Chinese external trade surplus shrinks but does not signal a rise of the Chinese consumer
In the first months of 2011, the external trade in China has shrunk compared to 2010. But commodity prices largely impacts imports. The growth pattern remains unchanged.
Is this first sign of a structural change in the Chinese economic growth model? The share of household consumption is close to 35% of the GDP in China (2010 data) when investments reach 48% and net exports 4%. The importance of total investment is biggest recorded in the G20. In the largest emerging countries, only India has a share of gross capital formation above 30% (34% of GDP in 2009). The others are close to the developed countries levels (Brazil: close to 20%). So, for China, if imports rise faster, it could indicate that household expenditures fuel the demand for external goods.
But, details are not consistent with that idea. Imports are deeply impacted by commodity prices on an annual basis. WTI price has risen by 39% YoY in May and Brent price by 52%. Consequently, the change in price for crude oil imports has cost to China $17 bn in the first 5 months of 2011 (if prices have been stable compared to 2010, total Chinese’s imports other this period would have been $17 bn lower). Only that could explain why the trade surplus has shrunk.
We do not see any change in the Chinese’s growth pattern. Consumption is indeed growing fast (manufactured goods imports January-May: +3% YoY). But, its share in GDP is too small and real consumption too slow for enabling China to grow at more than 8% on an annual basis (Q1 2011: +9.7%).
Investments and exports remain crucial for China. This is a great source of risks on the medium term: monetary policy behind the curve in order to maintain enough credit flow for financing investment; crisis of over-investment; asset-price bubbles (real estate).