By Brian Jackson, China Economist, IHS Global Insight
Key Points:
- China’s foreign exchange reserves declined by USD69.1 billion in November to USD3.05 trillion, according to data from the State Administration of Foreign Exchange (SAFE).
- The pace of decline accelerated for the fourth straight month, and compares to average monthly declines of USD 36.5 billion in the last 12 months, or a record monthly decline of USD 107.9 billion in December 2015.
Significance:
The sharp declines in November largely preceded new ‘window guidance’ on stricter oversight of capital outflows. While outflows are likely to continue due to expectations of rising interest rates in the United States, quantitative limitations or administration barriers on certain capital outflows should help stabilize this trend in the coming months, although create a higher regulatory burden for legitimate business. Even if capital outflows are controlled, foreign reserves will continue to decline in value given that only about half of Chinese reserves are USD denominated.
Chinese exports and imports shift into growth in November
Key Points:
- Chinese exports grew 0.1% in November, the first expansion in eight months. Geographically, the improvement was due primarily to a swing to mid-to-high single digit growth in exports to the European Union and United States.
- Exports to Hong Kong and ASEAN fell at a slightly faster pace. By product, the improvement was mostly due to slower contractions of mechanical and electrical products, which fell by 0.1% in November compared to a 3.6% decline in October. The volume of motor vehicles exported rose from 4.3% growth in October to 58.7% growth in November.
- Imports expanded by 6.7%, a 26-month high. Imports swung into strong growth from the European Union, ASEAN and Japan, although worsened from Korea. By product, the improvement came from both imported mechanical and electrical goods (accelerating from -8.8% to +2.9% growth) and oil (from -32.4% to +16.0% growth). Volume growth showed similar gains in items like motor vehicles and oil.
- China’s trade surplus was USD 44.6 billion. That is down from USD 48.8 billion October and USD 54.0 billion in November 2015.
Outlook:
China’s trade surplus level and contributions to GDP are expected to continue to weaken due to high base effects. In the first two months of the fourth quarter China’s trade surplus declined by USD 21.8 billion compared to a year ago. This trend is likely to deepen further through December, whose USD 59.6 billion surplus was the largest in the last 21 months.