Mixed fortunes for Beijing in trade with Moscow
Following surge in business, China faces ‘alarming’ slowdown in export growth
China’s trade with Russia surged at the start of the year, but “alarming” slowing overall export growth amid various headwinds have increased the pressure on Beijing to introduce policies to meet its new economic target, analysts said.
Bilateral trade with Russia rose by 38.5 per cent to US$26.4 billion from the previous year in combined figures for January and February, which represented the highest growth rate for the first two months of the year since 2010.
But overall exports grew by only 16.3 per cent in January and February from a year earlier to US$544.7 billion, which beat expectations but was down from December’s growth of 29.9 per cent. Exports are a key driver for China’s economy and will play a role in reaching the gross domestic product target of “around 5.5 per cent”, which was set on Saturday by Premier Li Keqiang.
“Export growth slowed in the first two months this year. This is alarming as exports was a main driver for economic growth last year when investment and consumption were both muted,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
“With the export growth slowing down, the pressure on the government rises further to loosen policies to achieve the ambitious growth target of 5.5 per cent.”
Trade data for January and February is combined to smooth out the impact of the Lunar New Year holiday, with the week-long holiday starting on January 31 this year.
It showed China’s overall imports grew by 15.5 per cent in January and February from a year earlier to US$428.75 billion, down from December’s growth of 19.5 per cent.
Imports from Russia reached US$13.8 billion, up by 35.8 per cent, and only second to China’s purchase pace from Indonesia among its major trading partners.
The value of China’s exports to Russia rose by 41.5 per cent in the first two months of the year to US$12.6 billion, which was the highest of all its major trading partners.
China’s trade with Russia is in the spotlight as Western nations have doubled down on their sanctions in the wake of the invasion of Ukraine.
Beijing has refrained from choosing sides amid the unfolding crisis, but has repeatedly said that it will maintain normal trade ties with both Russia and Ukraine.
The growth was in sharp contrast with a drop of 2.3 per cent of shipments from Australia and a 0.2 per cent decline in purchases from the European Union.
“The conflict between Russia and Ukraine will bring greater uncertainty to global economic development,” said Lian Weiliang, a vice-director of the National Development and Reform Commission.
“Both Russia and Ukraine are participants of the Belt and Road Initiative. China will continue to work with the participating countries, including Russia and Ukraine, to promote the high-quality development of [the initiative] in the spirit of peaceful cooperation, openness and inclusiveness, mutual learning and mutual benefit.”
Premier Li said on Saturday, while delivering the annual government work report, that China planned to stabilise foreign trade and improve its quality this year.
He did, though, acknowledge that external challenges, including the coronavirus, the overall global recovery process and commodity price increases, loom large.
Export insurance coverage, stronger credit support and quicker tax rebates, as well as boosting e-commerce, digital trade and international logistics, have been promised.
Li Qilin, an analyst with Hongta Securities, said despite the recent resilience, China’s export outlook could be affected by the disruptions to the global supply chain caused by war in
Ukraine, as well as overseas consumer sentiment amid tightening of monetary policy by the US Federal Reserve. “Also, we should pay attention to the pressure of imported inflation,” he added.
Erin Xin, a Greater China economist at HSBC, warned reopening plans in the US and Europe may propel a change towards services consumption.
“We still expect exports to maintain positive, albeit softer, growth this year, on the back of a gradual global recovery,” she said.
“With continued domestic headwinds from a relatively weak property sector as well as continued local outbreaks of Covid-19, the boost from exports provides some cushion from the slowdown pressure.
“That said, momentum for exports may soften in the coming months as global demand rotates more towards services instead of goods. This means policymakers will need to bring forward both fiscal and monetary stimulus to help stabilise domestic growth as external support channels may lose some steam.”