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No green shoots in Korea’s May trade data

by Brad Setser
June 8, 2009

Korea reports its trade data faster than anyone. Korea also exports a lot. That makes it a useful – though imperfect — indicator of the state of global demand.

The strong bounce-back in Korea’s April exports suggested that the sharp contraction in global trade that followed Lehman’s collapse had come to an end. Alas, the May data isn’t completely consistent with the current market narrative of global recovery.

Exports fell back a bit from their April levels.

korea-may-1

Y/y, exports were down around 28%.

korea-may-2

Taiwan also reports its data quickly. Year over year, its exports are still down more than Korea’s (31% v 28%). But May’s exports were a bit higher than April’s exports. That at least hints at a recovery.

Korea’s May data leaves no doubt that the current downturn exceeds the 01 downturn. And the .com bust was focused on electronics – and thus hit Korea hard. Moreover, Korean exports have held up better than exports from many other countries, that in part to the won’s large depreciation. Korean auto sales in the US aren’t down as much as overall sales.

To put it differently, Korea is in better shape than Japan. Even so, the fall in Korean exports has been sharp. In dollar terms, they are somewhere between their 2006 and 2007 levels.

Imports though are down even more – thanks to the fall in commodity prices. And I would guess that domestic demand growth hasn’t been particularly robust. That has kept Korea’s trade surplus at record levels.

Here Korea is much like China. Exports are down, but so are imports. So the overall trade surplus isn’t down. In Korea’s case, the surplus is actually up quite significantly.

Like everyone else, I am curious to see what China’s May trade data tells us. If China truly is going to lead the global recovery, China needs to import more – and not just import more commodities for its (growing) strategic stockpiles.

44 Comments

  • Posted by Thomas

    Korea’s exports to China dropped 23 %. Considering the sharp depreciation of the Won, that means China’s imports from Korea were down more than 40 % in RMB-terms in spite of much better (fx-induced)competitiveness. Strange.

  • Posted by Glen M

    It will be interesting to see the heavily massaged trade numbers from China. Now that reporting of electricity consumption has been ended, we will need something smaller than a grain of salt to digest them.

  • Posted by Thomas

    Quote Glen: “Now that reporting of electricity consumption has been ended”

    It has officially been ended?

  • Posted by bsetser

    yes, the official electricity data isn’t being produced; there was a wsj article about it.

    thomas — everyone’s exports to china are down y/y. us as well. at least with korea there is an argument that it reflects a fall in end demand (i.e. us/ eu) not chinese demand.

  • Posted by Thomas

    I would have thought that the lower KRW helps the Koreans to export more to China, considering that many of their products compete directly with Chinese and Taiwanese stuff. But apparently not so.

    Isn’t it an admission of guilt by the Chinese to end electricity data reporting? It’s like saying: See, that’s what you nosey foreigners get for daring to second-guess our GDP data!

  • Posted by Rien Huizer

    The Korean exports to China are (1) intra chaebol flows (hence end-market related and (b) internationally competitive components (samsung and hynix memory chips, samsung and lg lcd screens. less (growth in volume) computers etc, more Taiwanese components (and end products makers are Taiwanese contract manufacturing for Dell etc) voila. fewer korean components going to China until the price drops.

  • Posted by David Pearson

    Brad,

    You continue to assume that trade surplus countries can continue to run those surpluses at lower, damatically lower, global trade levels.

    That may be true of Korea, which has little choice. But why assume that China will continue to save so much in relation to GDP? You are basically predicting that, no matter how severe unemployment becomes, the Chinese will not resort to dis-saving measures.

    Dis-saving doesn’t have to be large fiscal deficits. It can occur through the corporate and SOE system, which has been borrowing at a torrid rate.

    In other words, an alternative allocation for China’s dollar reserves is into imports. Not Euro’s, not Gold, not SDR’s: imports. I’m not talking about spending a trillion+ on oil hoarding, I’m talking about running a trade deficit for the next five years. This would marginally help our economy and our trade adjustment, but what would be the impact on our interest rates? This is the fundamental error in the “savings glut” view of the world. It is not permanent: it is a political, reversible, policy.

