China’s exports dip 25% in February, but foreign reserves decline down sharply

HONG KONG - China exports shrank faster in February (down 25.4% from a fall of 11.2% in January), and that’s why China won’t release a trade growth target, says French investment bank Natixis.

“Because imports from Hong Kong continued to grow substantially (up 88.7% year-on-year), overall imports fell at a slower speed (down 13.8% on-year compared with a fall of 18.8% in January), Natixis says in a research paper. “As a result, the trade surplus narrowed to US$32.6 billion from US$63.3 billion.

“Apart from interest rate arbitrage-driven trade between China and Hong Kong, overall exports and imports continued to be very weak because of slack global trade environment, and that is amplified by a short month due to Chinese New Year,” the paper says.

“We are not expecting optimistic trade data in March, and by then we can compare Q1 2016 to the same period of last year to give a clearer picture that trade has been weak not because of the holiday effect but in fact because global demand has not invigorated as expected.”
 
BBVA Bank says that, on the positive side, the pace of foreign reserve decline significantly slowed in February, with a decline of US$28.6 billion way below both the January reading of US$99.4 billion and market expectations (consensus: US$40.9 billion).

“We believe that the lower-than-expected outturn was due to more favourable valuation effects (other major currencies slightly appreciated against the USD in February), the seasonality of the Chinese New Year holiday as well as investors’ stabilised expectations of the RMB value after the central bank’s rounds of communications.”

BBVA says China’s trade surplus could help mitigate the run-down of foreign reserves caused by capital outflows. “We maintain that the RMB will continue its gradual depreciation trend through this year to around 6.95 CNY/USD by December.”  www.natixis.com www.bbvaresearch.com (ATI).