China exports drop for 7th straight month in October
Big Oil comes to grips with a warming climate
CHINESE exports sank for a seventh consecutive month in October, data showed yesterday, as weak global demand dealt a blow to the world’s number two economy following recent signs of stability.
The result, which missed forecasts, comes as the country’s export-oriented companies see their margins squeezed by rising labour costs and increasing competition from other east Asian countries, despite a falling yuan currency.
Overseas shipments fell 7.3 percent year-on-year, while imports also dropped 1.4 percent, with both coming in below expectations in a survey of economists.
China is the world’s biggest trader in goods and its performance affects partners from Australia to Zambia, which have been battered as its expansion has slowed to levels not seen in a quarter of a century.
With exports totalling $178.2 billion and imports $129.1 billion the trade surplus dropped to $49.1 billion.
Customs earlier gave the figure in yuan terms, showing a 3.2 percent drop in exports and a 3.2 percent increase in imports on-year.
Analyst Julian Evans-Pritchard of Capital Economics said the outlook appeared challenging with “global and domestic growth unlikely to accelerate much further”.
“The current pace of global growth is likely to be as good as it gets for the foreseeable future.”
Though the yuan currency’s value has slid to a series of six-year lows against the greenback recently, making Chinese goods cheaper for trade partners, it has not been enough to lift exports into positive territory.
The yuan weakened further yesterday after the People’s Bank of China said the country’s foreign exchange reserves dropped $46 billion in October, their second-largest decline this year.
While yesterday’s trade figures disappointed, analysts with ANZ said they suggested that external demand had “not worsened significantly” despite earlier data on factory activity that pointed to a larger decline.
Beijing is seeking to transition the economy away from being the world’s factory floor for cheap goods to supplying the country’s growing consumer needs.
“Trade’s contribution to China’s economy is now diminishing as the economy increasingly depends on domestic demand,” Zhu Qibing, chief macro economy analyst at BOCI International in Beijing said.
Authorities have set a growth target of 6.5 to 7 percent for the year, which they are on track to meet thanks to loose credit, a hot real-estate sector, and fiscal stimulus spending.
Government figures last month showed growth was steady at 6.7 percent in the third quarter, a sign of sta- bilisation after years of slowing.
Growth momentum should be relatively stable through the rest of the year, Zhao Yang of Nomura said in a note, while high home prices will limit the room for further policy easing.
The recently concluded Canton Fair, in the manufacturing hub of Guangzhou showed a pickup in export turnover over last year, CICC Macro analysts noted, a positive sign bolstered by recent US economic data, though “there are still uncertainties on the US’s trade policy after the presidential election”. IN A warming world, Big Oil doesn’t look quite so big anymore.
A global glut of oil and natural gas has sent prices tumbling over the last two years, and profits are evaporating. Improving auto fuel efficiency standards threaten to depress oil consumption eventually, and fleets of electric vehicles are gradually emerging in China and a few other important markets.
Perhaps most troubling for oil companies over the long term is the goal – agreed to last December by virtually every country in the world at a climate conference in Paris – of staving off a rise in average global temperatures of more than 2 degrees Celsius above preindustrial levels.
Fatih Birol, the executive director of the International Energy Agency, has said that to reach that goal, two-thirds of the global coal, oil and natural gas reserves still underground may never be burned without some improbable technological breakthrough in dealing with the carbon emissions. This position has been echoed by Mark Carney, the governor of the Bank of England.
The oil industry has experienced global crises, booms and busts for over a century, and few energy experts think it faces an existential threat in the immediate future. The world will still need oil and gas for decades, and normal declines in existing fields oblige further drilling. But change is almost certainly coming.
“Any energy company in the world that makes its strategy without considering climate change policies is making a major mistake,” Birol said in an interview, “not only a major mistake for the climate but also for their own profits and for their own shareholders, because climate change policies represent a fundamental challenge to business as usual.”
The International Energy Agency’s projections of future global oil demand include one possibility in which demand could drop more than 20 percent from today’s levels, to 74 million barrels a day by 2040, if measures are put in place to keep global warming at levels proposed at the Paris conference. As coal burning declines precipitously and renewable energy grows steadily, natural gas demand will rise only modestly by 2040 even as the global population grows, if the world truly wants to come to grips with climate change.
Not surprisingly, many oil executives view a different path as more likely. Exxon Mobil, for example, projects that global demand for oil will keep growing – by just over 13 percent from today, to 109 million barrels of oil a day by 2040.
“We continue to believe fossil fuels will have a significant and important role to play for as far as we can see,” Exxon Mobil’s chief executive, Rex W Tillerson, said at the company’s annual shareholders meeting in May.