  • Posted by Rien Huizer

    Brad,

    Have you any idea of the difference in standard of living between, say, a teacher in Busan or a teacher in Fukuoka, only separated by the Tsushima Strait. No way those lazy spoilt Japanese are going to win. Koreans are tough. They devalue (and reduce living standards) when necessary.

  • Posted by Rien Huizer

    Also, extremely pleased to see some of the spotlight on Korea. Terrific trade bandits. Q: how come the people follow their leaders? The country is supposed to be a democracy and democracies are distributive, right?

  • Posted by jonathan

    The scale of the graphs make it difficult for me to read, but isn’t demand now off as much as the late 90′s crisis – and dropping?

    BTW, as a note, a lot of people are blue-green colorblind. I’m not but as I was looking, I realized my brother would not be able to make this out at all.

  • Posted by bsetser

    david — I am not assuming anything. It is quite possible that the surge in bank lending/ SOE borrowing/ public investment will overcome the (I assume) slump in private investment/ improvement in china’s terms of trade (Which is now eroding, thanks in part to chinese stock piling). The problem is that we haven’t yet seem evidence of a strong rebound in aggregate chinese demand in China’s trade data/ US and EU exports to China (my guess is that the trade data tracks the electricity use data better than the GDP numbers). China is importing more raw materials — but that seems driven in part by strategic stockpiling.

    I am quite open to the notion that at long last the world is adjusting, china included. Japan’s surplus (amazingly) disappeared in the crisis.

    but I don’t think we can rule out the possibility that china’s true rebound isn’t quite as strong as has been let on (hence the weakness in electricity growth/ imports) and thus china’s recovery will basically match the recovery in end demand in us/ europe — i.e. no real rebalancing.

  • Posted by bsetser

    Jonathan — i wanted a long time series to show that the boom in K’s exports this decade far exceeds past decades, with the potential exception of the 80s. Exports more than doubled in about 8 yrs, going from $10-15b a month to $45b at their peak. And there was an extended period of sustained 20% y/y growth — not the much more volatile boom/ bust growth characteristic of the 80s/ 90s.

  • Posted by FollowTheMoney

    China not reporting electricity output? This is the kind of regime that we should globally promote? If you have nothing to hide, why not throw all data on the table?

    Speaking of China, i spoke to some friends in Kentucky, Nebraska, Michigan and Alabama over the past few weeks, and there certainly seems to be a general consensus growing in small town communities against “made in china” .

    I found this video of what appears to be a laid off “unskilled worker” on youtube.

    go to:

    youtube.com/watch?v=KWu-efNN8PM

    someone is really furious, but imagine millions of people with this sort of opinion as the guy on youtube? Think this great country will be safe?

  • Posted by Mark G.

    This will bolster demand/capacity for US debt, no?

  • Posted by Cedric Regula

    Many in the US probably don’t realize how big the well known Korean companies like Samsung and Hyundai really are.

    For instance, Samsung makes the LCD screen in my Sony HDTV.

    From the Hyundai corporate website, they say 2007 sales totaled $1.7 TRILLION USD, $1.3 of it being export. They could buy GM with pocket change right now.

    Here’s a list of what they are all into…
    Autos, Ships, Plant & relevant materials, Electric & Electronic products, Machines, Parts, Petrochemicals, Metal and Steel Products, other commodities.Current Profitable Projects : Oman LNG, Ras Laffan LNG in Qatar, Drayton coal mine in Austrailia, 11-2 Gas Block in Vietnam – Development Projects : Yemen LNG- Exploration Projects : Oil in WestKamchtka Rusia

    Needless to say, they do not have anti-trust laws in Korea.

    However, N. Korea announcing that they will invade S. Korea did give the Won a setback recently.

  • Posted by Gabor

    I think the China electricity data shouldnt be overstated.
    I believe Chinese GDP figures can be trusted in 2009 as much as they could be trusted in 2008.
    I think the growth story is consistent, until 2008 it was manufacturing and investment driven, in 2009 it is construction and consumption led.
    Chinese statistics do tell about a large deceleration in manufacturing and a fall in exports, which can justify the fall in electricity.
    However there is a very sharp rise in construction fueled by the credit expansion, which has a low dependency on electricity generation.

