China Exports Stabilize as Imports Hint at Improving Demand

  • Exports decline 4.1% in dollar terms while imports slip 0.4%
  • Trade figures look better in yuan terms as currency weakens

China's Exports Weakened in May

China’s exports stabilized in May, with a weakening currency giving some support to growth in the world’s biggest trading nation, while imports signaled improvement in domestic demand.

Overseas shipments fell 4.1 percent in dollar terms from a year earlier, the customs administration said Wednesday. Imports slipped 0.4 percent -- the smallest drop since late 2014 -- to leave a trade surplus of $50 billion. Reflecting a weaker yuan, both exports and imports fared better when measured in local currency terms. Stocks pared losses in Shanghai.

"The worst time for Chinese exports has passed," said Harrison Hu, chief greater China economist at Royal Bank of Scotland Plc in Singapore, adding that the dollar-denominated export growth is slightly misleading due to the price changes. "The quantity of exports actually showed a subdued increase. The yuan also depreciated against a basket of currencies, which supports exports."

Along with improvement in imports, car sales data released Wednesday also signaled domestic demand remains intact. Purchases climbed 11 percent to 1.76 million units in May for a ninth gain in 10 months, according to the China Passenger Car Association.

The modest import drop compared with estimates for a 6.8 percent slide in dollar terms, while exports were almost in line with forecasts by economists surveyed by Bloomberg.

Trade still faces global headwinds. The World Bank on Tuesday cut its global growth estimate to 2.4 percent for this year, which would be the same as 2015, from the 2.9 percent projected in January.

Continuing export weakness underscores the challenge for policy makers as lackluster external demand gives little aid for growth, Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report.

"Looking forward, moderate depreciation of the yuan should provide a cushion for competitiveness," they wrote. "With domestic infrastructure and real estate the only show in town, policy makers will be constrained to keep stimulus in place."

PBOC Rates

While the Federal Reserve weighs raising its benchmark interest rate, the People’s Bank of China has kept its main rate at a record low since October to help support growth.

Ma Jun, chief economist of the PBOC’s research bureau, lowered his forecast for China’s exports this year to a 1 percent decline, versus a 3.1 percent increase seen previously, according to a work paper published Wednesday.

"The weakening momentum of global growth is our main reason to lower the forecast," he wrote. "A 10-percentage point decline in exports can drag GDP growth down by about one percent."

Imports from Hong Kong surged a record 243 percent from a year earlier, eclipsing the prior record of 204 percent in April. That suggests "over-invoicing is at play again" as a back-door channel to circumvent capital controls and get cash out of China, according to Sue Trinh, head of Asia FX Strategy at RBC Capital Markets in Hong Kong.

Meantime, exports declined across almost every major trading partner in U.S. dollar terms in May, including two of the biggest: Shipments to the U.S. slumped 12 percent while those to the European Union decreased 2.1 percent.

China’s steel exports rose in May after a surge in domestic prices boosted output in the world’s biggest producer, defying calls from rivals for the country to curb shipments and rein in excess capacity.

U.S. and Chinese officials sparred over how to address excess steel capacity during annual bilateral talks in Beijing Monday and Tuesday. Chinese Finance Minister Lou Jiwei said at a briefing that while officials are addressing the issue, the economy isn’t centrally planned and private firms would not take instructions from the government.

— With assistance by Xiaoqing Pi

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