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China’s exports in USD terms increased 16.4 percent y/y in March after dipping below zero in February, much stronger than the market consensus of a 4.3 percent growth, reported ANZ in its research note.
Export growth is seen with all major trading partners, with exports to the ASEAN, the US, and EU rising on a y/y basis by 11.4 percent, 10.0 percent, and 7.4 percent, respectively. Activities of global supply chains are robust. New export orders in the latest PMI survey also improved for the third consecutive month in March, ANZ added
Thus, China’s export outlook will likely remain strong in the near term. Imports growth in USD terms improved to 20.3 percent y/y in March, thanks to increased import of crude oil, in both volume and price. Commodity demand has boosted China’s imports since the beginning of this year. Imports from Australia registered another decent month of strong growth of 74.8 percent y/y in March (Feb: 81.5 percent; Jan: 77.6 percent).
Although the recent property cooling measures and inventory pile-up may have negatively affected market sentiment, it’s unlikely to significantly weigh on China’s consumption of raw materials given a strong infrastructure project pipeline.
The risk of an explicit trade war has waned subsequent to the Trump-Xi Summit. Both sides have agreed to a new 100-day plan for trade talks after their bilateral meeting last week. The US has also attempted to bargain with China on trade in exchange for support in geopolitical issues.
In our view, the next trigger point in the Sino-US trade relationship is a proposed destination-based cash flow tax (DBCFT) which would pose downside risks to Asian exports, including China’s.
The reality is that China’s domestic investments and property markets are the dominant growth drivers this year instead of trade. The authorities are concerned about economic and financial stability much more than currency competitiveness.
Although an exchange rate adjustment can help relieve some pressure from drawing down the foreign reserves, massive currency depreciation is not a preferred policy option. Our forecast remains for USD/CNY to weaken to 7.10 by end of 2017.
