China April exports unexpectedly contract, import slide worsens, more stimulus seen
Analysts polled by Reuters had expected exports would rise 2.4 percent in April after a 15 percent plunge in March, and predicted imports would fall 12 percent after a 12.7 percent drop the previous month.Based on the March trade data, a 2.4% rise in April exports yoy would have required 38% growth from March to April. Month on month, exports increased 22.3% and imports climbed 0.6%. One month does not a trend make, but those signs are moving in the right direction. As the official report said when commenting on the data, the yoy declines narrowed in April. I'm not going to declare a change in trend, but the April results do not warrant the headlines.
The customs report: 今年前4个月我国外贸进出口下降 4月当月出口降幅明显收窄
More English media coverage:
China trade surplus widens in April
China’s trade surplus has widened more than expected in April, coming in at 210 billion yuan, from 18.16bn yuan previously, according to official data.
Analysts surveyed by Bloomberg had expected the trade surplus to widen to 173.8bn yuan.
Exports from the world’s second largest economy fell 6.2 per cent, in yuan terms, against an expectation they would rise 0.9 per cent. Exports had already dropped sharply 14.6 per cent in March.
Meanwhile, imports plummeted 16.1 per cent in April, almost double the 8.4 per cent fall that was expected.
China's Competitiveness Slides, Biting Into Exports
“With China’s peacekeeper role in the currency wars hurting exports, the obvious solution is yuan depreciation,” Bloomberg economists Tom Orlik and Fielding Chen wrote in a note. “The trouble for China’s leaders is that support for exporters in the form of a weaker currency could come at the risk of capital flight. As recent comments from Premier Li Keqiang suggest, China’s leaders are likely to hold the line with a stable currency.”The argument here for several years now has been that China has no "cost free" path. A painful economic adjustment is now underway and China can only choose the form of it: deflation or currency depreciation.
That said, April trade data in isolation doesn't warrant increased concern about the economy. (There is a case to be made for yuan depreciation, but I don't think the April trade data adds to it.) The trade numbers improved month on month and the key thing to watch right now is the direction, not the size. Much of the drop is related to the strong yuan and if you believe that China's economy is slowing/growing slower than the headline GDP number, the trade data from April is encouraging. The bear case for China (and the global economy) calls for trade data to weaken month-to-month, as happened in March. I'm still in the bearish camp. The April trade data makes me wonder if the cooling trend isn't abating though, as it has in real estate at least for the moment. Druckenmiller's comments about stock market booms being followed by growth also apply here. Data points that call into question the bear case are multiplying in the wake of central bank activity.
At heart, my disagreement is based on perception because in the short-term, perception is more important than reality in the financial markets. The reaction to the news is a sign of insufficient pessimism. The April data doesn't make me more worried about China's economy, but it does increase my concern about asset prices in the short-term.
A couple of items of interest:
Precious metals and jewelry exports are down 41.8% in 2015.
Oil imports ticked up 8.6% yoy in April. By volume, imports in 2015 are up 7.8% yoy, up from the 7.5% growth through March.
Finally, this report is a win for the "yuan is undervalued" crowd. The stronger Chinese yuan is causing a big drop in import prices, which leads to an increasing trade surplus, and a trade surplus is a sign that the yuan is undervalued. QED in the U.S. Senate.
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