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30 Aug 2011


July Exports to China Growing despite Slowing Chinese Economy (Business Brief No.3165)

The direction of Thailand-China bilateral trade in July 2011 was consistent with China's Consumption Index, indicating that their slowing economic trend is not as bad as feared. Thailand's outward trade to China in July again hit a record high of USD3.109 billion, increasing 83.8 percent YoY, which was higher than the 25.6 percent growth recorded in June, due partly to leapfrogging growth in exports of paper and paper products after paper producers in China, especially those in Guangdong, Zhejiang, Jiangsu and Sichuan provinces, were hit by severe flooding. If those product categories were excluded, Thai exports to China in July grew only 43.6 percent YoY.
China's import requirements have often been relatively volatile depending on periodic inventory restocking by businesses there, so the Thai export figure for July may not assure us that robust demand will be sustained in China amid signs of economic slowdown there. Their July inflation figure surged to a three-year high of 6.5 percent. This has prompted the People's Bank of China – their central bank – to raise their key policy rate three times so far this year, plus six increases in their commercial banking reserve requirement ratio during 1H11 (large state-owned banks have had to raise their reserves to a record 21.5 percent).

As for 2011, a high base from last year, plus the impact of economic stagnation in the US and Eurozone on China's export sector, may inhibit Thai exports to China, thus decelerating to less than the 33.2 percent growth recorded in 2010. However, due to better-than-expected export growth in previous months, rising commodity prices and erratic weather conditions that may affect farm output in China, we at KResearch have raised our 2011 projection on the overall performance of Thai exports to China in 2011 to 22-27 percent growth, rising over the 15 percent growth achieved in 2010.