| China's foreign trade stabilized in December 2011 thanks to selective easing policies in the country and recovering demand from other emerging economies.
Data from the General Administration of Customs showed that China's exports totaled $174.72 billion in December 2011, up 13.4 percent year on year, 0.4 percentage points lower than in November. This was largely in line with market expectations. China's exports to the United States slowed, but those to Japan and emerging markets remained stable.
The country's imports stood at $158.2 billion in December, an increase of 11.8 percent from the previous year, down 10.3 percentage points from November. But imports of iron ore and soybeans maintained rapid growth. It is likely that China's slowing import growth was in part due to falling international commodity prices.
The trade surplus increased to $16.5 billion in December from November's $14.5 billion. The widening trade surplus may put pressure on the yuan to appreciate.
Overall, China's foreign trade is running on a stable track, though imports slowed because cooling property markets depressed domestic demands.
In another move, the purchasing managers index, a barometer of manufacturing activities, stood at 50.3 percent in December, rebounding from 49 percent in the previous month. There's evidence to believe that the Chinese economy has showed signs of stabilizing. If policymakers put appropriate monetary and fiscal policies in place, it is believed that the economy may accomplish a soft landing in the first quarter of 2012.
We still maintain the forecast that the People's Bank of China, the central bank, will lower the reserve requirement ratio three times this year. With the support of relatively easing policies, economic growth will bounce back in the second quarter. The growth rate for the entire year of 2012 will be around 9 percent.
In 2011, China's imports of commodities such as crude oil and iron ore maintained a robust growth. The biggest beneficiaries were the OPEC nations, Australia and Canada.
The trade surplus for 2011 shrank to around $160 billion from $180 billion in 2010. The trade surplus would account for about 2.3 percent of the GDP in 2011, down from 3.1 percent in 2010. That shows the economy is weaning off reliance on external demand thanks to buoyant domestic demand and the country's stiff efforts to transform its growth model.
We estimate that China's exports will grow 13-15 percent in 2012, and imports will increase around 15-18 percent. The trade surplus is expected to drop to around $120 billion next year, making up only 1.5 percent of the GDP. That means China's foreign trade will become more balanced.
Despite the falling trade surplus, the Chinese currency is facing growing pressures of appreciation. China has accumulated huge foreign exchange reserves in past years and invested much of the money in overseas assets, such as U.S. Treasury securities. China has also received interest and dividends from those investments, so its current accounts have constantly reported surpluses. That is an important source of pressures for the yuan to rise in value.
In the near term, the yuan will stay at a stable level against the U.S. dollar, but the possibility of appreciation is on the rise. We estimate the yuan will start appreciating in the second quarter, and appreciate by around 3 percent against the U.S. dollar in 2012.
This is an edited excerpt of views of Liu Ligang, head of Greater China Economics, ANZ Banking Group, Hong Kong, published on the website of Caijing magazine
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