Some trade improvement in China, but it may not last: HSBC

HONG KONG – China’s December trade data surprised on the upside with export growth coming in at minus1.4% year on year, the highest since June 2015, driven by better shipments to the EU. HSBC believes external demand may have picked up modestly towards the year-end, and that while exchange rate movements have also been a variable, thisimpact may not have been as important as the state of external demand.

“The depreciation of the RMB in August 2015 was larger in terms of magnitude vis-a-vis the US dollar as well as a basket of currencies, but was not followed by any obvious improvement.” HSBC says in a research note. “Exports to Hong Kong have also grown at a faster pace. “Meanwhile, the contraction in imports eased to minus 7.6% year on year.

“While falling commodity prices continued to weigh on import growth in value terms, commodity imports have shown further signs of stabilisation in volume terms, reflecting stronger infrastructure investment since November 2015.

“Overall, the external picture may have been slightly better in December. However leading indicators show little sign of a more sustained improvement in the coming months. Growth will remain domestically driven.

“Policymakers should deliver a package of policy measures combining policy rate and reserve requirement ratio cuts, tax reductions, infrastructure investment with growth-friendly reforms to lift confidence.” www.hsbc.com (ATI).