Great Graphic: China Exports and New Loans

China reported its September trade figures. Exports showed a larger than expected increase. The 9.9% increase was nearly twice the Bloomberg consensus and well above August's 2.7% pace.  

Imports rose 2.4%, after falling for the previous three months.  Of particular interest, copper imports were at their highest level in four months and iron ore imports were the largest in a little more than a year.  

On one hand, the data may have been flattered by front loading shipments ahead of the long holiday that began in late September.  On other hand,we do anticipate the Chinese economy bottoming in late Q3 or early Q4.

This Great Graphic comes from Also Sprach Analyst.  It shows a the broad based gains in China's exports in September, led by a 5.5% increase to the United States.  Exports to Europe are still falling, though at a slower rate than in August.  Exports to Southeast Asia also remained strong.  Exports to Japan appear to have increased first time in a few months.  The chart illustrates the significance for China of the US market and its aggregate demand.    

Over all China reported a $27.7 bln trade surplus in September, the largest since June.  From a year ago, China's trade surplus has risen by more than a third to $148 bln through the first three quarters of 2012.  

This other Great Graphic comes from Also Sprach Analyst as well.   It depicts the composition of Chinese bank loans.  New loans for in September totaled CNY623.2 bln, which was more than 10% less than expected. 

According to Also Sprach Analyst, a little more than half the loans (CNY330 bln) were to households.  Non-financial accounted for the other half.  It is noteworthy that of the loans to non-financial firms, CNY186 bln was short term loans and bills.  The demand for medium and longer term financing still appears weak.   

China also reported that its reserves edged up to $3.29 trillion from $3.24 trillion at the end of Q2.  China's reserve accumulation has slowed considerably.   The inflows associated with the increased trade surplus are offset to a large extent by capital outflows, it appears.  

This is a big week for Chinese economic data, culminating with the estimate of Q3 GDP and industrial production and retail sales figures on October 18.  On balance, the trade data and money supply figures (all three main aggregates rose), warn of the risk of some upside surprises.  

Meanwhile, the yuan traded at 19-year highs against the US dollar before the weekend, nearly fully exploring its band.  Over the past three-months the yuan has appreciated about 2% against the US dollar.  There may be several reasons why China has tolerated currency appreciation, though the market, judging from nearly 2% discount in the 12-month non-deliverable forward, is skeptical that the gains will be sustained.  

The official acceptance of the yuan's appreciation may be stem criticism of its policies in the US presidential election.  It may also discourage the US Treasury from bowing to these political pressures to cite China as a currency market manipulator in its semiannual report due out in the coming weeks.  

There may also be some domestic incentives to tolerate modest yuan appreciation.  For example, the impact of the Fed's QE3+ and the ECB's Outright Market Transactions (coupled to a lesser extent with QE in Japan and the UK) may impart an inflationary impulse that Chinese officials may be attempting to mitigate.  In addition, during times of great uncertainty, China seems to prefer a stable currency.  The appreciation may be a signal that it is not going to depreciate the yuan as the offshore market (NDF) expects.