  • Posted by Gabor

    David Pearsson,

    I believe the markets are largely following your story. Energy and raw material prices are rising fast, yet oil demand is off 2-3% of 2007 levels, when the pricing was similar.
    Seems like everyone is awaiting the Chinese consumption boom.
    The funny stuff is, that the interest rates will not rise much if it happens, because the global gross trade surplus will only be transferred to OPEC, not reduced much, until oil revenues are distributed in abroader population basis somehow.

  • Posted by FollowTheMoney

    Chinese imports be up on commodity purchases…chinese exports likely flat or decline.

    What could influence Chinese exports?

    what worries me is American Consumer behavior. If anyone watched video in my last note, it’s easy to see that there’s a backlash growing against “Made in China”.
    This sort of backlash could greatly impact Chinese exports. In America all you need is someone like Britney Spears to go on TV and say “i only buy made in the USA” and you will have half the population following her…

    There maybe tensions amongst U.S.-China trade relations to come. Obama maybe doing his best to continue open trade, but what does that help if so many people lose his/her job to Asian regions and have nothing left? Unemployment creates socio-unrest and unfortunately, in some cases protectionist views in communities.

    Obama is in hard position, because the Government needs the funding of China.
    I fear we are trapped that we are addicted to the Chinese credit card. The more we borrow, the less global influence we will maintain. We are giving up influence for short lived credit.

  • Posted by cmc313

    Could someone post the WSJ article that says China will discontinue publishing data on electricity usage? I couldn’t find the article and so far China has been reporting electricity data. So I wonder if the news of their discontinuance is just heresay…Thanks.

  • Posted by DJC.

    South Korea has always been squeezed by larger neighbors Japan and China. Japanese technology is generally more advanced than South Korea’s, and Chinese labor costs are only a fraction of South Korea. Moreover, the level of Chinese technology has significantly improved to the point that South Korea’s lead in microelectronics extends to perhaps a few years. South Korea lacks the critical mass for a significant domestic market. Just the single Chinese province of Guangzhou is larger in population than the entire South Korea. Unfortunately, with an unstable North Korea, military spending as a percent of GDP in South Korea also saps their economic growth.

  • Posted by jonathan

    I like the graphs. They’re just a little hard to read. A suggestion, other than colors, is to add some blank dates to the right so the latest info isn’t crammed against the border.

  • Posted by Freude Bud

    I’m a bit confused by your monthly data (as an expression of the notion that the ‘green shoots’ are fake)–it shows a decline, but isn’t the decline simply a result of April being 3.2% shorter than May?

    Per the Reuters article you link:

    “Exports value per working day — a measure that analysts and government officials use to assess the monthly change in exports — rose slightly to $1.28 billion in May from $1.27 billion in April.”

    Meaning not that green shoot may be an overstatement, but that we didn’t exactly see a further decline?

  • Posted by bsetser

    freude bud — hmmm, maybe. were there fewer working day last may too?

    for electricity:

    http://online.wsj.com/article/SB124350326977562001.html

    or

    http://krugman.blogs.nytimes.com/2009/05/29/what-you-dont-know/?apage=2

  • Posted by Freude Bud

    Yes, I understand your point, but couldn’t year over year also express large differences in price per unit, whereas monthly would be less likely to?

    Re: electricity consumption data, it is the China Electricity Council, or association, which ceased publishing data on electricity consumption. The NBS still publishes data–which also doesn’t jibe with the GDP estimates … see:
    http://www.chinastakes.com/article.aspx?id=1270

  • Posted by Thomas

    NBS publishes electricity consumption?

    The only vaguely relevant data I can find on their webpage is “generating capacity”, but capacity to generate electricity doesn’t mean that electricity is actually being generated.

    Unless that’s a problem with language or terminology, or I’m simply looking in the wrong place.

  • Posted by Freude Bud

    @ Thomas … the article linked to mentions May data from the State Grid, via the NDRC/National Energy Administration … I’m not sure where exactly it was published.

  • Posted by Yoda

    China’s 10/30 years treasury holdings get massacre. 30 years treasury below $111 means blood bath, ouchi.

  • Posted by Cedric Regula

    Whoops. Need to correct an error about Hyundai in my previous post. My eyes played tricks on me reading the table on sales revenue.(must remember to wear my glasses when reading fine print.)

