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China’s Imports of Commodities Are Under Pressure

China’s Imports of Commodities Are Under Pressure

Futures are limping lower after overnight China reported that export growth moderated from 14.8% in March to 8.5% in April, slightly better than market expectations, and unchanged from the 1Q23 average, while Imports unexpectedly collapsed, badly missing expectations.

Both export and import value declined sharply in April in sequential terms (exports: -5.4% sa non-annualized, imports: -5.1%, USD-denominated). The sequential decline in exports is in line with historical patterns for this year’s earlier-than-normal Lunar New Year.

According to SocGen, the decline in exports was to be expected as the March exports received a strong boost from a backlog of orders, thanks to easing supply disruptions. But the pace of expansion was still healthy and better than other major Asian economies, such as South Korea, Taiwan and Vietnam, with exports in contraction of over 10% in April.

By product, electronics and machinery equipment (EME) products eased from 12.3% to 10.4%. The moderation was driven by products outside high-tech products (e.g. machinery). There were some improvement in consumer electronics: smartphones improved from -32% to -13%, and PC and parts recovered from -26% to -17%. But the contraction in integrated circuits intensified from -3% to -7%. Meanwhile, autos remained a bright spot and accelerated strongly from 59% to 83%, thanks to growing demand for NEVs. Traditional consumer goods slowed, with apparel down from 32% to 14%, furniture down from 14% to 0% and footwear down from 32% to 13%, though they still maintained pretty solid expansion.

While exports chugged along, the big surprise in today’s release was imports, which plunged from -1.4% to -7.9%, against expectations for a small improvement.

The weakness was mainly attributed to commodities (also because of price effects of nearly -2%). In volume terms, oil imports slowed from +22% to -1%; iron ore dropped from +15% to +5%; and coal normalised from +151% to +73%. Copper was the only key product that improved, from -19% to -13%. EME products held up better but still saw a contraction of 16%. Within that, IC imports remained in contraction of c.20%; PC parts recovered from -25% to -12%, consistent with the trend in exports; autos weakened notably from -15% to -41% due partly to base effects.

Overall, while exports remained resilient, the weak commodity import data, also with the latest below-50 manufacturing PMI, highlights that contrary to Beijing’s publicly stated strategy, China is experiencing a two-speed recovery, with strong consumption (especially services), also evident in the Labor Day holiday data, but not-so-robust industrial activity, which still faces headwinds from external demand and a slow recovery in property investment. With upstream price pressures still subdued, policymakers will keep policy accommodative, although few expect fresh easing measures.

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