Trade figures hint at China’s emerging trade recession

March 8, 2019

HONG KONG - In a research note, ANZ Bank says today's official China trade figures reinforce its view that China's trade recession has started to emerge. "Previously, we had highlighted that the new export orders sub-index in China's PMI leads actual shipments by around six months," the note says.

"Chinese exports already registered negative growth in December, (and) the strong figures in January were not reliable due to distortions from the Lunar New Year holiday period.

"Our calculations, which are based on the headline growth rates, indicate that Chinese exports contracted 4.7% y/y and imports declined 3.1% over the first two months of the year." 

ANZ says the increase in China's exports to ASEAN economies seems to indicate a structural shift in regional supply chains southwards.

"Over the first two months of 2019, China's exports to ASEAN rose 7% y/y (in CNY terms), contrasting starkly with the sharp decline in the former's exports to the US (-9.9%).

"We understand that one major mobile phone maker has started to produce its goods in Vietnam.

"Looking ahead, we find little reason to expect a rebound in the near term on the back of a sluggish global electronics cycle.

"Asia's export figures as well as its inventory-shipment ratio are both pointing to a sobering outlook (and) weak external demand will continue to weigh on China's Q1 growth.

"This requires a stronger dose of policy stimulus to support growth."

The research note says a creative solution can offer a breakthrough from the quagmire if China and the US focus on the value-added of China's exports rather than gross trade values.

"One thing we have learned from speaking to businesses with vast China-US trade relationships is that the current definition of country of origin (COO) may not have over-stated the contribution of China to its exports to the US.

"If both parties agree to review the COO, they could very well come up with a quick solution to resolve the persistent trade imbalance, although many more issues still need to be addressed, such as those surrounding intellectual property rights and technology transfers." (ATI).