Exports and imports declined in September from the same time last year. As mentioned in earlier blog postings, weak investment data points to a potential half percent shaved off of real GDP growth by the end of the year, or potentially in early 2017. Weak import demand is likely additional evidence that another round of slowing is on its way.
5 things to note about China’s trade data:
- The September declining trade numbers were a result of both domestic and external trade weakness. Imports for domestic use declined 0.30%, and imports meant for processing and assembly dropped 8% from the same month last year. As has been noted in this blog recently, weak industrial investment numbers and fading construction numbers will eventually hit demand for industrial-related inputs. These trade numbers might be a sign of weak production numbers to come. Exports and imports remain sluggish, as global trade continues to slow. Two weeks ago, the WTO changed its forecast for 2016 trade growth from 2.8% to 1.7%, slower than global economic growth.
- Commodity import volumes were mixed. Iron ore and crude oil demand remain strong, but copper imports dropped significantly. Energy imports remain strong, possibly a result of slowing investment in oil and nat gas sectors over the last few years. Manufacturing imports also remain mixed.
- Trade numbers with Hong Kong seem to be in a reasonable range. That would indicate hidden capital outflows have stopped for now.
- The numbers go against the weaker yuan. Currency depreciation has not added much to trade competitiveness, in particular vs. Japan. The CNY has dropped 5% vs. the USD, 4% vs. the EUR, and 18% against the JPY. China’s massive trade surplus has declined 30% from the same months last year. The problem with the latest trade numbers is weak global demand and slowing domestic demand. A massive policy depreciation would not change either of those factors but would cause a headache for the PBOC as well as hurt consumption.
- China’s exports to Europe, its second-largest trade destination, and the UK have been a trend for some time. Sluggish demand from Europe may continue as a result of the Brexit vote turmoil, which will likely keep exports subdued.