China September 09, 2019 / 03:07 am UTC

China: Export Growth Coming Off

By Jeff Ng

China’s export growth fell in August, the third monthly decrease in five months. We expect subdued growth ahead. The trade and current account surplus remain protected from downsides, as import growth contracted for the fourth consecutive month. 

Export growth decreased by 1% y/y in August, after a 3.3% expansion in July. This was weighed down by exports to the U.S, which decreased by 16% y/y. The performance was the worst since 2016, if we discount the Lunar New Year impact in February this year. Exports to ASEAN (11.2%) and to the EU (3.2%) have been more stable. This shows the impact of the U.S./China trade war. 

With frontloading of exports likely to come off in the coming months, we see muted export growth going forward. In fact, we think that exports could fall by 1-5% y/y between September and December. Still, export growth may be slightly helped by some currency weakness in recent months.

Import growth fared much worse, and it highlights the weak domestic demand in China. Imports fell by 5.6% y/y in August. Import growth from the U.S. (-22.3% y/y), South Korea (-17.6%) were the main drags. This reflected the impact of the trade war as well as from weak demand for capital goods respectively. 

Weak domestic growth may trigger policy support such as the recent RRR cut.

As import growth underperforms relative to export growth, the trade and current account surplus are likely to be better than last year. China's trade surplus was $34.8 billion in August, an improvement on the $26.3 billion print in August 2018.

We expect an improvement in the current account surplus in 2019 to 1.7% of GDP, from 0.4% in 2018. 

Figure 1: China’s Trade Figures Remain in the Doldrums

Source: CEIC, Continuum Economics

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