China’s January exports back to growth, but sustainability in doubt

BEIJING: China’s exports unexpectedly returned to growth in January after a shock decline the previous month, while imports fell much less than expected, but analysts said the strength was likely due to seasonal factors and predicted renewed trade weakness ahead.

Investors and policy makers are closely watching to see how quickly activity in China is cooling, or if support measures announced last year are starting to take hold, which could lift some of the gloom hanging over the global economy.

But data left many China watchers none the wiser about the current state of the world’s second-largest economy, as a March 1 deadline looms for Beijing and Washington to de-escalate their bitter trade war.

January exports rose 9.1% from a year earlier, customs data showed, defying economists’ expectations for a 3.2% drop and a marked turnaround from December’s 4.4% decline.

Imports fell 1.5%, much better than forecasts for a 10% slide and narrowing from December’s 7.6% drop.

That left the country with a trade surplus of US$39.16bil for the month.

While the readings appeared positive at first glance, analysts warned that data from China early in the year must be treated with caution due to business distortions caused by the long Lunar New Year holidays, which started on Feb 4 this year.

Many companies rush out shipments or replenish their inventories of raw materials ahead of the holidays.

“Clearly, the numbers surprised the market on the upside.

But given the deceleration of global (factory readings) and weak Korean trade data, it might be pre-mature to conclude that the trade prospect has improved based on the January number alone,” said Tommy Xie, China economist at OCBC Bank in Singapore.

“I suspect that the recovery may be partially due to the Chinese New Year effect as this year it is slightly earlier as compared to last year.” Economists had widely tipped that China would see weaker exports early this year.

Factories have reported shrinking overseas orders for months and warehouses in America are packed to the rafters with Chinese goods that retailers stockpiled last year in anticipation of more US tariffs.

Trade has also been faltering globally amid rising protectionism and a loss of momentum in some major economies, most notably in Europe.

Net exports actually dragged on China’s growth by 8.6 percent last year, according to Reuters calculations.

Factory surveys have also show weakening domestic orders, and broader economic weakness is taking a toll on both business and consumer confidence.

Retail sales during the Lunar New Year holiday rose 8.5% from a year earlier, still solid but the slowest pace since at least 2011.

China’s economic growth slowed to 6.6% in 2018, weighed down by rising borrowing costs and a clampdown on riskier lending that starved smaller, private companies of capital and stifled investment.

Pressure on China’s economy could spike if Beijing and Washington do not reach a deal soon to end their year-long trade dispute, which is estimated to have cost both countries billions of dollars already and is taking a growing toll on other export-reliant economies from Asia to Europe.

The US is set to sharply raise tariffs on US$200bil worth of Chinese imports in early March, though President Donald Trump said this week he could let the deadline ”slide for a little while” if a deal appears close.

A US delegation led by trade representative Robert Lighthizer and Treasury secretary Steven Mnuchin are in Beijing to hammer out a trade agreement.

China’s trade surplus with the United States narrowed to US$27.3bil in January, the lowest since May 2018, data showed yesterday. Exports to the US declined 2.4% on-year, while imports fell 41.2%.

“Based on the positive signals regarding the US-China trade negotiations, we think it is likely that further tariff hikes will be suspended,” Louis Kuijs, head of Asia economics at Oxford Economics, said in a research note.

“An agreement and prolonged tariff suspension would be an obvious plus and imply an upside risk to growth of China’s exports and economy more generally.”