Data Update: Trade data points to weak domestic manufacturing and weak global growth

China's October trade data was full of mostly bad news, but not all was negative.  Trade numbers pointed to weakening global demand, slower domestic manufacturing activity, but improving demand for some key commodities.  Exports declined and Imports on a value basis meaningfully dropped from October last year.  

A number of imports of manufactured goods and imports from manufacturing countries declined in the double digits; a break from months past.  Weak commodity demand was not the biggest driver of the bad trade numbers, weak manufacturing-oriented trade, a strong currency vs. trade partners and lower commodity prices where the big drivers.

There are a number of takeaways from the data:

  • Headline imports exaggerated commodity demand weakness.  In fact, many key commodities on a volume basis continue to increase.  Much of the drop in imports can be attributed to the extremely sharp commodity price drops over the last year as suppliers continue to drive forward production.  Volumes are increasing for key energy, agricultural, and some metal imports.  
  • By volume, crude oil imports were up 9% from last year.  Soybeans imports by volume were up 35%, copper increased 7%, while iron ore was down 5% from last year.
  • A $61 billion trade surplus means Beijing is less likely to let the CNY decline.  A strong currency is important for restructuring the economy and reserve currency ambitions.  There is nothing in these numbers that would convince China to devalue.  The mini-devalue that shook global markets in August was most likely a one-off. 
  • China's currency has been relatively strong vs. most trading partners over the last year, decreasing trade competitiveness. Much of this has resulted in declining trade numbers.  The CNY is up over 9% on the EUR this year, and up about 4% on the JPY. 
  • Manufacturing imports from the EU and ASEAN declined significantly, a negative for growth prospects in those countries.
  • Exports for processing declined 12%, pointing to weaker global demand. 
  • Manufacturing imports have declined significantly, and trade with key partners in the global manufacturing supply chain has dropped by double digits.  That would indicate weaker global demand.