Chinese foreign trade data for February released on Saturday showed export growth was substantially stronger than expected, while import growth remained subdued. Export growth accelerated to 48.3% y/y (consensus: 14.0% y/y) from -3.2% y/y in January, while imports contracted 20.5% y/y (consensus: 10.0% y/y) after contracting 19.75% y/y in January.
The data was substantially distorted by the timing of the Chinese New Year public holiday. Exports usually surge and imports decline just ahead of the holiday as inventories are reduced. This year the surge in exports happened in early February in 2015 compared with late January last year, due to the timing of the holiday.
For January and February as a whole, export growth improved 15.1% compared with the same two months in 2014. In December, total exports expanded 9.5% y/y. For January and February as a whole, imports contracted 20.4% y/y compared with the same two months last year after contracting 2.3% y/y in December last year.
The weakness in import growth is partly explained by lower import prices. In January (latest data) import prices declined 9.6% y/y while export prices increased 0.6% y/y. Hence, China is benefitting from substantial terms of trade gains that are also evident in a surging trade balance surplus. For January and February as a whole, China’s trade balance surplus was USD120bn compared with just USD8bn in the same two months last year.
In our view, the foreign trade data for January and February probably exaggerate both the strength in exports and the weakness in imports and there probably will be some pullback in March. Nonetheless, exports appear to be doing relatively well, with strong gains in particularly to the US and the ASEAN countries. However, exports to Europe are also improving and exports to Japan appear to have stabilised.
In our view, the foreign trade data for 2015 so far does not support the case for a weaker CNY. Exports appear to be doing reasonably well and the trade balance surplus is surging. We think this buoyant surplus will eventually outweigh the current capital outflows, which we expect to subside.
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