BEIJING, Dec 7 (Portal) – China’s exports rose in November for the first time in six months, suggesting that factories in the world’s second-largest economy are luring buyers by discounting prices to overcome a persistent decline in demand.
Mixed manufacturing data for November kept alive calls for further policy support to boost growth, but also raised questions about whether predominantly negative, sentiment-based surveys have masked improvements in conditions.
Customs data showed on Thursday that exports rose 0.5% in November from a year earlier, compared with a 6.4% decline in October, exceeding the 1.1% decline expected in a Portal poll. Imports fell 0.6%, beating forecasts for a 3.3% rise and a 3.0% rise last month.
“The improvement in exports is broadly in line with market expectations… Sequential growth in China’s exports has strengthened in recent months,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. “There have also been upward trends in the export data of other Asian countries in recent months.”
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The Baltic Dry Index, a leading indicator of global trade, climbed to a three-year high in November, helped by improving demand for industrial raw materials, particularly from China.
South Korean exports, another indicator of the health of global trade, rose for a second month in November, buoyed by chip exports that have declined for 15 months.
Trade with China’s most important competitors also showed a rosy picture: exports to the USA, Japan, South Korea and Taiwan increased compared to October.
DISCOUNTED EXPORTS
In the short term, however, it is difficult to see that the pressure on Chinese manufacturers will fully subside.
China’s official Purchasing Managers’ Index (PMI) showed last week that new export orders fell for the ninth straight month, while a private sector survey highlighted factory owners’ difficulties in attracting foreign buyers for the fifth month.
An aerial photo shows containers and cargo ships at the port of Qingdao in Shandong province, China, May 9, 2022. Taken with a drone. China Daily acquires licensing rights via Portal/File Photo
“While export volumes hit a new high, they were supported by price cuts from exporters,” noted Zichun Huang, China economist at Capital Economics.
“We doubt this robustness will last,” Huang warned, “as exporters will not be able to further reduce prices for much longer.”
In the official Purchasing Managers’ Index (PMI), ex-factory prices fell for the second month in November, while input costs rose for the fifth month in a row.
Still, some analysts point to faster-than-expected third-quarter growth and a series of mostly positive data from October, arguing that the latest hard data paints a less bleak picture of the Asian giant’s economic health than the sentiment-based surveys. The hard data also suggests that the support measures introduced by Beijing since June have had some effect, they say.
“The data shows that external demand is stronger than we thought and domestic demand is weaker than we thought,” said Dan Wang, chief economist at Hang Seng Bank China. “The biggest export items are still electrical machinery and cars, so demand in Europe and Russia will have strengthened outbound supplies.”
UNEVEN RECOVERY
Analysts say it is too early to say whether recent policy support will be enough to support domestic demand and how sustainable any increase in external demand will be, given housing, unemployment and weak household and business confidence endanger sustainable recovery at home.
In November, the International Monetary Fund raised its growth forecasts for China for 2023 and 2024 by 0.4 percentage points each, but from a lower base. And Moody’s issued a downgrade warning for China’s A1 credit rating on Tuesday.
Chinese markets appeared to reflect that caution, with the yuan weakening against the dollar after the data was released, while the country’s blue-chip CSI300 stock index fell 0.44% and Hong Kong’s Hang Seng lost 1.46%.
China’s crude oil imports fell 9.2% year-on-year in November, the first annual decline since April, as high inventories and poor manufacturing activity took their toll on demand for products such as diesel. However, iron ore imports rose slightly last month.
“While export demand improved, it is unclear whether exports can contribute as a growth pillar next year,” warned Zhang of Pinpoint Asset Management.
“The economies of Europe and the United States are cooling down. China will still need to rely on domestic demand as the main driver of growth in 2024.”
Reporting by Joe Cash, Editing by Shri Navaratnam
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