China: Import Growth Slows, Exports Stabilise

Chinese import growth slowed more than expected in December, suggesting that imports have now finally begun to adjust to the unsustainably strong growth in the previous months. Given that imports of commodities had been particularly strong in the previous months, we think this area could suffer in the coming months. 

On a positive note, there are signs of stabilisation in Chinese exports. In particular, exports to the EU appear to have stabilised. Based on today’s numbers, we estimate that China’s current account surplus for 2011 was around 3% of GDP. 

Details

Growth in Chinese exports eased slightly in December to 13.4% y/y (consensus: 13.4%) from 13.8% y/y in November, in line with expectations. According to our calculations, seasonally adjusted exports were flat in December after increasing a solid 7.7% m/m in November. For Q4 as a whole, exports declined 0.2% q/q after increasing 0.5% q/q in Q3. 

The weakness in exports in Q4 was driven solely by a sharp drop in exports to the EU. Seasonally adjusted exports to the EU declined 5.9% q/q in Q4 after increasing 2.3% q/q in Q3. However, there are signs that the worst may be over, as exports to the EU in December increased month on month for the second month in a row. Chinese exports to the US and ASEAN countries both improved in Q4 relative to Q3.

Chinese import growth slowed markedly in December to 11.8% y/y (consensus: 18.0% y/y) from 22.1% y/y and hence was much weaker than expected. Seasonally adjusted imports declined 4.3% m/m in December. However, the decline in imports in December came on the back of extraordinarily strong increases in exports in the previous months (+8.7% m/m in November and +5.2% m/m in October). For Q4 as a whole, import growth accelerated markedly to 9.1% q/q after increasing only 0.5% q/q AR in Q3. 

Assessment & outlook
In our view, the weakness in imports in December mainly reflects an adjustment to extraordinarily strong imports in the previous months that appears to be out of line with fundamentals. As can be seen in the chart on the next page, neither the import component in the NBS manufacturing PMI nor the quantity of purchases in the HSBC manufacturing PMI indicate a marked improvement in imports in Q4. The increase in imports was mainly driven by imports of commodities (see chart on next page). Not least because of the current weakness in production of building materials, we think that the sharp increase
in imports of commodities looks unsustainable. Hence, we would not be surprised if imports of commodities were to continue to weaken in the coming months – even if the Chinese economy as a whole starts to recover.

Although the trade surplus for December was bigger than expected, the trade surplus for Q4 as a whole declined markedly. We estimate that the seasonally adjusted current account deficit was slightly below 2% of GDP in Q4. For 2011 as a whole, we now estimate China’s current account surplus to have been about 3% of GDP.