    The 1.7 Trillion USD in revenue I posted above s/b in Won. The 1.3 in exports is in units of billions of Dollars.

    So that’s a little more believable.

    But elsewhere in the treasury market, yes, the long end got another swift kick in the coupon today. Later this week the Treasury will auction about $10B each of 10s and 30s. The market is watching to see if there is any demand.

    But the Dollar Index is doing a mysterious levitating act again. Up 2% cumulative the past two days.

  • Posted by FollowTheMoney

    Thought some of you might like this for another discussion one day;

    “NEW YORK (Reuters) – A top Chinese banker on Sunday called on the U.S. government and the World Bank to sell yuan-denominated bonds in Hong Kong and Shanghai to encourage the development of debt markets in those centers and to promote the yuan as a major international currency.”

  • Posted by Yoda

    30 yrs treasury below $111, blood letting begin.

  • Posted by Twofish

    Thomas: Isn’t it an admission of guilt by the Chinese to end electricity data reporting? It’s like saying: See, that’s what you nosey foreigners get for daring to second-guess our GDP data!

    I’m actually rather dubious of this. It has all of the signs of a “good story” that gets into newspapers in which everyone believes. In particular. it doesn’t have the name of an association or government agency that I can find.

    Also I’m very dubious of Chinese electric generation figures more than GDP figures, because if those are accurate the the CO2 and pollution statistics don’t make any sense.

  • Posted by Twofish

    Krugman just copied the WSJ. I find the WSJ article suspicious because it cites the “China’s association of electricity generators ” and I have absolutely no idea which agency they are talking about. Most statistics come from NBS, and as far as I know, they are still publishing stats.

    bsetser: The problem is that we haven’t yet seem evidence of a strong rebound in aggregate chinese demand in China’s trade data/ US and EU exports to China (my guess is that the trade data tracks the electricity use data better than the GDP numbers).

    On the other hand US/EU exports to China are mostly capital rather than consumer goods, and you won’t expect those to increase quickly. If the goal of stimulus to is increase production in the domestic economy, you’d like see no increase in capital imports until you’ve put those factories at capacity.

  • Posted by Twofish

    Cedric: From the Hyundai corporate website, they say 2007 sales totaled $1.7 TRILLION USD, $1.3 of it being export. They could buy GM with pocket change right now.

    Lots and lots of people could buy GM with pocket change, but no one really wants to. The problem is liabilities. If someone wanted to sell me GM for $1000, I’d run away, I wouldn’t take it because I’d be buying about a $100 billion in unfunded liabilities, and I have better things to do with $1000 than own General Motors.

    This is why GM and Chrysler have to go through a bankruptcy process.

  • Posted by Cedric Regula

    2fish:”This is why GM and Chrysler have to go through a bankruptcy process.”

    Theoretically correct, but so far the only ones that look like they are getting screwed for sure are bondholders, taxpayers, and probably Fiat, unless this is a strategic move on their part to benefit from Chrysler Bankruptcy II, (or III depending on if you throw in the first episode) and get a shot at being bailed out someday in the future.

    They come out and the liabilities are mostly still there(except bond interest payments). While in bankruptcy court, the taxpayer is funding things like a “debtor in possession”. Depending on how that goes, we could be dumping in even more money than we have already for things like paying off past due bills from vendors, dealership closing costs, and the perennial favorite of the UAW, buying out employees so they will take early retirement.

    I’ll be watching to see what the final bill is.

  • Posted by FollowTheMoney

    Going back to try to figure out Chinese monthly trade data, and it’s accuracy maybe a difficult task with China no longer supplying monthly electric output data.

    Additionally,

    “Wal-Mart, The world’s biggest retailer is no longer delivering montly sales reports…”

    http://www.cnbc.com id/15840232?video=1141552446&play=1

    In my opinon, Wal-Mart Stores absence makes conclusions about the broader economy more difficult, including monthly data/ numbers on Chinese exports.

  • Posted by Thomas

    Quote Twofish: “Also I’m very dubious of Chinese electric generation figures more than GDP figures, because if those are accurate the the CO2 and pollution statistics don’t make any sense.”

    Can you explain this in more detail?

