(ATF) China’s exports beat expectations on surging medical product shipments but imports fell short of street forecasts in May, handing the world’s second largest economy a higher trade surplus.
Exports from the manufacturing powerhouse fell 3.3% on-year last month, better than the 6.5% slide expected by a Bloomberg poll of analysts.
But imports dropped by 16.7% year-on-year after a 14.2% drop in April over the same period. This was much bigger than the consensus forecast of a lesser decline of 7.9%.
“We see two major factors behind the upside surprise for export growth: a production catch-up following the Covid-19 outbreak in Q1 and a continuation of strong exports of medical products,” Nomura chief China economist Ting Lu said.
But Lu said the strong growth in exports of medical supplies was not sustainable as overseas economies gradually reopen.
Bigger export contraction 'unavoidable'
“With real GDP in the major economies of Europe and the Americas set to drop by around 15% year-on-year in the second quarter, the almost-cleared production backlog and slowing export growth of medical products, a double-digit contraction in exports in coming months looks unavoidable, and a declining demand for China’s PPE products, we expect export growth to drop much further in the next couple of months.”
With consumer demand muted and key overseas markets suffering downturns, Customs data showed the sharpest on-year fall in imports in over four years, even as the country worked to restart its economy after imposing lockdowns that brought activity to a standstill to curb the coronavirus.
But the return to negative territory came after a surprise 3.5% jump in April, which was partly due to medical exports.
Analysts have warned of signs that a larger downturn awaits.
“We believe supply disruptions to be a key limiting factor for imports. Meanwhile, China’s import restrictions on coal have curbed purchases following strong growth over the first four months of the year,” ANZ economists Daniel Hynes and Soni Kumari said in a note.
Part of the plunge in the value of imports could be explained by falling commodity prices worldwide, Rajiv Biswas of IHS Markit said.
Iris Pang, ING chief economist for Greater China, said another reason was likely a drop in parts bought for re-exports – imported goods that are shipped out after further processing – due to the uncertainty of global demand.
Deeper downturn ahead
Protective medical protective equipment such as masks and body suits boosted Chinese exports in April and May, with shipments of textile yarns, fabrics and products rising 21% for the first five months on-year.
Analysts expect this boost to fade however, as the virus situation improves worldwide.
"Export growth rebounded in March and April, even as lockdowns came into effect abroad, because of a backlog of orders that had piled up while Chinese factories were shut in February," said Julian Evans-Pritchard of Capital Economics in a recent report.
But he noted the Purchasing Managers' Index, a key gauge of factory activity, still pointed to "a deep downturn in exports that has yet to materialise" as activity in China's major export markets remains subdued.
Exports would likely take a further hit in June and July, IHS Markit's Biswas said, before recovering towards the end of the year, supported by lockdowns ending across Europe and the US and the Christmas season.
Cities in China have been rolling out measures to boost local demand, with Beijing announcing last week it would offer coupons worth 12.2 billion yuan ($1.7 billion) to spur consumption, according to state news agency Xinhua.
Trade surplus with US up
Meanwhile, China's trade surplus with the US was up by 3.7% to $27.9 billion in May, from last year.
This was also higher than the $22.8 billion surplus in April.
US-China tensions have risen again in recent months as both sides trade barbs over the pandemic and other issues.
With both economies hit by the virus, analysts have called into question their ability to meet earlier commitments from a partial trade deal signed in January.
With additional reporting by AFP