Commerzbank EM Country Briefing: China - Continued export slowdown

April trade numbers continued to reflect a moderation in both external demand and the domestic economy. Exports and imports were both weaker than expected at 4.9% and 0.3% y/y respectively, the trade surplus rose to USD18.4bn. On a 3-month trend, the numbers show signs of stabilizing but the risks are to the downside. Nevertheless, we see little appetite for any large scale fiscal and monetary stimulus as policymakers are orchestrating a slowdown but a 50bp RRR cut in H1 is possible. April trade numbers were weaker than expected with exports up 4.9% y/y (market: 8.5%) from 8.9% in March and imports slipped to just 0.3% y/y (market: 0.3%) from 5.3% in March. Given the volatile nature of the data, particularly in the past three months with the Lunar New year holidays, it is best to look at the 3-month moving average (3mma) trend. Exports in fact held up at 10.7% (Mar: 8.9%) and imports at 15.1% (Mar: 9.9%). The trade surplus shot up to USD18.4bn in April from USD5.3bn in March but on a 3mma trend, it continued to slide to a slight deficit of USD2.6bn and is the first since March 2011. However, this is expected to be the trough on a 3mma trend basis as the huge deficit of USD31.5bn in February drops out in coming months. We draw three implications from today’s data: 1) Trough in the trade surplus - we should start to see a recovery, albeit modest, in the trade surplus in coming months ie no doomsday scenario of a structural shift to large deficits near term. The big deficit in February was due to seasonal and one-off factors; 2) Export growth to remain weak - both export and import growth are likely to remain soft near term given a challenging external environment eg if the US recovery loses steam and eurozone recession drags on; and 3) No appetite for massive stimulus - the slowdown is engineered by the authorities, particularly via tight anti-speculative property measures. Even if Q2 GDP drops below 8% y/y from Q1’s 8.1%, it should not catch the authorities by surprise. The hope is that exports won’t collapse too fast to provide some cushion and if they do, excessive gains in CNY could also be curtailed. We see limited appetite for a large fiscal and monetary stimulus response as yet. Instead, we could see selective and targeted easing eg a modest 50bp RRR cut in H1 along with even lower RRR for the smaller and agriculture banks to help ease liquidity conditions for sectors outside of property. For the remaining April data due tomorrow, we’ll keep a close eye on industrial production, fixed asset investment, and loans growth (market: CNY780bn) in particular for signs of credit easing for businesses. Inflation should continue to ease back to 3.4% y/y from March’s 3.6%.For more details please go to our Comments section.

Commerzbank EM Country Briefing: China - Continued export slowdown

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