China's May trade numbers: Modest improvement in exports, but most signs still point to very weak growth.

China's trade data shows that the economy is still very weak. Exports declined 2.5% from last year, better than the decline of 6% in April, but still solidly below trend.  Imports declined 17.6% from last year as industry and construction continue to slow.  All-in-all, pretty bad numbers.

If you are waiting for a sign that growth is rebounding as a result of Beijing's stimulus measures, this data was not that sign.  In fact, declining import demand shows that overall growth is still very weak.

If you are waiting for some data to hint at an improved global growth picture, China's May export data was also not a good sign.

Key points in China's trade numbers:

  • The export decline was partly a result of weaker global demand and mostly a result of a much stronger CNY vs. nearly all of China's trading partner currencies over the last year.  
  • Export weakness will continue for some time for the same two reasons above. Beijing is unlikely to significantly depreciate the CNY to improve trade competitiveness.  China's leaders want to boost the CNY's standing as a reserve currency, including lobbying the IMF to include it in the SDRs in November.  That will require a stable, fairly valued currency, among other considerations.
  • The import drop was partly a result of declining prices of commodities and mostly a result of declining demand.  The sheer volume of shipments to China declined sharply.  I estimate an 11% drop in import volume after adjusting for the double digit commodity price declines over the last year.  The drop is a sign that industry and construction are still very weak. 
  • Imports will continue to remain weak until PBOC measures finally kick in (probably in the summer) and construction picks-up (probably in the fall).  See my blog post "Things will get worse before they get better." for my view on when Beijing's stimulus will kick in.
  • My view is that the PBOC is going to cut reserves again around October.  I am not sure if these numbers point to more easing before the Fall.  The PBOC may be inclined to wait and see if its measures taken in the spring will start to have some effect on economic activity in H2 before adding more easing measures.

Some details:

  • Commodity exporters continue to feel the brunt of China's slowing growth.
  • Asian manufacturers are still seeing weak demand as well, in a sign that the manufacturing supply chain is still pretty negative.
  • Iron ore imports by volume declined 8%, copper (excluding ore) declined 6%, and crude oil shipments by volume fell 11%.
  • Manufacturing imports also saw a significant decline from last year.