China: Solid outlook for the trade balance – UOB

Economist at UOB Group Ho Woei Chen, CFA, comments on the latest trade balance figures in China.

Key Takeaways

“In USD-terms, China’s exports expanded 16.9% y/y (Bloomberg est: 8.0% y/y; Apr: 3.9% y/y) in May and while imports also came in above expectation, the outperformance was less as it rose by 4.1% y/y (Bloomberg est: 2.8% y/y; Apr: 0.0% y/y).”

“Stronger-than-expected rebound in China’s trade in May confirms that the economy has bottomed out and we should expect the recovery to continue into Jun as Shanghai’s easing COVID measures will provide a temporary boost to trade flows.”

“However, the high comparison base and increasing headwinds to global economic growth due to factors such as higher commodity prices and an acceleration in central banks’ tightening as well as logistics challenges, are likely to lead to a moderation in China’s trade growth in 2H22. Domestically, there are also concerns of a recurrence of widespread COVID lockdowns as China stays on its dynamic zero-COVID policy which may encourage further diversification of supply-chain to the ASEAN region.”

“The main upside to the outlook is a potential lowering of Trump era’s tariffs on US$300 bn of Chinese goods as the Biden administration looks to ease inflationary pressures in the US.”