money pouring into China by the old trick of inflated invoicing, distorting the data. Perhaps not.
Societe Generale's Wei Yao said the trade data is going to cause heartburn around the globe: "If these figures were indeed close enough to the actual situation, we think such strong exports may turn out to be more of a curse than a blessing for China. Against the backdrop of a meagre global recovery and heightened concerns over potential currency wars, China's bi-lateral trade surplus with the US reached a record high in four years; and China snatched market shares from neighbours.
"None of these will be the most welcomed development. Particularly, there is evidence that the People's Bank of China has been intervening to keep the yuan from appreciating."
If China is indeed buying bonds to hold down its currency at a time when its trade surplus is surging, there will be serious trouble.
Once you understand that the root cause of the Long Slump in the West is excess global capacity in manufacturing and the inability/refusal of Asian powers to recycle money in the form of demand – ie that it is a trade crisis masquerading as a debt crisis – then you can see from these figures that we are no closer to escaping the trap.
The money is of course recycled as capital instead. The reserve accumulation by the rising powers over the last decade has been over €10 trillion, and it has to go somewhere. It ends up in asset markets.
I recommend "The Great Rebalancing: Trade, Conflict, And The Perillous Road Ahead For The World Economy", by Professor Michael Pettis from Beijing University, who explores these themes in depth.
We have now reached a stalemate all too like the 1930s. The West is trying to counter the effects by currency devaluation, ie QE. This exports inflation to those countries such as China holding down their exchange rates with pegs or dirty floats. It is a way of hitting back.
But QE in turn is causing internal distortions in the West. It may be almost exhausted as a policy tool. The risk is that we will graduate this year from low-intensity currency war to high-intensity trade war, and from there … you can guess.
What is for sure is that today's Chinese data does not tell us that a global recovery is fully and safely underway, as some seem to think. It tells us that China is importing less.
Asia is in reality still struggling. The data from Korea and Taiwan is very weak. Europe faces a second year of outright contraction in 2013. The US is going smack into fiscal tightening of 2pc of GDP.
Global markets have priced in a new cycle of economic expansion that is not yet secure, and may yet falter. Monetarists are watching closely to see if the global money supply rolls over this Spring. America's M2 is already down €70bn over the last two months, and velocity has dropped to the lowest ever recorded. Tread carefully.
Ambrose Evans-Pritchard has covered world politics and economics for 30 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London. Subscribe to the City Briefing e-mail.
Another step towards an East-West trade war
By Ambrose Evans-Pritchard Economics Last updated: March 8th, 2013
17 Comments Comment on this article
China's trade figures released this morning are shocking. They tell us that China is still flooding the world with excess goods, and is once again a net drain on global demand.
As you may have seen, Chinese exports surged 22pc in February. Imports fell 15pc.
This is exactly what pessimists feared. For all the talk of a great shift by China away from export-led growth to internal demand, the reality is that the Politburo is still propping up the same old system, still shovelling subsidies to loss-making firms and state behemoths to keeps factories open.
Investment is still 49pc of GDP. Consumption is still 36pc. China is still a massively deformed economy, and the global effects of its imbalances are getting bigger every year as the economy grows at far higher rates than the West.
The trade surplus with the US is the highest in four years. The US Treasury may well have been right to warn in its annual report on currencies that the recent fall in China's current deficit to 2.6pc of GDP is temporary, to be followed by a rise back to 4pc or more by mid-decade. And remember, 4pc will soon matter as much for the world as 10pc in 2007. It is simple compound arithmetic.
Even if you strip out the distortions of the Lunar New Year and lump together January and February, it is clear that China's trade surplus is growing again.
Perhaps there is a lot of hot money pouring into China by the old trick of inflated invoicing, distorting the data. Perhaps not.
Societe Generale's Wei Yao said the trade data is going to cause heartburn around the globe: "If these figures were indeed close enough to the actual situation, we think such strong exports may turn out to be more of a curse than a blessing for China. Against the backdrop of a meagre global recovery and heightened concerns over potential currency wars, China's bi-lateral trade surplus with the US reached a record high in four years; and China snatched market shares from neighbours.
"None of these will be the most welcomed development. Particularly, there is evidence that the People's Bank of China has been intervening to keep the yuan from appreciating."
If China is indeed buying bonds to hold down its currency at a time when its trade surplus is surging, there will be serious trouble.
Once you understand that the root cause of the Long Slump in the West is excess global capacity in manufacturing and the inability/refusal of Asian powers to recycle money in the form of demand – ie that it is a trade crisis masquerading as a debt crisis – then you can see from these figures that we are no closer to escaping the trap.
The money is of course recycled as capital instead. The reserve accumulation by the rising powers over the last decade has been over €10 trillion, and it has to go somewhere. It ends up in asset markets.
I recommend "The Great Rebalancing: Trade, Conflict, And The Perillous Road Ahead For The World Economy", by Professor Michael Pettis from Beijing University, who explores these themes in depth.
We have now reached a stalemate all too like the 1930s. The West is trying to counter the effects by currency devaluation, ie QE. This exports inflation to those countries such as China holding down their exchange rates with pegs or dirty floats. It is a way of hitting back.
But QE in turn is causing internal distortions in the West. It may be almost exhausted as a policy tool. The risk is that we will graduate this year from low-intensity currency war to high-intensity trade war, and from there … you can guess.
What is for sure is that today's Chinese data does not tell us that a global recovery is fully and safely underway, as some seem to think. It tells us that China is importing less.
Asia is in reality still struggling. The data from Korea and Taiwan is very weak. Europe faces a second year of outright contraction in 2013. The US is going smack into fiscal tightening of 2pc of GDP.
Global markets have priced in a new cycle of economic expansion that is not yet secure, and may yet falter. Monetarists are watching closely to see if the global money supply rolls over this Spring. America's M2 is already down €70bn over the last two months, and velocity has dropped to the lowest ever recorded. Tread carefully.