By Ulf Bergman
This week saw yet another set of bullish data coming out of China, with both imports and exports in rude health. The strong showing indicates that the global post-pandemic economic recovery is well on track, as vaccine rollouts around the world pick up the pace. Strong US retail sales and employment data are further contributing to a picture of a recovering global economy. Parts of the strong Chinese numbers can be attributed to base effects, as last year’s data were severely affected by the accelerating pandemic. Nonetheless, the continued growth, in both exports and imports, is impressive and the World Trade Organization (WTO) is also expecting global trade to grow by eight per cent during 2021, which would be the strongest growth since 2010.
Source: China General Administration of Customs
Though exports surged by 30.6 per cent in dollar terms last month compared to a year ago, the total fell short of the 38 per cent median forecast in a Bloomberg survey of economists and was a far cry from the previous month’s record-breaking gains. Despite this, it was the ninth consecutive month of year-on-year growth for Chinese exports, which has greatly benefited from the rising global demand for medical supplies and work-from-home equipment during the pandemic.
Chinese imports, on the other hand, rose more than what was widely expected. An increase by 38 per cent in dollar terms compared to the same month last year beat the 23 per cent analysts’ consensus forecasts by a wide margin and was also the largest jump since February 2017. As the import data are a reflection of the values rather than volumes, rising commodity prices contributed to some extent to the soaring imports. Strong domestic economic activity also drove demand for imports higher, leading many pundits to expect Friday’s release of GDP data to show strong economic growth in the first quarter of the year. The consensus sees an expansion of around nineteen per cent during the quarter, but several economists are expecting growth to be north of twenty per cent.
During the first quarter of the year, the exports to both the US and Europe grew more than the imports, despite a narrowing of the Chinese trade surplus in March. The current congestion in the Port of Los Angeles is a good illustration of the 75 per cent jump in exports to the US during the first three months. It is also worth noting that despite the current Chinese import ban on many Australian products, trade between the two nations grew and Chinese imports increased by 21 per cent while exports jumped 51 per cent. However, it is debatable if China can maintain the strong growth in exports in the near term as more and more countries will start to return to some form of normality with the continued rollout of vaccination programmes. The shift is likely to see consumers starting to spend more on services, such as restaurants and travel, rather than manufactured goods.
Although there are some concerns regarding the strength of the domestic Chinese economy, with consumer spending growth remaining sluggish, the rising imports suggest the world’s second-largest economy will continue to gather momentum. Additionally, the sales of construction excavators, widely seen as a bellwether for infrastructure investments, surged 85 per cent during the first quarter compared to a year earlier and would indicate that the country’s appetite for industrial commodities will remain strong. Still, weakening demand for Chinese exports could weigh on the economy and the first-quarter growth is likely to be the strongest of the year. A strong first quarter will nevertheless set the economy on track to beat the government’s annual growth target of over six per cent, with many analysts expecting it to top eight per cent.
A somewhat softer patch for the Chinese economy in the months to come could shift the focus of the global recovery to the US, as the stimulus package worth 1.9 trillion dollars is rolled out. The extraordinary size of the programme could put American economic growth ahead of China during parts of the year and we will see a more diversified base for the global recovery. With the extensive investments in infrastructure proposed by the Biden administration, the global demand for commodities is likely to remain healthy and support high prices. Stronger demand for construction material in the US is also likely to increase shipments to American ports and reduce China’s dominance in the dry bulk shipping sector somewhat.