China’s Export Growth May Upstage The Economy – Analysis


By Michael Lelyveld

China’s double-digit export growth has surprised analysts, lifting hopes for a faster recovery as the COVID-19 crisis continues to slow down economies throughout the world.

The October trade gains have been followed by largely positive results for industrial output last month with more moderate growth in retail sales as consumer demand continues to advance on a slower track.

The reports by the General Administration of Customs (GAC) and the National Bureau of Statistics (NBS) point to a gradual recovery that may produce mixed results before growth rates accelerate next year.

In October, China’s exports jumped 11.4 percent from a year earlier, topping economists’ forecasts of a 9-percent gain, The Wall Street Journal reported.

The surge outstripped the 9.9-percent increase in September’s shipments from a year before. Exports have now exceeded expectations for seven months in a row, the paper said.

But October imports were less favorable as growth slackened to 4.7 percent in dollar terms after climbing 13.2- percent the month before.

The sharp falloff from record import levels in September was partially the result of pre-buying, the Financial Times suggested.

“The (September) increase was driven in part by one-off purchases of technology parts ahead of U.S. sanctions on telecoms group Huawei, as well as demand for commodities,” the FT said.

Analysts had counted on 8.3-percent growth last month, raising doubts about the strength of domestic demand. A Reuters poll had called for import growth of 9.5 percent.

A closer look at the GAC data for October may stir greater concerns about the pace and extent of China’s recovery, as month-on-month comparisons presented a murkier outlook.

China’s total exports actually fell 1.1 percent from September levels in dollar terms, while imports plunged 11 percent, the data said.

Ten-month growth rates were also milder and less impressive than the reported year-to-year gains in October trade.

Exports so far this year are up only 0.5 percent from the comparable 2019 period, while imports have dropped 2.3 percent.

COVID resurgence

The unpublicized month-on-month readings for October stand in contrast to the year-earlier comparisons and may challenge China’s case for a V-shaped recovery while the government struggles to contain sporadic COVID-19 outbreaks.

“My guess is that the year-on-year Chinese export surge reflected the fact that Chinese factories and ports got back to work faster than other countries,” said Gary Hufbauer, nonresident senior fellow at the Washington-based Peterson Institute for International Economics.

“I don’t expect the surge to last, and the October numbers may be a harbinger,” Hufbauer said.

In a possible sign of a pause in demand, bank lending in October slid nearly 64 percent from September to 689.8 billion yuan (U.S. $104.2 billion), the People’s Bank of China (PBOC) reported.

“Credit demand dropped in October, while the aggregate financing growth may continue to slow in the coming months. The government’s fiscal spending might have lagged, as indicated by the higher funds in the national treasury,” CITIC Securities analyst Ming Ming told the official English- language China Daily.

On Wednesday, the Ministry of Finance reported that fiscal revenue dipped 5.5 percent from a year earlier through October. Fiscal spending was down 0.6 percent, the official Xinhua news agency said.

Selected import data may also suggest a hitch in China’s recovery trajectory.

China’s crude oil imports averaged 10 million barrels per day in October, down 15 percent from September and 6.7 percent from a year earlier. Reuters cited expiring import quotas for independent refiners as a factor in the decline.

Price pressures may also be playing a part in import decisions.

Through October, crude imports rose 10.6 percent by volume but dropped 24.5 percent by value. Exports of petroleum products fell 3.4 percent by volume and 28.7 percent by value from a year before, GAC data said.

Other products and commodities painted a mixed picture of the recovery outlook.

Reports on China’s trade growth have frequently noted its ranking as the world’s leading exporter of surgical masks, which are grouped under textiles rather than medical devices, according to Xinhua.

In the first 10 months, textile exports were up 31.9 percent in value, while garments and clothing fell 8.6 percent.

Medical devices have soared 43 percent, but the combined value of textiles and medical gear accounted for only about 1 percent of China’s export value last month.

A more telling reflection of economic activity may be seen in trade growth of electrical-mechanical and high-tech products.

Through October, imports have grown 2.6 percent and 5.3 percent by value in the two categories respectively. Exports in the two sectors have increased 1.9 percent and 2.7 percent in dollar value, suggesting modest expansion of manufacturing in established supply chains.

October shipments of mobile phones lost 27.3 percent from a year earlier, while 10-month exports declined 22.1 percent, the China Academy of Information and Communications Technology (CAICT) said.

China’s trade performance is in line with projections of gross domestic product growth this year, said Hufbauer. The latest forecast from the International Monetary Fund is 1.9 percent.

“China’s import numbers are consistent with its expected GDP growth in 2020. I wouldn’t expect more,” Hufbauer said.

The 10-month growth of China’s total goods trade stood at a tepid 1.1 percent, up from 0.7 percent in the first three quarters of the year.

Industrial production rose 6.9 percent last month from a year earlier, matching the September margin. Retail sales added 4.3 percent, beating the September increase of 3.3 percent but falling short of expectations for a 5-percent gain, the South China Morning Post said.

In the first 10 months, retail sales remained 5.9 percent below year-earlier rates, the NBS said.

Last month, the IMF forecast called for a stronger rebound in 2021 with GDP growth of 8.2 percent, barring a resurgence of the virus.

Dual circulation

But the jury is still out on President Xi Jinping’s “dual- circulation” strategy for China’s future expansion, relying on domestic consumption as the “mainstay” for the economy while assigning a lesser role to traditional export-led growth.

Online shopping on Singles Day, Nov. 11, delivered some relief with sales reported by Alibaba up 26 percent to 498.2 billion yuan (U.S. $75.4 billion). The country’s consumption recovery “has generally lagged behind industrial sectors,” Xinhua said.

The weaker growth rates for imports cast doubt on the strength of domestic demand, while the differing monthly and yearly readings on exports pointed to uncertain progress.

So far, the results seem to be in conflict with Xi’s economic theory, which is expected to become the basis for the government’s 14th Five-Year Plan for 2021-2025 to be presented in March.

Last week, China’s cabinet-level State Council issued a series of guidelines for the “innovative development” of trade, signaling that trade growth remains a top priority for the government.

Most of the guidelines were either familiar or impenetrably vague.

They included “searching for new ways to explore the international market, optimizing the domestic layout of foreign trade, and enhancing the competitiveness of foreign trade firms,” Xinhua said.

Despite the dangers of the pandemic, the government heavily promoted the China International Import Expo in Shanghai last week, but the official value of one-year deals signed rose only 2.1 percent from a similar event last year.

China has also announced plans for 10 demonstration zones to promote imports, piloting “innovative regulatory systems and flexible trade models,” Xinhua said.


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