Overnight China reported April exports and imports, both of which dropped after a strong pick up in March, and missed consensus expectations, confirming “weak demand at home and abroad and cooling hopes of a recovery in the world’s second-largest economy.”
Exports fell 1.8% from a year earlier, following a strong 11.5% rebound in March (mostly due to last year’s base effect), the General Administration of Customs said on Sunday, supporting the government’s concerns that the foreign trade environment will be challenging in 2016. April imports tumbled 10.9% from a year earlier after a 7.6% drop last month and falling for the 18th consecutive month, driven by weaker processing trade, confirmg domestic demand remains weak despite a pickup in infrastructure spending and record credit growth in the first quarter.
The next effect meant China posted a trade surplus of $45.56 billion in April, versus forecasts of $40 billion, although with much of that “trade” the result of another record month of capital flight via Hong Kong “import remits”, nobody really has any idea what China’s true trade number is. In fact, looking at the chart below, Nomura concludes that capital outflows may have accelerated in April despite the USD6.4BN increase in FX reserves (largely due to valuation effect). Import growth from Hong Kong continued to surge, to 203.5% y-o-y in April from 116.5% in March, versus a drop in import growth from other markets, to -11.9% from -8.2% (see chart below). This implies continued capital outflows disguised as imports.
Perhaps it’s time for the PBOC to swallow its pride and admit that without a Yuan devaluation, as much as it hates to admit Soros, Bass (and this website since last summer) et al are right, it simply can’t stimulate its export-driven economy.
“Both exports and imports came in weaker than expected, in line with the soft trade performance across Asia, pointing to another challenging year for emerging markets,” said Zhou Hao, senior emerging market economist at Commerzbank in Singapore. China’s exports to the United States, the country’s top export market, fell 9.3% in April from a year earlier, while shipments to the European Union, the second biggest market, rose 3.2 percent, customs data showed.
A full breakdown of the details from Nomura:
Exports growth returned to negative territory as favourable base effects fade
Export growth in USD terms declined to -1.8% y-o-y in April after surging to 11.5% in March, below the market consensus of a flat change. On the one hand, we should not over-interpret this decline since the rebound in March was mainly due to a low base last year. On the other hand, this figure does reflect that external demand remains weak. Moreover, the number may have been helped by continued weakness in USD in April – both EUR and JPY appreciated further against USD, which should have increased the USD value of export contracts denominated in those currencies.
Export growth to all major destinations fell in April; those to the US to -9.3% y-o-y from 9.0% in March, to the EU to 3.2% from 17.9%, and to Japan to -11.8% from 9.3%.
Import growth disappointed on weaker processing trade, while the improvement in domestic demand may be losing steam
Import growth in USD terms surprised on the downside in April, falling further to -10.9% y-o-y from -7.6% in March, against market consensus and our forecast of an improvement to -4%. As such, the trade surplus widened to USD45.6bn from USD29.9bn in March.
Imports component data suggest that the improvement in domestic demand is likely losing steam. Growth of ordinary imports, which cater to domestic demand, fell to -8.6% y-o-y in April from -7.1% in March. Excluding key commodities (i.e., crude oil, iron ore and copper), it fell to -4.4% from -2.3% (Figure 2). The growth of imports value of key commodities improved slightly to -21.7% y-o-y from -23.0%, but largely on the recovery of commodity prices, while in volume terms, import growth of iron ore, crude oil and copper all declined in April from March.
Weakening processing trade was also a big contributor to the decline in imports growth. Growth of imports for processing and assembly fell to -20.1% y-o-y in April from -15.3% in March. We notice a declining trend for the share of processing trade in total – down to near 30% recently from almost 50% in 2006 – and processing trade growth (Figure 3). This could be due to the weaker global economy as well as rising costs (e.g. labour) in China and, in turn, a lower competitiveness in producing /assembling goods in China, which does not bode well for future growth.
China’s economic growth slowed to 6.7% in the first quarter – the weakest since the global financial crisis, but activity picked up in March as policy steps to boost the economy, including six interest rate cuts since late 2014, seemed to be taking effect.
After China’s economy grew at just 6.7% in Q1, the Chinese government injected a record $1 trillion in total loans in the economy, halting the rapid economic slowdown from the end of 2015, and easing concerns of a hard-landing in China after the strong March data, but analysts have warned the rebound may be short-lived.
“The market has to prepare a little bit for the downside risk in other Chinese data and some sort of market correction might be inevitable,” Zhou said. The official factory survey and Caixin’s private-sector gauge for April painted a mixed picture of the health of the manufacturing sector. The official purchasing managers’ index (PMI) showed factory activity expanded for the second month in a row in April but only marginally, while Caixin’s manufacturing PMI pointed to 14 straight months of sector contraction.
China’s central bank said on Friday that it will fine tune policy in a pre-emptive and timely way, as the economy still faces downward pressure despite signs of steadying. Amid shrinking global demand, China still managed to grow its share of world exports to 13.8 percent last year from 12.3 percent in 2014, indicating the country’s export sector remains competitive despite higher costs.
The bottom line, as Nomura puts it, “overall, these trade data reinforce our view that the debt-fuelled improvement in domestic demand and growth may be short-lived. We maintain our view that investment.”
In other words, it cost China $1 trillion in three months in debt “stimulus” just to slow down what is once again a downward sloping growth trajectory. We wonder what Beijing will do for an encore?
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