Despite a surge in the value of China’s exports in September, and healthy volumes continuing to move by both ocean or air, one leading analyst expects a prolonged slowdown in Chinese export growth as economic headwinds come to bear.
China’s September export growth in US dollar terms rebounded to 8.1% year-on-year from 5.6% in August, while trade volumes and exports last month rose 16.6% and 12.4% y-o-y, respectively, according to the General Administration of Customs.
However, according to Mr Yang Zhao, Chief China Economist at Nomura, the September figures were not as strong as expected. “The rebound of export growth was partly driven by the launch of the new iPhone and a low base last September, in our view,” he said.
He told Lloyd’s Loading List that moving forward China’s export growth was likely to moderate again due to downside pressures from RMB (Renminbi) appreciation against the US Greenback and ongoing geopolitical risks.
“We expect exports to slow down this quarter and in 2018 for a couple of reasons,” he said. “One is the strong RMB. Export growth rebounded in the second half of last year driven partially by improvement in external demand and partially due to the previous depreciation of RMB versus the US dollar, but that affect has now faded.”
Zhao said that in the first half of 2017 the RMB appreciated significantly against the US dollar. This has put downward pressure on export growth in following quarters due to the lag between currency fluctuations and trade transactions.
“External demand has also created uncertainty,” he added. “One of the major uncertainties lies in trade talks with the US. Rising protectionism in the US might hurt Chinese exports.
This put downward pressure on export growth in following quarters due to the lag between currency fluctuations and trade transactions.
“So because of these uncertainties, and the appreciation of RMB in the first half of 2017, we think China’s exports will slow down next year.”
Nomura had predicted China would see export growth in September of 12.5% year-on-year in USD terms, but the 8.1% figure recorded was both weaker than expectations and far more bearish than in manufacturing economies such as South Korea where exports rose 17.7 percentage points year-on-year last month.
By destination, China’s September export growth in September was largely due to strong trade to the US, EU and the other BRICS countries. Export growth to the US and EU picked up 13.8% and 10.4% y-o-y, respectively.
“China’s trade surplus with the US widened further to $28bn in September from $26.2bn in August, which may lead President Trump to take a hawkish line on trade when he visits China in early November,” said Zhao.
“Export growth to South Africa and Brazil spiked more remarkably, possibly due to the BRICS summit in early September, so we expect this to be short-lived.”