Well, China reported a surprise trade deficit of $4.98 billion for March overnight, the first since February 2017. That’s against forecasts for a surplus of $27.5 billion. Exports fell 2.7% y/y, while imports rose 14.4%.
I guess it’s time for Xi to make some red trucker hats – #Make China Great Again!
There’s obviously some seasonality here, but this is still notable – especially in light of trade tensions and questions about the viability of the “synchronous global growth” narrative:
The timing of the Chinese New Year is being blamed for some of this as are “volatile” imports. Here’s Bloomberg’s Tom Orlik:
In the context of trade war chatter, a decline in exports looks alarming. In fact there’s a simple explanation. March’s 2.7% year-on-year drop was payback for February’s 44.1% surge, not a protectionism-induced stop in overseas sales. Looking through the distortions around the Lunar New Year holiday, exports in 1Q notched a very robust 14.1% growth rate. Imports have been less blown around by seasonal effects. An expansion of 14.4% year on year in March, up from 6.1% in February, showed domestic demand remained robust. A growth rate of 18.9% for the first three months of the year was also remarkably strong, and jives with other activity indicators pointing to a resilient reading for 1Q GDP. Chinese threats of additional tariffs on U.S. autos, aircraft, and soybeans, and promises of further opening to friendly trade partners remain proposals rather than policy, with no impact on the data.
Ok, so that sounds a little better. Barclays has a similar take out this morning, noting that “besides the weaker external demand, the deceleration in March export growth (Jan-Feb combined: 22.9%) likely reflected a holiday ‘hangover’ given the Chinese New Year holiday ended later in February (compared with early February last year) and a longer-than-usual NPC meeting in March (16 days).”
Like Orlik, the bank also notes the relatively robust quarterly pace. “Still, on a quarterly basis, the [export] growth momentum in Q1 (14.3%) outpaced that of Q4 17 (9.6%),” Barclays continues, adding that when paired with a 16.5% y/y quarterly pace of import growth, the data still suggests “domestic demand (consumption and investment) remains strong.”
China’s trade surplus with the US came in at $15.4 billion.
So that’s the backdrop against which Trump and Xi have adopted a more conciliatory tone over the past several days and it also comes as the Trump administration is set to look at rejoining TPP. And then there’s the Treasury’s report on currency manipulators.
Mainland shares fell on Friday following the data, trimming their weekly advance:
Notably, Hong Kong shares were flat on Friday but just posted their best week since early February: