China: Merchandise exports surge in January–February
Merchandise exports were up 60.6% annually in January–February (December: +18.1% year-on-year), markedly above market expectations. The reading was likely aided by the fact that more citizens stayed put over the Lunar New Year holidays, reducing the disruption to factory activity. Meanwhile, imports were up 22.2% year-on-year (December: +6.5% yoy), amid some stockpiling of semiconductors and energy products.
As a result, the merchandise trade balance recorded a USD 103.3 billion surplus in January–February (December 2020: USD 78.2 billion surplus), contrasting the small deficit logged in the same period last year.
Looking ahead, export growth is set to stay elevated in March on the highly favorable base effect (given China was in the grips of the coronavirus outbreak in Q1 2020) and continuing high demand for pandemic-related goods. Export growth should then moderate markedly later in the year on a less favorable base effect, although underlying momentum should be supported by recoveries abroad.
Regarding the outlook for imports, analysts at Nomura commented:
“Import growth may rise further in coming months on the domestic demand recovery, higher commodity prices and strong RMB appreciation since June 2020. We expect the rise in import growth to be more impressive in April-May due to an even lower base during the same period last year, when most major DM economies imposed draconian lockdown measures in response to the global spread of Covid-19. Our expectations of lower export growth and higher import growth in coming quarters suggest the sweet spot for China’s terms of trade (TOT) and current account balance is coming to an end; we expect China’s TOT and CA balance to worsen in the quarters ahead.”