Economic Analysis: China’s Exports Surge

This morning we got trade data out of China. The world’s second largest economy reported that exports surged higher in September, beating expectations. The focus is on the imports number, which was expected to fall but climbed higher. This is an indication domestic demand might be healing.

Exports were up 15.3 percent in September on an annual basis. We expected a gain of 11.8 percent. Exports were up a modest 9.4 percent in August. Imports rose seven percent. This was a shock as we expected it to contract 2.7 percent. We saw a contraction of 2.4 percent in August. This brings the country’s trade surplus down. It came out at $31 billion after a record high at $41.9 billion in August. We were expecting a print of $41 billion.

Traders shrugged off this news and markets continued to trade lower. Even the Australian Dollar was little changed. Investors are shrugging off optimism and remaining cautious as other data has not been great coming out of China. This data shows a slowdown in industrial production and services. Still, this surprise showing means the sharp growth deceleration, evident in August, has come to an end. We saw strong import growth from commodity based countries as shipments to Asian Pacific Rim, Russia and South Africa recovering sharply. Fourth quarter trade growth will recover nicely in the fourth quarter, thanks to this latest release. A good sign for overall economic growth.

We have had concerns about slowing domestic demand in China. This has not been helped with a large turn lower in their property market. Authorities, out of Beijing, have been talking that China could miss their 7.5 percent gross domestic product (GDP) growth target this year.

We expect the trade picture, from China, to improve into year’s end as we should get a nice boost from the holiday season. We buy a lot of goods made in China. We also saw inventory levels falling to low levels over the past several months. As we go into Christmas, do not be shocked to see export numbers for China shoot higher.

Still, there are some concerns. We did see growth in import data, which means domestic demand is mending. However strength seems to be based on a surge in imports coming from products that were meant for re-export. This means there is a brighter outlook for exports rather than domestic demand strongly turning the corner for a recovery. We are seeing prices, with slowing foreign investment, pressuring commodity imports. Especially over the last month.

While, it appears, there is some cheer to be had over these strong import and export numbers out of China today, they are not out of the woods yet.

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