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China Now the World ’s Largest Trader
China’s consumer inflation continued to ease in December, with the Consumer Price Index (CPI) rising 2.5 percent year on year, slower than the 3-percent rise in November (see Chart 1). Overall, consumer inflation for the year came in at 2.6 percent, well within the government’s target limit of 3.5 percent, and suggesting that bolder moves to free up prices of resources such as water are not expected to fuel inflation. Prices of scarce resources such as oil, natural gas, electric power and water have been held at artificially low levels, benefiting industry and keeping down costs to consumers, but encouraging waste and environmental degradation. Meanwhile, the Producer Price Index (PPI) held at 1.4 percent, matching November’s figure (see Chart 2). December marked the 22nd consecutive month that prices at the factory level fell, in a continued sign of weak domestic demand.
World’s largest trader
Although China’s combined exports and imports rose 7.6 percent in 2013, below the official target of 8 percent, it is believed that China overtook the United States to become the world’s largest trading country in goods in 2013 for the first time. According to China’s official statistics, China’s trade volume totaled $389.8 billion in December, a monthly record. For the first time ever, China’s total annual trade topped $4 trillion.
Export growth slows
China’s export growth slowed in December, which can be partly attributed to a continued clampdown by customs officials on speculative activities disguised as export deals. Import growth registered a healthy 8.3-percent increase, quickening from 5.3 percent in November, to reach $182.1 billion (see Chart 5). December’s strong import growth is raising optimism that domestic demand remains robust. Exports rose 4.3 percent from a year earlier to reach a new all-time high of $207.7 billion in December (see Chart 6). For 2013, export growth (7.9 percent) outpaced import growth (7.3 percent), producing a trade surplus of $259.8 billion, up 12.4 percent from 2012. The outlook for 2014 is expected to remain favorable as global demand picks up, giving more room for China’s policy makers to carry out much-needed reforms.
Manufacturing slips
China’s official Purchasing Managers’ Index (PMI) for the manufacturing sector slipped to 51.0 in December, down from 51.4 in November (see Chart 3). A PMI reading above 50 indicates an expansion in manufacturing activity from the previous month, whereas a reading below 50 indicates contraction. The official PMI sub-indexes for output, new orders and new export orders in December were all down from the month before, suggesting that demand as well as current production remains weak. Weakness in the manufacturing sector, long the backbone of the economy, comes as policy makers are trying to promote the growth of services and shut down excess capacity in sectors such as steel and glass. Furthermore, the unrestrained expansion of heavy industry is a major cause of the smog that often blankets China’s largest cities.
Securing Africa's Future
An important reason for Africa’s recent economic achievements has been its steadily improving social and political stability. However, 2013 witnessed acts of terrorism and organized crime in both Africa’s richest and poorest nations alike. While it is no secret that African countries need to continue attracting more foreign investors to create jobs, violent conflicts will only scare away potential investment.
As a permanent member of the UN Security Council, China has been conducting key efforts to provide peace and stability in Africa and pledged to enhance security policies throughout the continent. As an example, Chinese warships are currently patrolling to provide security off the Gulf of Aden and Somalia in keeping with a UN resolution. According to China’s Ministry of Foreign Affairs, 16 Chinese navy vessels escort nearly 5,300 foreign civil ships sailing in the area. During Chinese Foreign Minister Wang Yi’s weeklong African tour in January, peace and security in Africa remained high on the agenda, given China’s growing diversified interests throughout the continent.
During his visit, the minister mentioned China’s ambition to establish a “China-Africa Security and Cooperation Partnership,”saying that China would strengthen its collaboration in peace and security with countries in the region.
In South Sudan, the world’s youngest country, Beijing, in collaboration with the Intergovernmental Authority on Development, is playing a constructive role in pushing forward peace talks between the government and rebels. Beijing recently called for an immediate cease-fire in South Sudan as well as a reasonable and rational solution from the ongoing crisis. China, with noteworthy investments, including around 100 Chinese companies registered in South Sudan, is deeply concerned by the turbulence there.
In Zimbabwe, China is using its financial might and construction expertise to strengthen the country’s military defense capabilities. Zimbabwe’s $98-million National Defense College (NDC), financed and built by China, is destined to become a fully-fledged national defense university by 2015. The establishment of the defense college, the largest such complex in the country, was conceived as part of the answer to the country’s military defense challenges. Built by one of China’s leading contractors - Anhui Foreign Economic Construction Group - the academy is expected to train members of the Zimbabwean army, Central Intelligent Organization (CIO) and police, as well as operatives from other Southern African countries.
In Kenya, the government is partnering with China in the use of modern technology to secure its borders and territorial waters, putting Kenya in a better position to improve overall regional stability. The Chinese Government has dispatched its naval escort task force to improve level of security along its borders. In the waters off Somalia and in the Gulf of Aden, China will continue to send naval fleets on escort missions. Over the past five years, China has sent 16 fleets composed of 42 warships to the Gulf of Aden and waters off Somalia, escorting 5,465 vessels and rescuing 42 ships attacked by the pirates. Pirate activity dropped off drastically in 2013 in the wake of the escorts from various countries, including China.
Enhanced bilateral security ties ultimately serves the interests of Africa, to help ensure the continent’s rapid economic development does not lose momentum. China is playing an increasingly visible role in securing Africa’s future.
The ChinAfrica Econometer is produced by The Beijing Axis,a China-focused international advisory firm operating in four principal areas: Commodities, Capital, Procurement, and Strategy.
For more information, please contact:
Daniel Galvez, danielgalvez@thebeijingaxis.com
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