China: Trade Data Does Not Suggest Sharp Deterioration

Growth in China’s exports and imports both beat expectations substantially in
November, but the year-on-year growth in exports and imports nonetheless continues to decline. However, sequentially there  are tentative signs of improvement, with exports in November increasing month-on-month for the first time in four months. Exports to Europe are weak, but this appears to some degree to have been offset by improving exports to the rest of Asia and the US. China’s imports have been surprisingly resilient in recent months in light of other indicators suggesting weaker domestic demand.

While the hard data for November suggests that growth remained subdued and below potential in Q4, on the other hand, the hard data does not suggest that there has been a sharp deterioration in the Chinese economy in Q4.

Details

The foreign trade data for November released on Saturday beat expectations across the board. Exports in November increased 13.8% y/y (cons: 10.9% y/y) after increasing 15.9% y/y in October. However, if we look at the sequential trend, seasonally adjusted exports improved markedly by 7.7% m/m after having declined in the previous three months. That said, monthly changes in exports are very volatile. Looking through short term volatility exports in November were down 2.4% 3m/3m - a slight improvement from October, when exports were down 2.9% 3m/3m. 

If we look at China’s export destinations, the main source of weakness, not surprisingly, is exports to the EU. However, there are tentative signs that the weakness in exports to Europe is being offset by improving exports to the rest of Asia and the US.

China’s imports in November increased 22.1% y/y (Cons: 18.8% y/y) after increasing 28.7% y/y in October. If we look at the sequential trend, seasonally adjusted imports increased 7.7% m/m in November after increasing 5.5% m/m. Looking at the 3m/3mtrend, China’s import growth appears to have picked up in recent months. This is supported by the separately released data for imports of key commodities, which showed that import of both iron ore and crude oil improved in November.

Assessment & outlook

It is hard to make any definitive conclusions on the back of the November data. True China does face some headwinds from exports, but the headwinds at this stage appear to be far from as severe as the headwinds that China’s exports faced in late 2008 and early 2009 (see top chart)in the wake of the Lehman melt down. At the moment, weakness in exports to Europe is, to some degree, offset by improvements in exports elsewhere. So far, it is also hard to find evidence of a sharp deterioration in domestic demand on the back of resilient import growth in the past two months. 

On the surface, the foreign trade data suggests that China has again started to be a net contributor to growth outside China, with China’s import growth again substantially exceeding its export growth. In H1 2011, China actually appears to have subtracted from global growth, with import growth running substantially below export growth.