China Economic Update

China Economic Update

China’s trade surplus with the United States ballooned to a record $35.6 billion in November, official data showed Saturday, as exports across the Pacific remained strong despite a raft of US tariffs while imports shrank.

Relations between the world’s top two economies continue to be tense despite a trade war truce struck between US President Donald Trump and his counterpart President Xi Jinping last week.

Trump and figures in his administration have said China would immediately start buying US goods in bulk, but Beijing has refrained from confirming those claims.

The increasingly lopsided trade in goods between the two nations threatens to further derail prospects for a trade deal during a 90-day negotiation period.

The ballooning trade deficit with China is a particularly sore point for Trump, who campaigned on turning around the situation.

China’s exports to the US rose 9.8 percent for November on-year, while imports for the month fell 25 percent on-year, the data from China’s customs administration showed.

American farmers have been hit particularly hard by the trade tensions. Trump tweeted this week that China would begin buying products from US farmers “immediately”.

Usually Chinese buyers have snapped up American soybeans in the final months of the year as the harvest hits the market and beans from competitor Brazil dry up.

But this year, Chinese buyers have passed on US soybeans which face a 25 percent border tax upon import, part of the $50 billion in US goods Beijing hit with higher duties this summer in retaliation for US tariffs.

China’s soybean imports fell 38 percent on-year, to 5.4 million tonnes for the month, the data showed.

The trade surplus with the US expanded to $293.5 billion for January-November, up from $251.3 billion during the same period last year.

– Global trade –

China’s overall trade — what it buys and sells with all countries, including the US — logged a $44.7 billion surplus in November, up from $35 billion the previous month, the data showed.

But growth of exports and imports slowed from October, with exports rising 5.4 percent for November on-year, short of the 9.4 percent forecast by Bloomberg News, and imports rising 3.0 percent on-year, also below the forecast.

The sagging export and import growth is another bad sign for China’s economy, which grew at its slowest pace for nine years in the third quarter, expanding 6.5 percent on-year for July-September.

While exports to the US have held up so far this autumn, the row has sapped confidence.

The Shanghai composite stock index has fallen by about one-quarter from its January high, while the yuan has slipped about nine percent against the dollar.

– Trade truce –

The trade tensions with Washington come at a tough time for Beijing, which is battling to tackle a mountain of debt as credit tightens and infrastructure investment falls.

Last week, as part of the trade war truce, Trump agreed to hold off on plans to raise tariffs on $200 billion in Chinese imports to 25 percent beginning January 1, leaving them at the current 10 percent rate.

But unease over the agreement has dented stocks this week with major US indices falling more than two percent to close the market’s worst week since March and one that left both the Dow and the S & P 500 in negative territory for the year.

China also reacted furiously after a top executive and daughter of the founder of Chinese telecom giant Huawei was arrested in Canada this week following a US extradition request.

In addition to buying US goods immediately, Trump claimed this week that China would roll back tariffs of 40 percent on US made cars — but China’s commerce ministry declined to confirm this move when asked about it Thursday.

Still, Beijing remains outwardly optimistic on prospects for a trade deal.

“We are fully confident that we can reach an agreement in the coming 90 days,” commerce ministry spokesman Gao Feng said Thursday.

Trump tweeted out the quote, adding: “I agree!”

China still Growing

China’s export growth slowed last month weighed down by slowing global demand and trade tensions with the United States, official data released Saturday showed.

Exports rose 5.4 percent for November on-year, short of the 9.4 percent forecast by Bloomberg News, while imports rose 3.0 percent on-year, also below the forecast, according to customs administration data.

China’s overall trade — what it buys and sells with all countries — logged a $44.7 billion surplus in November, up from $35 billion the previous month, the data showed.

The sagging export and import growth is another bad sign for China’s economy, which grew at its slowest pace for nine years in the third quarter, expanding 6.5 percent on-year for July-September.

China’s trade surplus with the US has reached records highs this autumn as China has cut back imports from the US while American importers have rushed goods across the Pacific to beat the higher tariffs most expected in January.

Last week as part of a trade war truce, US President Donald Trump agreed to hold off on plans to raise tariffs on $200 billion in Chinese imports to 25 percent beginning January 1, leaving them at the current 10 percent rate.

But unease over the agreement has dented stocks this week with major US indices falling more than two percent to close the market’s worst week since March and one that left both the Dow and S & P 500 in negative territory for the year.

China reacted furiously after a top executive and daughter of the founder of Chinese telecom giant Huawei was arrested in Canada this week following a US extradition request.

The arrest threatens to rattle the trade war truce with the United States, analysts say.

Confusion over what was achieved at the Trump-Xi meeting has already contributed to the unease.

The White House has said China agreed to purchase a “very substantial” amount of agricultural, energy, industrial and other products and would begin buying products from US farmers “immediately”.

Trump added China would roll back tariffs of 40 percent on US made cars.

So far Beijing has not confirmed any of those moves.

The trade tensions come at a tough time for Beijing, which is battling to tackle a mountain of debt as credit tightens and infrastructure investment falls.

While exports to the US have held up so far this autumn, the row has sapped confidence in China.

The Shanghai composite stock index has fallen by about one-quarter from its January high, while the yuan has slipped about nine percent against the dollar.

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S. Jack Heffernan Ph.D. Funds Manager at HEFFX holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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