China Exports as % of Total Global Exports
Both exports and imports were solidly negative in both February and January (see the chart on the right). If we look into the numbers, the bad China trade data was mostly driven by weaker global demand (declines in the global manufacturing supply chain) and commodity price declines. The declining trade data was partly driven by weaker domestic demand in China’s industrial sector, which is to be expected as the industrial sector will slow more than overall growth. There may be some headwinds from the currency, but that is up for debate. I don’t think the currency is much of a headwind to trade very recently. The yuan has declined vs. most major trading partners over the last year, so the currency should have been a positive for exports (to Japan in particular). The CNY REER hints that the yuan is overvalued, but China’s growing share of global exports points to China’s growing trade competitiveness (see chart to the right). The large surge in imports from Hong Kong is an indication that cash outflows disguised as trade flows persist. The chart on the right has trade data adjusted for the seasonal holiday.
Here are some key points in the numbers:
- Commodity import volumes for key commodities were pretty positive (See the bottom chart). Much of the weak import number was due to YoY commodity price declines. Imports were probably -7.9% YoY, adjusting for commodity prices. Given the rising commodity import volumes, that would mean import weakness is primarily due to manufacturing imports.
- Exports and imports to and from manufacturing economies would point to a decline in the global manufacturing supply chain (See charts below).
- Weak exports to developed economies have been an issue for some time as demand in those economies remains weak.
- Imports for processing declined 21%, a deeper slowdown than overall imports.
- China does not import much in the way of consumer goods. Most manufacturing imports meant for the local market are capital goods and industrial machinery. Weaker domestic demand for those goods should be expected as the industrial sector and construction slow more than overall growth.
- The poor export numbers would explain a good deal of the lower PMI data we have seen recently.
- Factories traditionally pick up in March, after the local holiday. We may see more activity then.
- The currency should have been a positive for exports on a YoY basis as it has fallen vs. most trade partners. The yuan has fallen 11% vs. the yen, 6% vs. the EUR, and 4.4% vs. the USD over the year.