China's February trade statistics confirmed the continued shrinking of the country's trade surplus.
Even more significant than the monthly data, which received wide press coverage, was the longer term trend. Figure 1 therefore shows the development of China's monthly trade balance, while Figure 2 shows the monthly data graphed as a three monthly moving average in order to remove the effect of purely short term fluctuations. Both measures clearly show the downward trend of China's trade surplus which this blog has been analysing since last July.
In terms of numbers China’s trade surplus in February was $7.6 billion. However as the long Chinese New Year holiday fell in February in 2010, but in January in 2009, which significantly distorts monthly figures, it is better to take the combined January and February figures for yearly comparisons. This year the combined January and February trade surplus was $21.8 billion. This compares to $44.0 for the same months in 2009 – a drop of 51%.
Calculating the monthly trade figure as a three monthly moving average, which automatically removes the distortion produced by the difference in the Chinese New Year holiday, the February 2010 surplus was $13.4 billion compared to $27.6 billion in 2009 - also a 51% fall.
These facts of the shrinking of China's trade surplus combined with simultaneous rapid GDP growth refute the analysis of writers, such a Professor Michael Pettis of Beijing University and others, who argued China was dominated by the wrong paradigm of an 'Asian growth model' in which recovery could only take place on the basis of a surge in net exports. China in 2009 and so far this year has been able to switch into an economic mode primarily powered by domestic investment and consumption growth. In this model rapid economic growth can be combined with a shrinking trade surplus.