What does the Chinese trade account change show?

China’ s exports and imports both fell compared with last year. How much does this change link to the Chinese economy slow down? How does this change affect China and the rest of the world?

The value of imports fell 14.3 per cent year on year in RMB terms in August. Exporters to China will suffer the consequence of decreasing imports. The car industry has been hit heavily by the Chinese economy slowdown. German machinery exports to China fell 5 per cent in the first half of 2015, and Jaguar Land Rover’s sales in China dropped 7 per cent. Sales of other luxury products are also expected to fall. Gartner says  4% fewer handsets were sold in the months of April, May and June compared with the same period in 2014. Apple’s share price fell below 100 dollars per share once the Chinese stocks fall sharply. In addition, the fall in imports is not just caused by the economy slowdown, it is also due to the growing competitiveness of Chinese firms. This can be seen clearly in the smart phone market. Samsung was the top sale in the market in 2014, but fell 48.9% this year, the top two leading firms of Q2 2015 are both Chinese companies.

Despite falls in imports, Chinese exports dropped 6.1 per cent in August from a year ago, and 8.9 in July. The depreciation of RMB last month helped to increase exports to some extent. Moreover, since March, China‘s exports are gradually increasing, but at a slow rate. RMB had been appreciating against USD and most of other main currencies over the last several years. It is not a surprise to see a fall in exports. However, it is important to analyse the structure of China’s exports. Raw materials and low-end products could be a burden to the future growth, as China cannot maintain its comparative advantages of cheap labours forever.

In general, I think China needs to be aware of its economy’s structure. Chinese smart phone industry sets a very good example of producing products requiring some skills and technology. When losing its advantage of cheap labours, it is good to see China is trying to export more high-end products. Meanwhile, the rest of the world needs to know China is not likely to have a double-digit growth in the future. Falls in exports and imports are just parts of the economy slowdown. In addition, firms will face more competitions from Chinese firms not only inside China but also globally. I think RMB currency is still fluctuating for some time in order to reduce the differences of prices between China and the rest of the world.