China’s export and import growth in January-February exceeded estimates, indicating a turning point in global trade and providing policymakers with a positive signal as they work to support a faltering economic recovery.

With the Asian economies benefiting from a spike in demand for semiconductors, China’s improved export data joins that of South Korea, Germany, and Taiwan, all of which had their exports exceed expectations over the first two months of the year.

Customs statistics released on Thursday revealed that exports from the second-biggest economy in the world in the last two months were 7.1% higher than a year earlier, surpassing a Reuters poll that predicted an increase of 1.9%. Compared with a polled prediction of 1.5% growth, imports increased by 3.5%.

“The better-than-forecast data echoes a recovery in global trade driven by the electronics sector, but also benefits from a low base effect, as export growth in January-February 2023 was -6.8%,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.

To correct for the shifting timing of the Lunar New Year, which happened in February this year, the customs department provides combined trade data for January and February.

Premier Li Qiang of China on Tuesday set a similar 5% economic growth goal for 2024 to that of the previous year and pledged to change the nation’s development model, which mostly relies on exporting finished goods and industrial overcapacity.

Over the course of the previous year, policymakers have had to deal with weak growth in the face of a property crisis, consumer spending slowdowns, foreign company divestitures, challenging market conditions for manufacturers, and massive debt loads for local governments.

To persuade them that the vital growth engine will support the economy, they will need to witness a consistent uptick in exports.

Unlike the trade data, for example, the government’s purchasing managers’ index, which was issued a week ago, showed that manufacturing activity in China contracted for a fifth month in February, while new export orders fell for an 11th straight month.

“After accounting for changes in export prices and for seasonality, we estimate that export volumes rose significantly in January and February, hitting a fresh high,” said Huang Zichun, China economist at Capital Economics, in a note.

“We doubt the sustainability of this strength, however, since exporters now have more limited scope to reduce prices to secure market share,” she added.

Huang and other economists note that Chinese manufacturers may have lowered their pricing in order to get orders, which may have contributed to a portion of the recent export improvements.

Reforms in Structure

Most of the market’s response to the trade data was subdued. Hong Kong’s Hang Seng Index declined 0.47%, while China’s blue-chip CSI300 stock index fell 0.32%.

In contrast to the poll’s prediction of $103.7 billion and December’s estimate of $75.3 billion, China’s trade surplus increased to $125.16 billion.

As refiners raised purchases to fulfil fuel sales during the Lunar New Year vacation, the Asian giant’s imports of crude oil surged 5.1% year over year in the first two months of 2024, according to separate commodities data also issued that day. Imports of copper also increased by 2.6%.

Although China’s total exports to the US fell 6.9% in December, they increased by 5% in January–February of this year, giving rise to some grounds for hope. But during the same time frame, exports to the EU actually decreased by 1.3%.

Expectations of global monetary easing may also provide some respite for China’s ambitions to increase exports, even though the short-term outlook for the economies of many important developed countries appears dire. In the second part of last year, the economies of Britain and Japan both entered recessions, while the euro zone’s GDP also stagnated.

After the steps taken since June had only a limited impact, policymakers have promised to implement additional measures to support growth. However, analysts warn that Beijing’s fiscal capacity is currently very limited and point out that Li’s speech to the National People’s Congress annual meeting did not inspire investor confidence.

Many analysts warn that unless policymakers move to shift the economy back towards consumer consumption and market-based resource allocation, China could flirt with stagnation a la Japan later this decade.

“The property sector’s weakness is partially offset by strong exports,” stated Zhiwei Zhang, head economist at Pinpoint Asset Management.

“It will likely strengthen policy makers confidence in China’s economy and support their structural policy objectives such as deleveraging the local government financing vehicles.”

(Adapted from TBSNews.com)

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