European-Asian trade falls off a cliff

Ambrose Evans-Pritchard has picked up on the decline in trade flows that many have highlighted in recent months. This time, he looks at European-Asian trade flows and sees some major problems.

“They have already hit zero,” said Charles de Trenck, a broker at Transport Trackers in Hong Kong. “We have seen trade activity fall off a cliff. AsiaEurope is an unmit­igated disaster.”

Shipping journal Lloyd’s List said brokers in Singapore are now waiving fees for containers travelling from South China, charging only for the minimal “bunker” costs. Container fees from North Asia have dropped $200, taking them below operating cost.

Industry sources said they have never seen rates fall so low. “This is a whole new ball game,” said one trader.

The Baltic Dry Index (BDI) which measures freight rates for bulk commodities such as iron ore and grains crashed several months ago, falling 96pc. The BDI – though a useful early-warning index – is highly volatile and exaggerates apparent ups and downs in trade. However, the latest phase of the shipping crisis is different. It has spread to core trade of finished industrial goods, the lifeblood of the world economy.

Trade data from Asia’s export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.

Korea’s exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.

I should note that U.S.-Asian trade and intra-Asia trade have also seen remarkable declines as well. This story is in marked contrast ti the recent news that China revised its 2008 GDP growth up to 13% from 11.9% for all of 2008. The Financial Times noticed this as well.

Markets down, jobs down, growth down – everywhere, it seems, except China. On Wednesday came the revelation that the country’s economy grew 13 per cent in 2007, versus an original estimate of 11.9. As a result, China became the world’s third largest economy. Statistical bodies often tweak published data. But 110 basis points, equivalent to $114bn, is quite an adjustment. And when the nation doing the revising is China, eyebrows invariably rise.

Whether the statistics tell the real story remains to be seen because it is 2009 when the declines in China’s growth rate will begin. While I am skeptical about China’s near-term prospects (I see 2% growth for 2009), the growing commentary about the decline in growth there has reached a feverish, almost hysterical level. The contrarian in me is starting to wonder if the China-goes-bust stor is starting to become oversold.

Sources Shipping rates hit zero as trade sinks – Ambrose Evans-Pritchard, Telegraph China’s growth figures – FT Lex

Related Reading:

Global Political Economy: Understanding the International Economic Order
East Asia at the Center
The Man Who Loved China: The Fantastic Story of the Eccentric Scientist Who Unlocked the Mysteries of the Middle Kingdom
A History of Modern Europe, Second Edition: From the French Revolution to the Present (Volume 2)
Mastering the Trade (McGraw-Hill Trader’s Edge)

Originally published at Credit Writedowns and reproduced here with the author’s permission.