Troubling Numbers on China's Exports

The latest statics on Chinese exports have economists worried. How worried? Take a look at this new report from Ben Simpfendorfer, chief China economist for the Royal Bank of Scotland:

Exports fell -2.2%YoY versus +19.2%YoY the previous month. This is a shock figure. I had expected export growth to collapse in the final two months, but not contract until early 2009. How to explain the decline? Base effects are not to blame. Instead, electronics exports for the Christmas-sales season have likely collapsed. (Details are not yet available). Electronics exports for the Christmas-sales season are typically sent by air-freight in the final three months of the year. (Toy and clothing exports are sent much earlier in the year by sea-freight). Foreign retailers thus have the flexibility to cut their orders late in the year in response to a sudden change in demand as was the case this year.

This is bad news as electronics exports account for around 35% of total export growth.

I expect the rate of contraction will worsen in the following months. Exports may fall by as much as -10% to -15% for a period. If so, this represents a significantly weaker performance than 2001 when exports contracted by less than -1% for a single month. The upshot is that we are in uncharted territory and that will create policy uncertainty.