Last month, China imports in USD terms decreased 10.9% year-over-year, and exports declined 6.4% year-over-year. This creates a trade surplus in April of $46bn, which is actually a recessional surplus because both exports and imports are declining.
This data is worse than expected and many economists feel that it will place pressure on the Chinese government to continue pursuing stimulus policies, such as cutting interest rates and bank reserves.
The worrying atmosphere is not unfounded. It is no secret that Beijing is trying to rebalance the economy from one focused on old and heavy industry towards a more service-based economy fueled by domestic consumption. According to warnings from the IMF, this rebalancing may cause big reductions in the imports of intermediate goods, which may lead to the decreased manufacture of output and exports. Rising wages in China and increasing numbers of factories relocating to Vietnam and other south Asia countries are also factors affecting the equation.
Despite all of this, however, the markets did not react too badly after this data was released. On Friday, the Shanghai Index was up 1.1% and the Hang Seng Index rose 0.7%. But there are logical reasons for the market to remain positive.
First, the reality of China’s slowdown is not new anymore. It has been known by the market for a while, and there is no doubt about the tougher economic environment. So a dip in trading data is within investor expectations.
Second, the data is not extremely bad when viewed over the long term. The export and import data was exceptionally good in March, which was partly due to the government’s short term stimulus measures. But we should not just keep our eyes there. If we do not include the data from March 2016, April’s monthly export numbers are the highest in thirteen months, while the import numbers are the third highest in fifteen months. So this could be considered as a sign of a warming trend.
Third, excluding the currency volatility, in RMB terms, the trading data does not look bad. Compared with one year ago, April’s monthly exports increased 4.1% and the total trading amount is about 1,950 billion yuan, only 0.3% lower than April 2015. This is as a stable range.
Generally speaking, the Chinese government is trying to rebalance the country’s economic structure and keep its momentum on growth. There will be painful moments during the process. It is normal to experience more difficulties in world trade for developing economies. But reasonably stable trading data means that China is on the right track to steady growth.