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China Trade August 2023

China: Merchandise exports decrease at a softer pace in August

Merchandise exports in USD terms decreased 8.8% annually in August (July: -14.5% year-on-year). The milder fall largely reflects a more favorable base effect rather than an underlying improvement in external demand. Shipments to major markets such as the EU, U.S. and ASEAN were all lower year on year in August. Moreover, growth in exports to Russia slowed sharply. Meanwhile, merchandise imports in USD terms contracted 7.3% on an annual basis in August (July: -12.4% yoy). That said, in volume terms, imports of several key commodities surged, likely due to the rebuilding of inventories. The declines in both exports and imports were somewhat softer than markets were expecting.

As a result, the merchandise trade balance deteriorated from the previous month, recording a USD 68.4 billion surplus in August (July 2023: USD 80.6 billion surplus; August 2022: USD 78.7 billion surplus). Lastly, the trend pointed down, with the 12-month trailing merchandise trade balance recording a USD 863.4 billion surplus in August, compared to the USD 873.7 billion surplus in July.

Looking ahead, our Consensus is for merchandise exports to return to growth in Q4, aided by a favorable base of comparison given that exports contracted 8% in Q4 last year. That said, soft external demand, trade restrictions by the West and weak sentiment among domestic firms will hold back momentum.

United Overseas Bank’s Ho Woei Chen said:

“The strong gains in commodity import volume is positive, adding to nascent signs that the decline in exports and imports may be near bottom. This coupled with stronger-than-expected property support measures suggest that the economic outlook has stabilised somewhat after deteriorating sharply since 2Q23. While economic conditions are not expected to weaken further, there remains headwinds to China’s economic recovery including high global interest rates, geopolitical tensions and the ongoing funding crisis at the domestic property developers.”

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