According to the Chinese customs bureau, China's December trade surplus narrowed in December. With the country's trade surplus shrinking, and its money supply narrowing, we may finally be seeing signs that the country's massive economic growth may be coming to an end.The Beijing central bank reported the November trade surplus fell to $22.7 billion from $26.2 billion. M2, which is the broadest measure of money supply, gained 16.7% to 40.3 trillion yuan ($5.55 trillion) from a year earlier. It was the smallest rise in seven months.
China is beginning to feel the effects of recent yuan gains, weaker global expansion and cuts to export-tax incentives. As a result, its exports rose by the slowest pace in two years. As we discussed, China still plans to strengthen credit controls to avoid financial problems and a possible inflation surge. Wang Tao, an economist at Bank of America Corp. in Beijing, said that "China needs to tighten monetary policy further, given that new loan growth may rebound' as recent signs shows that the country's "economic expansion may have peaked last year."
China has definitely been going through a pretty impressive growth period for the past few years, and government forecasts show that its economy expanded 11.5% in 2007. Wang anticipates it will also grow between 8% and 10% over the next three to five years.
For 2007, the trade deficit jumped 48% to hit a record $262.2 billion, suggesting that some addition measures are necessary. Some American companies, including Intel Corp. (NASDAQ: INTC) and Nike Inc. (NYSE: NKE) , brought their contribution to the current traded deficit, by adding new factories to take advantage of cheap labor in the country. Thus, reports show that China's trade surplus increased about 11 times since 2000.
Because of the its undervalued currency, the country's central bank has raised the amount of money banks must set aside as reserves to a 20-year high. As a results, banks had to limit lending. The central bank's tightened monetary policies put pressure on outstanding local-currency loans which rose by 16.1% to 26.2 trillion yuan in December from a year earlier.
Exports gained "only" 21.7% in December to $114.4 billion. It is the slowest since December 2005 if we exclude distortions from Lunar New Year holidays in January and February. The central bank 's decision to lift interest rates to a nine-year high made the yuan jump 7% against the dollar in 2007, which is twice as fast as two years ago.
Looking ahead, analysts expect the U.S. crisis will affect China's economy and a U.S. slowdown will hit China's export markets. Morgan Stanley (NYSE: MS) predicted the country's shipments abroad growth could fall to 16% in 2008, with Imports gaining 18%.
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
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