    Which exact statistics, and why don’t they make sense when compared to electricity generation?

  • Posted by Ben, the drama Queen

    Anyone seen my M3 figures?

    Not that they matter plus we did save one $ millinon with that.

  • Posted by Brick

    I think there may be some fundamental differences in policy from China and its neighbours meaning china is gaining market share. For instance there are rumours that the Ministry of Finance in China recently raised the rebate of export taxes by around 15 percent. While this might gain market share by giving Chinese producers more room to cut retail prices to the US, this could contribute to global price deflation. What I would expect to see from the next set of Chinese export numbers if this is true is increasing export volume, but decreasing value and a marked reduction in the difference between export and import value.

    One of the assumptions that seem to be being made is that if the RMB was to float that it would rise quickly causing immediate problems for china’s export. I am not sure this is correct with the 12 month RMB forward having declined the appreciation forecast for the year would be 1.8 percent. Increasing the rebate on export taxes by another 5 percent would most likely compensate for this. I am increasingly coming to the conclusion that Chinese policy will drive the world economy going forward rather than US and some difficult choices are looming for the US and Europe.

  • Posted by Twofish

    Cedric: They come out and the liabilities are mostly still there (except bond interest payments).

    That’s why bankruptcies are involve hard knuckle negotiations. The new owners will want to write down as many liabilities as possible, whereas the old owners will want to write down as few liabilities as possible.

    Cedric: While in bankruptcy court, the taxpayer is funding things like a “debtor in possession.”

    Yup, and the government is funding it because no one else is willing to touch it.

    Cedric: Depending on how that goes, we could be dumping in even more money than we have already for things like paying off past due bills from vendors, dealership closing costs, and the perennial favorite of the UAW, buying out employees so they will take early retirement.

    Billions and billions. It’s huge nasty loss, but the only reason for it is that people are convinced that not doing it will be an even bigger loss.

    It’s actually a good thing. The problem if you don’t dump in money to fix a bankrupt company is that then it becomes like Amtrak. A zombie company which is neither alive nor dead.

  • Posted by Twofish

    Thomas: Quote Twofish: “Also I’m very dubious of Chinese electric generation figures more than GDP figures, because if those are accurate the the CO2 and pollution statistics don’t make any sense.”

    Thomas: Can you explain this in more detail?

    This is original research that I would have written a paper on if I have more time, but it was back in 1998, when Rawaski wrote a paper saying that Chinese GDP statistics were obviously cooked because they didn’t match oil and power use statistics. What he didn’t consider was the possibility that it was the oil and power use statistics that were wrong.

    So what I did was to look at estimated CO2 emissions, pollution, and coal use. In particular the Chinese government was claiming massive reduction in CO2 emissions in the 1990′s. Also if you look at efficiency and pollution statistics, I found that the numbers indicated that Chinese industry was implausibly efficient.

    The conclusion that I came up with was that the power statistics were just totally bogus, and there are reasons why power statistics are likely to be bogus. For one, most factories in China have diesel generators which means that when demand increases, they turn on the generators. There’s also the weird pricing of oil.

    All of this is original research, and I never had time to write a paper, and I’ve lost the references to the statistics, but the underlying message is that when you have power and GDP statistics diverge, it’s not a good idea to automatically assume that power is wrong.

  • Posted by Rien Huizer

    Twofish,

    Are you aware that this (1) has nothing to do with Korea -a very interesting country with a peculiar set of institutions- and a very interesting way of engaging in foreign trade. a
    And, (2,) is very disappointing. Power use is supposed to be a good indicator of economic activity in countries where other indicators are iffy. Surely your research must be western fabrication..So sad.

  • Posted by Thomas

    @Twofish

    Interesting point.

    I have also wondered how meaningful electricity consumption statistics actually are, considering that companies in the heavy industry sector frequently generate their own energy as opposed to taking electricity from the grid.

    Still, it doesn’t resolve the question why officially announced electricity consumption has been falling, does it?

    As for CO2 emissions and pollution: No idea how they can objectively calculate those…

  • Posted by Glen M

    Is it not possible to reconcile the electricity data with diesel consumption?

  • Posted by Too Much Fed

    I want to see the guy in FollowTheMoney’s video make one about alan greenspan!!!

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