• China’s exports continue to recover and imports are roaring ahead. So far there is little evidence of slower growth in China’s foreign trade data.

  • Credit growth remained healthy in September but has nonetheless slowed substantially compared to H1 2009. However, strong import volumes for steel and iron ore suggest the activity impact from investment demand is still considerable.


Imports roar ahead, exports remain on recovery path


Both Chinese exports and imports soared in September, easing concerns about a substantial slowdown in growth as the impact from fiscal easing starts to wane. According to our own seasonally adjusted numbers, total exports in September increased 8.7% m/m while imports surged a whopping 10.6% m/m. It should be remembered that the very strong September numbers come on the back of disappointing August numbers.  Nonetheless even taking the short-term volatility into account, Chinese foreign trade still looks very strong, as seen in the top-right chart. The recovery in exports appears to be on track and Chinese imports remain very robust and an important driver for both Asian and global growth. Besides China, South Korea and Taiwan have so far reported September numbers, and they were also better than expected.


Looking at the detail, China’s exports have gained across the board, however the strongest gains were for exports to the rest of Asia, particularly the Asean countries and Japan (see chart on next page). If we look more closely at the most important commodities, China’s imports of steel products and iron ore increased further in September, while imports of crude oil declined slightly and imports of coal plunged further (see chart next page). The sharp increase in coal imports earlier in the year was mostly due to supply bottlenecks in the domestic railway network. As these bottlenecks have since eased, China’s imports of coal have started to normalize.


Credit growth better than expected, but pace slowing


Total credit in September increased 1.3% m/m following a 1.1% m/m increase in the previous month. While this is still healthy growth, it is still a substantial slowdown compared to H1 2009, and looking forward it does suggest some slowdown in investment demand. However, we should be careful not to base our forecast for the real activity impact from investment solely on the development in credit growth and fixed asset investment. The activity impact from the surge in investment in H1 09 will probably spread well into 2010. This is supported by the continued strength in import volumes of steel products and iron ore.

Stronger exports will largely slow down investment demand

So far it appears that concerns about the strength of the Chinese recovery in late 2009 have proved unfounded. While investment demand might slow as the impact from fiscal easing starts to wane, it will largely be offset by stronger exports. We maintain our call for strong GDP growth in China. The implication is monetary tightening early next year and a resumption of a gradual appreciation against USD at some stage next year.