Concerns are proliferating about the trajectory of China’s economic rebound, but that’s apparently a story for the second half.
Exports and imports were robust during Q2’s final month, trade data for June out Tuesday showed.
Chinese exports grew 32.2% last month, well more than the 23% economists expected, while imports surged almost 37% against expectations for a 29.5% increase (figure below). The country’s trade surplus was the widest since the beginning of 2021.
This comes with all the usual caveats about the perils of over-interpretation. Bloomberg noted that the value of exports has surged while volumes are largely flat. Rising commodity prices are driving some of the “growth.” The customs administration cautioned that trade will likely slow going forward.
Still, the beats were welcome news. The PBoC’s dovish pivot (last week) and particularly the quick followup from the central bank just 48 hours after the State Council tipped the move, suggested to some that China thinks the economy is decelerating quickly. The surge in exports also came despite a key port disruption.
“We had looked for a notable deceleration due to the suspension of operations at Yantian International Port [but] such concerns seem to be overdone,” SocGen’s Wei Yao and Michelle Lam said. “The minimal impact could be a result of diversion to other ports and smooth handling,” they added, before noting that ultimately, the numbers suggest “the underlying momentum of exports remains strong thanks to global demand recovery and supply bottlenecks in EMs.” The deceleration in imports was down to negative base effects, they wrote. As for the RRR cut, Lam said export resilience “suggests the policy shift could be more preemptive in nature.” Q2 GDP is due later this week.
Meanwhile, the beleaguered Hang Seng Tech Index rose the most in weeks (figure below). Apparently, market participants were pleased with news that China’s anti-monopoly regulator cleared Tencent’s acquisition of Sogou. That could be a sign that the renewed regulatory blitz is ebbing — for now, anyway.
The situation is the furthest thing from “resolved,” though. Beijing is obviously keen on preventing overseas listings and the antimonopoly push is ongoing. I’d venture that any reprieves will be fleeting.
Sticking with China and things related to it, the Biden administration is reportedly exploring a new “digital trade deal” with countries including Australia, Japan, Malaysia, New Zealand and Singapore, with the specific aim of countering Beijing’s influence. The pact is still in the draft stages and the Chinese Foreign ministry claimed no knowledge of the plan on Tuesday, saying only that China adheres to the principle of “win-win” cooperation when it comes to regional development (go ahead and chuckle wryly).
Bloomberg, citing sources, described the pact, as “sett[ing] out standards for the digital economy, including rules on the use of data, trade facilitation and electronic customs arrangements.” One goal, the same linked article said, is to “show the Biden administration is interested in pursuing new trade opportunities after spending its first months focused more on enforcing existing deals.” The USTR had no comment.
In a testament to how tenuous Sino-US relations still are, the Financial Times said Tuesday that the White House is poised to issue a new warning to US businesses about the perils of operating in Hong Kong. Biden will caution on Beijing’s “ability to gain access to data that foreign companies store” in the city as well as the Party’s capacity to punish those accused of enabling foreign sanctions leveled against Chinese officials. That latter bit is key because, as FT went on to say, “Biden is planning to issue the warning and impose more sanctions this week in response to Beijing’s crackdown on the pro-democracy movement in Hong Kong and the genocide the US has accused Beijing of committing in Xinjiang.”
This is a rather dour assessment, but I think it’s completely warranted: Hong Kong will, over time, become a completely inhospitable place for western businesses to the extent they (businesses) refuse to conceptualize of the city as akin to operating in Beijing or Shanghai. If you accept the reality that Hong Kong is no longer free and democratic in any real sense, and you act accordingly, you’ll probably be fine. But, as the Biden administration will make clear, not acknowledging that puts individuals and corporates at considerable risk.
Geopolitics will resolve a lot of uncertainties . The Chinese are playing hardball.. They are uncomfortable being referred to as the Worlds second largest Economy by others deriving their Primacy from glory of days gone by. A multi lateral system based on mutual respect had better be in everyone’s cards because the alternatives for a better solution are very limited. History has numerous examples that suggest less favorable conclusions.