Asia Insights: China: Exports slowed but domestic demand remains stron

Fixed Income | Asia Ex-Japan 10 December 2012 Asia Insights: China: Exports slowed but domestic demand remains strong ·China’s export growth slowed more than expected in November to 2.9% y-o-y from 11.6% in October. ·Import growth slowed to 0.0% y-o-y from 2.4%, but import growth for domestic consumption picked up. ·We expect the growth recovery to remain on track, as it is mainly driven by domestic demand. China’s export growth slowed sharply to 2.9% y-o-y in November from 11.6% in October, much weaker than expected (Consensus: 9.0%; Nomura: 7.0%; Figure 1). After seasonal adjustments, exports grew by 3.8% y-o-y (-3.2% m-o-m) in November, according to the official release. By destination, exports growth to major economies all slowed in November, with export growth to the US down to -2.6% y-o-y from 9.0%, to the EU down to -18.0% from -8.1% and to Japan down to -3.8% from 1.1%. By product, exports from traditionally labour-intensive industries slowed significantly, with textile export growth down to 1.0% y-o-y from 8.1% in October, clothing exports down to 4.1% from 20.5% and furniture exports down to -5.2% from 48.5%, while export growth of high-tech products picked up to 17.2% y-o-y in November from 13.6%. Import growth slowed to 0.0% y-o-y in November from 2.4%, weaker than market expectations but in line with our forecast (Consensus: 2.0% y-o-y; Nomura: 0.0%). Growth of imports for processing trade slowed to 6.2% y-o-y in November from 7.3% in October, a negative sign for future exports (Figure 2). Growth of ordinary imports (excluding commodities) improved to -7.7% y-o-y in November from -9.0%, in line with November’s resilient domestic consumption data. Import growth of commodities fell sharply, in November, both in value and volume terms. In value terms, import growth of iron ore, unwrought copper and crude oil worsened to -8.2% in November from -1.6% in October. In volume terms, imports growth for iron ore slowed to 2.5% y-o-y in November from 13.0% in October, crude oil slowed to 3.0% y-o-y from 13.9%, and imports of unwrought copper fell further to -19.2% from -16.1%. Weak commodity imports were likely driven by inventory destocking in these sectors. The overall trade surplus narrowed to USD19.3bn in November from USD32.1bn. Despite the slowdown in November’s trade data, we maintain our view that economic recovery in China is on track as it is mostly driven by domestic demand. Infrastructure and housing investment will likely strengthen further in the coming months as monetary policy remains loose. We continue to expect GDP growth to rebound sharply in Q4 to 8.4% from 7.4% in Q3.

Fig. 1: Trade growth and trade surplus Source: General Administration of Customs of China, CEIC and Nomura Global Economics

Fig. 2: Ordinary, processing and commodity imports Source: General Administration of Customs of China, CEIC and Nomura Global Economics