Title: China's Export Boost in Trade Tussles
Title: China's Export Boost in Trade Tussles
Trade has been a key driver for the world's largest economy, currently valued at $18 trillion, which is still grappling with a prolonged property crisis and waning consumer confidence. Politicians can take solace in recent policy measures maintaining the economy's course towards an "around 5%" growth target. However, threats such as potential US tariff increases and disputes with the European Union cast uncertainty over the 2025 outlook.
Coming back to the White House, US President-elect Donald Trump has proposed substantial tariffs on Chinese goods, revitalizing fears of a renewed trade war between the two economic giants. Moreover, unresolved disputes regarding tariffs of up to 45.3% on Chinese electric vehicles from the European Union challenge China's ambitions to expand its auto exports and alleviate deflationary overcapacity concerns.
As December approached, the anticipation of both the Chinese New Year and Donald Trump's inauguration resulted in trade front-loading, as observed by senior economist at the Economist Intelligence Unit, Xu Tianchen. Import growth could be bolstered by stockpiling of commodities like copper and iron ore, in line with China's 'buy low' strategy.
Customs data revealed that outbound shipments in December rose by 10.7% year-on-year, surpassing forecasts, delivering a promising improvement from November's 6.7% increase. Imports also experienced a surprising surge, growing 1% year-on-year, the strongest performance since July 2024, outpacing expectations.
China's trade surplus reached $104.8 billion in December, expanding from $97.4 billion in November, and its surplus with the US grew to $33.5 billion during the same period. The spokesperson for Chinese customs highlighted vast opportunities for further growth in imports this year, bolstered by a depreciating yuan.
In 2024, Chinese manufacturers succeeded in finding buyers overseas, compensating for dwindling domestic demand by continually lowering prices. As a result, China's exports increased by 5.9%, while imports climbed by a smaller 1.1% during the same period.
Barclays analysts pointed out that exports surged double-digit in December, chiefly due to increased shipments to the US and ASEAN. This upswing was accompanied by an increase in the PMI new export orders, suggesting that proposed tariffs might impact export patterns in the coming quarters, leading to increased shipments prior to the introduction of new tariffs and subsequent drops-off.
The market's reaction to the latest trade data was subdued, with the yuan holding near 16-month lows against the dollar, and key share indexes witnessing a decline.
Scrutinizing the data, signs of recovery have emerged in China following its recent stimulus push. Factory activity sustained modest growth for the third consecutive month, while services and construction sector improved in December. These observations were underlined by a 8.6% increase in South Korea's shipments to China in December, indicating robust demand for technology products.
On a negative note, China's crude oil imports dropped last year for the first time in two decades outside the Covid-19 pandemic-induced falls, with tepid economic growth and peaking fuel consumption reducing purchases. Nevertheless, China's top leaders have pledged to loosen monetary policy and bolster fiscal policy in 2025, to offset external pressures and rejuvenate domestic demand.
China targets an economic growth of around 5% for the year, a goal that proved challenging at times in 2024. The adopted strategy includes lowering tariffs on certain medical supplies, critical equipment, and green products. Simultaneously, tariffs will be raised on commodities such as syrup, sugar-containing premixes, vinyl chloride, and battery separators. These moves aim to bolster domestic demand, advocate for high-quality development, and strengthen the symbiotic relationship between domestic and international markets.
In light of the proposed tariffs, Barclays analysts noted that exports surged double-digit in December primarily due to increased shipments to the US and ASEAN, suggesting that businesses may be accelerating exports before the introduction of new tariffs. Additionally, as China aims for an economic growth of around 5%, the government has announced plans to lower tariffs on certain items like medical supplies, critical equipment, and green products, which could stimulate domestic business activity.