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Chinese Exports a Green Blip in a Sea of Red

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2023-04-13

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An unexpected surge in Chinese exports in March doesn't alter the reality of a weak domestic economy as was underlined earlier this week by more deflation in consumer and producer prices in March.

The deflation means the Chinese economy has seen no consumer price growth for three months and has also experienced falling producer prices in its vast manufacturing and parts of its service sectors.

That background makes the Chinese export and import performance a little easier to sort out.

China’s exports in March surged a surprising 14.8% from a year earlier while imports dropped by 1.4%, customs data showed on Thursday.

It was the 4th month in a row that imports into China have fallen, though the fall was nowhere near as large as that seen in the combined January and February period when they dropped 10.2%.

Economists said the weakness came from continuing weak domestic demand, lower commodity prices, and a stronger US dollar.

The exports figure was sharply better than the 6.8% combined drop in January-February. But the 14.8% rebound is from a weak March 2022 when Chinese exporters and exports were hit by Covid restrictions.

Exports in March last year totalled a low $US275.1 billion (after the very low $US216.8 billion in February of that year) because of harsh Covid restrictions on movement and business activity and many factory closures. The freeing up of the restrictions this year saw March exports finally shake off the hangover from 2022.

Exports last month totalled $US315.9 billion, an eight-month high.

It was the first increase in exports since last October and came amid efforts from Beijing to grow trade further with developed countries while exploring new possibilities with emerging economies, especially countries in southeast Asia or ASEAN.

Exports to ASEAN - China's largest trade partner - surged by 35.4%, while those to Russia and the EU by 136.4% and 3.4%, respectively. By contrast, shipments to the United States shrank 7.7%.

Analysts told Reuters the unexpected surge in exports analysts was more likely related to exporters rushing to fulfil a backlog of orders that had been disrupted by the pandemic in past months, and warned the global demand outlook remained subdued.

"The wave of COVID outbreaks in December and January likely depleted factories' inventories. Now that factories are running at full capacity, they caught up the cumulated orders from the past," said Zhiwei Zhang, chief economist at Pinpoint Asset Management."

"The strong export growth is unlikely to sustain given the weak global macro outlook," he told Reuters.

"We aren't convinced that this rebound will be sustained given the still gloomy outlook for foreign demand," Capital Economics analysts said in a note.

"We expect most developed economies to slip into recession this year and think that the downturn in Chinese exports still has some way to run before it reaches a bottom later this year.”

As a result, China's trade surplus jumped to $US88.19 billion in March down from the massive $US118.8 billion in January and February, but up from the Covid impacted $US44.35 billion in the same month in 2022. It also topped market forecasts of $US39.2 billion.

But Lu Daliang, spokesperson of the General Administration of Customs, attributed the upside surprise to strength in demand for electric vehicles, solar products and lithium batteries.

However, he warned conditions could worsen going forward.

"The external environment is still severe and complicated at present," Lu told reporters in Beijing on Thursday.

"Sluggish external demand and geopolitical factors will bring greater challenges to China's trade development," he added.

The next round of data will be released next Tuesday with urban investment, retail sales and industrial production for March and the first quarter economic growth (GDP) report. The forecast is for growth of 2.9% after 3% in 2022.

A figure of around 3% will be down sharply from the Chinese government's forecast for growth of around 5% and the IMF’s optimistic 5.2% estimate given in the latest World Economic Outlook released this week.

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