China Dec exports growth sparks hopes of ‘20 global trade recovery

Author: Nurluqman Suratman

2020/01/15

SINGAPORE (ICIS)--China's export growth in December 2019 may have signaled the bottoming out of the global trade downturn amid a US-China trade truce.

Exports of the world’s second-biggest economy in December rose by 7.6% year on year to $237.7bn, marking the first expansion recorded in five months; while imports jumped by 16.3% to $190.9bn, its strongest expansion in more than a year.

"With the expected signing of the Phase One US-China trade deal, tensions between the two countries are not expected to re-escalate in the near-term, giving room for optimism that we may have seen the worst in China’s trade numbers," said Ho Woei Chen, an economist at Singapore-based UOB Global Economics & Markets research.

The strong increase in China’s imports was also driven by a variety of factors including rising oil prices on a  year-on-year basis, a rise in processing imports - possibly driven by a better prospect for exports - and a surge in raw material imports, said Japan's Nomura Global Markets Research.

"The timing of Chinese New Year holiday, which occurs in January this year but was held in February 2019, may have also pushed exporters and importers to clear customs in December ahead of the incoming holidays," it said in a note on Wednesday.

China’s trade surplus in December increased to $46.8bn - the highest in six months - from $38.7bn in November.

Full-year 2019 trade surplus stood at $421.5bn, representing a 20% increase from 2018 levels, ending three consecutive years of declines.

The country’s exports for the whole of 2019 inched up by 0.5% year on year, while imports fell by 2.8%, which contracted for the first time since 2016, indicating weakness in the Chinese economy.

The economy posted an underwhelming 6% growth in the third quarter of 2019, its weakest pace of expansion in at least 27 years.

Meanwhile, China’s trade surplus with the US narrowed to $295.4bn in 2019 from $324.5bn in 2018, which should help ease US’ concerns about trade imbalances.

In December 2019, China’s exports to its key markets mostly recorded positive year-on-year growth, led by ASEAN (+27.4%), Taiwan (+16.0%), Australia (+11.5%) and the EU (+6.6%).

Although its exports to the US continued to contract, with December volume down by 14.6% year on year, the pace of decline has moderated from the 23.0% in November.

China’s shipments to the US had contracted in 11 out of the 12 months of 2019, posting an average full-year decline of 12.9%.

"Any recovery from here depends on the details of the deal [between the US and China]," said UOB's Ho.

In December 2019, the US Trade Representative (USTR) office announced that the US will halve the 15% tariff rate on $120bn worth of Chinese goods that was implemented on 1 September, and keep the 25% tariffs on $250bn worth of Chinese goods.

"While this supports a more positive outlook on Chinese economy in 2020, the remaining high tariffs will continue to weigh on the economy. We continue to see challenges ahead for both to advance towards a Phase 2 trade agreement," Ho added.

However, a Phase 2 trade deal will not likely take place before the US presidential elections in November this year, said Singapore-based DBS Bank.

"China will want to capitalize on the trade truce in 2020 to address its slowing economy and financial risks such as bond defaults and regional bank failures," it added.

In the near term, Nomura said that it expects volatile monthly readings of China's trade growth over the next couple of months due to distortions from the Lunar New Year holiday.

The Lunar New Year, which falls on 25 January, is celebrated in most parts of northeast and southeast Asia, with China on holiday for a week from 24 January.

"We do not think the high export and import growth levels in December are sustainable and expect trade growth to drop again in subsequent months, Nomura said.

Focus article by Nurluqman Suratman

Photo: Shipping cranes at Kwai Tsing Container Terminals in Hong Kong (By Jerome Favre/EPA-EFE/Shutterstock)

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