China’s Trade Balance: Oh What A Drag It Is Getting Old!

In 2010, China became the world’s largest exporter and, in 2014, it became the world’s largest economy based upon PPP (purchasing power parity). It plays a major role in the global economy, so when it sneezes, some of its world trading partners are bound to catch a cold.

During October-2015, its trade surplus hit a record $61.64bn (USD) vs. last year’s $45.40bn (USD). One might reflexively interpret this as positive news for China, but the report is really ugly for the rest of the world and even China itself because it lacks some semblance of equilibrium or sustainable surplus/deficit levels with its trading partners. Year-over-year, exports were down -6.9% while imports were down -18.8%.

Simply put, it does not have much of an economic appetite for growth as evidenced by its comparatively high savings rate and correlating low consumer demand. One of the consequences of its soon to be rescinded “1-child per family” policy is that it now has one of the most rapidly aging populations in the world.

Let’s face the facts. Older and elderly people tend not to consume their capital at the same rate as their younger counterparts. Demographic trends play a proportionately larger role in the economic growth equation over the long term than stimulus measures so it might be a while before Communist Party “plenums” are able to fulfill their “mandate from heaven” .

Oh what a drag it is getting old!

China Merchandise Trade Balance: October-2015