Why China’s Latest Surprise is Bullish for World Economies

About: General Administration of Customs, Bank of New York Mellon China ADR Index, China’s economy, China investing, China economy, China Stock Digest, Chinese economy, China stock market

China has beaten expectations once again. China’s exports jumped 45.7 percent in February compared to the same month a year ago to $94.5 billion. That’s up sharply from January’s 21 percent rise.

February’s figure is all the more surprising because the export jump reflects robust trade during the week-long Lunar New Year holiday. Last year the lunar holiday fell in January, making the 2010 comparison even more remarkable.

Surging exports aren’t just good news for Chinese manufacturers. A closer look at the figures indicates accelerating economic recovery in recession-plagued economies around the world.

China’s trade with Brazil climbed 88.5 percent from a year earlier, the fastest among all countries surveyed by the General Administration of Customs. Malaysia surged 85.7 percent and Indonesia enjoyed an 80 percent gain in trade with China.

As China’s two biggest trading partners, the E.U. and the U.S. shared in the wealth, although Chinese imports from developed countries showed lighter growth due to the holiday break. Imports rose just 44.7 percent year-over-year to $86.9 billion, compared with a stunning rise of 85.5 percent in January. The disparity between the two months resulted in China’s trade surplus narrowing to $7.6 billion in February, compared to $14.1 billion in January.

Many news outlets heralded the unexpected trade increase as a sign that the Chinese government would move to rein in its stimulus program. The markets did not agree with that assessment.

The Bank of New York Mellon China ADR Index actually gained marginally after the announcement. U.S. markets were relatively flat and unaffected. By contrast, global markets dropped abruptly last January when China clamped down on bank lending and raised reserve ratios in a clear signal that economic stimulus through bank lending had reached its upper limits.

Other negative commentators pointed out that the February trade figures were remarkably high because they stand in contrast to severely weakened global trade during the height of the financial crisis. That is true, but it is also obvious and trivial.

The real meaning of the jump in China’s exports is the beginning of a long-awaited recovery from the effects of the financial crisis. The global economic system is regaining its appetite for trade. Looking back on what the world financial system has undergone, that is headline news indeed.

There has also been speculation that improved trade would motivate Beijing to allow the value of the yuan to rise. That’s not likely in the near future. China does not want to deal any kind of blow to its export industries at the very moment they begin to experience recovery.