China’s February trade report has stunned financial markets.
Imports surged while export growth slowed, leading to a shock trade deficit being recorded.
According to China’s General Administration of Customs, yuan-denominated imports jumped by 44.7% from the levels of a year earlier, easily surpassing the 25.2% growth of January and forecasts for a smaller increase of 23.1%.
Truly enormous, and no doubt impacted by booming commodity prices and a weaker yuan over the past year.
Distortions created by the timing of the Lunar New year — often a feature in the trade figures and other Chinese economic data at this time of year — almost certainly were another factor.
In USD-denominated terms, imports grew by 38.1% year-on-year, close to double the pace of January and well ahead of estimates for an increase of 20%.
It was the fastest annual growth rate in five years.
The smaller increase in dollar terms reflects weakness in the yuan over the past year, helping to boost the value of exports when priced in local currency.
In volume terms, imports of copper, coal, iron ore and crude oil all fell from a month earlier.
340,000 tonnes of copper were imported, down from 380,000 tonnes in January, while coal imports dropped from 24.91 million tonnes to 17.68 million tonnes.
Iron ore imports totaled 83.49 million tonnes, below the 92 million tonne figure of January.
Crude oil imports also slowed, falling from 34.03 million tonnes in January to 31.78 million tonnes in February. Putting that slowdown into perspective, the monthly total was still the second-largest on record.
Adding weight to that view that seasonal distortions played a factor in February’s numbers, while imports surged, export growth slowed sharply over the same period.
They grew by 4.2% from a year earlier in yuan-denominated terms, well below the 15.9% pace of January and expectations for a smaller rise of 14.6%.
In USD-terms, exports actually declined in value, falling 1.3% year-on-year. That was a stark turnaround on the 7.9% growth of January, and well short of the 12.3% gain expected.
Again, the difference between the USD and yuan figures reflects weakness in the latter over the past year.
As a result of this highly-divergent performance, the nation’s trade balance swung back to deficit, coming in at CNY 60.36 billion. That was just a smidge away from the CNY 172.5 billion surplus that had been expected.
In USD-terms, the deficit came in at $9.15 billion compared to forecasts for a surplus of $25.75 billion.
It was the first deficit reported in three years.
So what to make of the shock February trade report? Wei Li, China and Asia economist at the Commonwealth Bank, had some useful advice for investors.
Don’t read too much into it.
“Because of the earlier Chinese New Year in 2017 than 2016, looking at the single month year-on-year growth in February is pointless,” he said.
“One way to remove the Chinese New Year effect is by combining January and February data together. This way, China’s exports measured in yuan grew by about 11% in the first two months of 2017, up from average growth of 0.3% year-on-year in Q4 2016. Imports grew 34% year-on-year, compared with 9%.
“In other words, China’s trade performance has been improving in early 2017.”