FXStreet (Delhi) – Research Team at Nomura, suggests that there is more behind the improvement in the Chinese headline trade data.
Key Quotes
“What caught our eye was the jump in export growth to Hong Kong, up 10.8% y-o-y in December from -0.5% in November while the contraction in exports ex-Hong Kong only moderated to -4.2% from -8.5% (Figure 3). We judge the improvement as at least partly due to arbitrage activity.
Imports may also be distorted by capital outflows disguised in the form of imports. For instance, imports from Hong Kong, the RMB offshore centre, surged by 64.5% y-o-y in December after growth of 18.9% in November, while those ex-Hong Kong only moderated to -8.1% from -9.3% (Figure 4). Such a trend has been in place since China shifted its exchange rate regime in August last year.
Our FX strategy team believes concerns about capital flight from China are likely to remain. If this is the case, we judge that import growth in the coming months may continue to be pushed higher than it would normally (and truly) be.
Overall, we maintain our view that China’s economy is stabilising, albeit at a low level in the very near term. We continue to expect GDP growth to moderate to 6.4% y-o-y in Q4 from 6.9% in Q3, with risks to the upside.”
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