China: Solid performance of the trade sector – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest trade balance figures in China.

Key Takeaways

“China’s export and import growth both surprised on the upside in August, boosted by strong demand for commodities and seasonal demand leading up to the year-end festivities. This was despite widespread resurgence of the more contagious COVID-19 Delta variant in its key markets and amidst supply chain bottlenecks.”

“In USD-terms, export growth surged to 25.6% y/y (Bloomberg est: 17.3%; Jul: 19.3%) and import growth also jumped to 33.1% y/y (Bloomberg est: 26.9%; Jul: 28.1%). Trade surplus widened to 7-month high at US$58.34 bn in August from US$56.59 bn in July. In Jan-Aug, China’s total exports and imports were up 33.7% y/y and 34.8% y/y respectively while trade surplus rose 29% to US$362.49 bn from US$281.41 bn in the year-ago period.”

“China’s buoyant trade performance so far has been both a function of increased global consumption demand and strong domestic production. Further weakening in the manufacturing PMI in August, particularly for the private-sector gauge as well as resurgence of COVID-19 infections caused by the more contagious Delta variant have thus dampened the outlook for China’s trade.”

“We expect China’s export expansion to taper down to low teens in 4Q21, partially from a high base of comparison while imports are likely to continue at strong double-digit expansion, helped by continuing recovery in domestic demand and elevated commodity prices. A weaker-than-expected export may further weigh on the growth outlook. We expect China’s GDP growth to moderate to 5.7% y/y in 3Q21 and 5.1% y/y in 4Q21 (from 1Q21 at 18.3% and 2Q21 at 7.9%) with full-year growth at 8.6%.”