China’s Rising Exports Fuel Hope Prior to Deal Signing

Alan Penny

14 January 2020

3 min read

containers with flags of US and China superimposed

  • China’s rising exports and imports outperformed market expectations
  • US-China Phase 1 trade deal to be signed on Wednesday
  • Global demand is expected to remain soft

Chinese exports increased in December for the first time after five consecutive months of decline. An indication of modest demand recovery, it’s the result of the tentative truce between the United States and China.

China’s exports rose year-over-year by 7.6% in December, versus expectations of 3.2%

Thus, China’s exports rose year-over-year by 7.6% in December, versus expectations of 3.2%, according to a Reuters poll. In November, customs data shows exports declined by 1.3%.

Imports also outperformed forecasts, registering a year-over-year increase of 16.3%. Higher commodity prices helped with the increase. Markets expected a rise of 9.6% compared to November’s 0.5%.

December 2018 showed relatively weak performance, which made this year’s figures stand out even more. However, some analysts say these figures indicate an improvement in global and domestic demand.

In December 2019, China registered $46.79 billion in trade surplus, compared to expectations of $48 billion. It’s also higher than November’s figure of $37.93 billion.

Last year, China’s total exports managed to rise by 0.5%, despite tensions with the United States. However, it’s nowhere close to the 10% increase in 2018. This is likely due in large part to lower sales in the US.

Chinese total imports for 2019 dropped by 2.8% on the back of economic growth slowing down. Thus, the country saw the lowest growth figures in almost 30 years.

Easing US-China trade tensions contributed to the results

The US-China trade deal is scheduled to be signed on Wednesday, January 15, which boosted market sentiment. In the interim, both countries have made an effort to show their good faith.

On Monday, the US Treasury Department stated they would be removing China from their list of currency manipulators.

Zou Zhiwu, China’s customs vice minister, said on Tuesday that US pork and soybean imports rallied in December. He added that the positive sentiment between the two countries increased business confidence.

The US and China have been engaged in a trade dispute for almost a year and a half. The US accused China of unfair trade practices, while China believes the US is trying to stop it from becoming a global economic power. The tensions have had a significant impact on the global economy.

Capital Economics analysts, however, pointed out that the growth in US imports wasn’t as high as those from other countries.

According to the deal, China promised to buy an extra $80 billion’s worth of manufactured goods from the US over the following two years. They also pledged to increase their purchases of energy supplies by $50 billion.

Market sentiment is optimistic but cautious

While the deal’s announcement last month improved sentiment, markets are still cautious, even with the positive news from China. The US is still charging tariffs on $370 billion’s worth of Chinese goods, with no indication that things will change.

Furthermore, last May saw a potential deal between the two countries break down. This led to both countries imposing a series of retaliatory tariffs that only escalated tensions. Clearly, markets haven’t forgotten, and many are worried something similar might still occur.

Even if the Phase 1 deal goes through without a hitch, it’s no guarantee that issues won’t arise in the future. Analysts from MUFG bank went as far as to say that “Phase 1 will not put an end to Trump Trade Wars.” Some predict global demand will continue to be relatively weak in 2020, which won’t help Chinese exporters.

According to ING economists, while China’s exports might rise, it won’t be very significant. They feel this will be the case because the tariff reductions in the Phase 1 deal are quite low. “The bottom line is China’s trade circumstances are still relatively weak, and the tariffs much higher than they were 18 months ago. We should not expect miracles,” they said.

Some, however, feel that the signing of the Phase 1 deal will have a positive impact on sentiment. This could lead to stronger global demand and a better situation for Chinese export firms.

Written By
Alan Penny

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