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China trade: 5 takeaways from April as exports show ‘green shoots’ of recovery, but domestic demand key

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1. Exports show revival

“Export values returned to growth from contraction last month, but this was mainly due to a lower base for comparison. Export volumes were little changed from March,” said analysts at Capital Economics.

China exports in April were boosted by exports to emerging markets as well as transportation products, said analysts at HSBC.

“The revival back to positive growth may be in part reflecting some of the green shoots we have been seeing in global demand,” they said.

2. Lower base ‘plays a role’ as imports surge

China’s imports rose by 8.4 per cent from a year earlier in April, compared to a 1.9 per cent fall in March.

A lower base for comparison “played a role”, according to Capital Economics, but imports edged up in volume terms.

“A boost in global commodity prices, as well as a more constructive domestic demand boosted by ongoing policy support were also contributing factors,” added analysts at HSBC.

“A pickup in electronic and hi-tech imports, which also saw double digit growth, may have also been supported by some of the improvement in global demand as well as the recent domestic push for equipment upgrading.”

3. Trade surplus rises

China’s trade surplus stood at US$72.4 billion in April, compared with US$58.6 billion in March.

4. Emerging markets shine

China’s exports to the United States dropped by 2.8 per cent in April, while its exports to the European Union fell by 3.57 per cent year on year.

Exports to Russia, meanwhile, fell by 13.56 per cent year on year in April, continuing the double-digit fall seen last month.

And shipments to the Association of Southeast Asian Nations rose by 8.15 per cent in April year on year.

“The April data shows a continuing trend of exports outperformance to emerging markets relative to developing markets,” said analysts at HSBC.

5. Exports face a higher level of risk, domestic demand key

Analysts at Capital Economics expect export volumes to retreat over the coming months due to cooling consumer spending in advanced economies and the diminishing tailwind from lower export prices.

“We expect exports to drop back further over the coming months. Overcapacity has pushed down export prices and fuelled the recent strength in exports,” they said.

“But with manufacturers profit margins already squeezed, their ability to slash prices has diminished and export prices are now bottoming out. In addition, the ongoing trade-weighted appreciation of the [yuan] will pose further challenges.”

We think domestic demand will still be the key driver for growth this year


Analysts at HSBC said the April data suggests we may tentatively be seeing more signs of revival in global demand, but the focus would likely still be on sustaining the momentum in domestic demand.

“We think domestic demand will still be the key driver for growth this year. Ongoing resilience in consumption and policy easing such as for upgrading and for property demand should help put growth on track towards the ‘around 5 per cent’ target this year,” they added.

In terms of imports, Capital Economics analysts said they expect import volumes to bounce back further in the near term, thanks to fiscal spending supporting import-heavy construction.

“Considering import demand could remain resilient, but exports face a higher level of risk in coming months, we expect a smaller contribution from trade to growth starting in the second quarter,” said Lynn Song, chief economist for Greater China at ING.


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