Tighter monetary conditions set to come

10 Feb

It looks like the conditions in China are set for tighter monetary policy?  Why?

Well, this January the overall trade surplus China  is down US$25bn, to its lowest level since Jan 2006.  How has this happened? Domestic consumption in Jan grew much faster than exports.

Trade data in January illustrates a very strong recovery in both the domestic and export driven economies – in fact I would say it is in danger of overheating.

Exports were up 21% -, reaching at US$109.5bn (marginally below the record of US$109.64bn set in Jan 08). Thus one can comfortably consider the export economy out of the danger zone.

Simultaneously, imports jumped a phenomenal 85.5% year-on-year to a new record this January, reaching US$95.3bn (from the previous record of US$90.2bn also set in Jan 08).  Even if one accounts for the contribution made to domestic consumption by an earlier than usual Chinese new year, this data point is huge.

The difference gives the Chinese authorities an incentive to consider tightening their monetary policy.

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