By Tom Orlik
China’s export sector might be weaker than you think. The headline data shows export growth dipping from highs of more than 35% year-to-year in the first quarter to 17.1% in September.
That’s bad enough. But even that dismal picture is flattering the growth rate.
That’s because rising export prices, exacerbated by yuan appreciation, means foreign customers are paying a higher price for Chinese goods. The extent of the slowdown in demand is being masked by a rise in the dollar price.
Janet Zhang, an economist at Beijing based research firm Dragonomics, says the price effect is especially marked in 2011. Looking at change in the “volume” rather than the “value” of China’s exports strips out the price effect. Ms. Zhang’s calculations shows export volume growth falling to 6.9% year-to-year in September from a high of 26.4% in March.
The fact that Chinese exporters have been able to raise prices is a positive for a sector of the economy that struggles with razor thin margins. But if growth in the volume of exports continues to fall away, increased pricing power will be cold comfort for China’s economy.