China's November trade data pointed to more weakness, but on balance improved from last month. There were three important factors at work in the numbers: Slow global growth has pushed down trade for processing and re-export, manufacturing imports overall declined as a result of slowing investment, and commodity import volumes surged for some key commodities.
Manufacturing trade weakness and commodity price drops were the main culprits for the declining trade numbers, not commodity demand.
The export headwinds from early 2015 yuan strength have diminished with recent currency moves. China's currency vs. most peers has been strong over the last year (up 8% on the EUR and double digits vs. most BRICS), but the yuan is now modestly lower vs. both the USD and JPY.
Both imports and exports were highly divergent, with some sectors rising into double digit growth and other sectors dropping significantly. As an example, palm oil imports rose 47%, and auto imports dropped 27%. Trade data was more mixed than any other month this year.
The trade balance moderated from last month, but still remains relatively high at $54 billion as import prices and import demand have dropped more than demand for China's goods. Given the large trade surplus, the mixed nature of trade numbers (some exporters are doing very well recently), and the weaker currency headwinds, there is not much here that would point to Beijing moving to devalue the yuan dramatically as an explicit stimulus policy to revive growth. Beijing still has domestic tools to stimulate growth before it needs to devalue and stoke tensions that will come with a devalue and the massive trade surpluses that would follow. But, as mentioned in past blog postings, market pressures are on a weaker yuan (see my posting 5 Important Things You Should Know About the Chinese Yuan).
The weak trade data points to another month of weak manufacturing. There is not much in the numbers that would hint at improved growth prospects. But, nothing in these numbers points at growth getting any slower.
Some other important points:
- Trade for processing was down much more than trade for domestic use. Imports for processing dropped 16% from last year in a bearish sign for the global trade supply chain.
- Exports to the larger EM countries dropped 30 - 40% in a bearish sign for growth in those economies.
- Imports from Brazil surged 35% from last year as soybean and iron ore imports rose significantly.
- Iron ore, crude oil, copper, natural gas, palm oil, and soybean imports by volume are all up meaningfully from last year.