4 things to note in China's May trade data:
- Commodity demand remains strong. Import volumes of metals and crude oil surged from last year. Iron ore imports rose over 20% as rebar inventories - nearly half of the world's steel production - declined over the month. Copper import volumes rose 18% from last year. Crude oil shipments to China in May were 39% higher than last year. The data underscores the improved demand in commodities as investment and construction rise on the back of a renewed housing boom. Adjusting for the double-digit declines in broad commodity prices over the last year, I estimate that imports were up roughly 9.8%. After August, we should see import numbers rise from the commodity price base effect.
- Most signals point to worsening global trade. Manufacturing imports and exports declined meaningfully from last year. Exports and imports to many key economies on the global supply chain fell. Exports and imports for processing declined much more than overall trade, -13% and -14% respectively.
- Hong Kong imports rose 244%, pointing to more hidden capital flight in the form of trade invoices. China is still in a state of outflows, but the outflows have moderated considerably. China's forex reserves stabilized over the last few months, down in May primarily as a result of market moves. Capital Economics estimates that capital outflows in May were $32 billion, much lower than the $100-plus billion seen in previous months.
- Currency impacts were minimal. A weaker yuan vs. major trading partners failed to lift exports higher. The yuan lost ground against the yen, dollar, and Euro over the last year. But, all three regions saw a drop in shipments from China.