Daily Management Review

China Reports Unexpected Growth In Exports, But Economists Foresee Future Weakness


China Reports Unexpected Growth In Exports, But Economists Foresee Future Weakness
The surprising increase in China's exports in March was attributed to increased demand for electric vehicles, but analysts have warned that this gain may also be the result of suppliers filling orders that were left unfilled after last year's COVID-19 disruptions.
Exports increased 14.8% in March compared to the same month last year, shocking economists who had projected a 7.0% dip in a Reuters poll and ending five straight months of falls.
However, researchers claim the increase was more likely caused by exporters hurrying to complete a backlog of orders that had been delayed by the epidemic in previous months, and they cautioned the prognosis for global demand remained dim.
"The wave of COVID outbreaks in December and January likely depleted factories' inventories. Now that factories are running at full capacity, they caught up the cumulated orders from the past," said Zhiwei Zhang, chief economist at Pinpoint Asset Management."
"The strong export growth is unlikely to sustain given the weak global macro outlook," he added.
In the meantime, imports decreased less than forecast, with economists attributing some support to a rise in the purchase of agricultural goods, particularly soybeans.
Just 1.4% of imports were down, which was less than the 5.0% loss predicted and the 10.2% contraction over the preceding two months. A decrease in copper imports in the month offset increases in crude oil, iron ore, and soybean imports.
The positive export data didn't have much of an impact on the financial markets since investors were still cautious about the future, albeit the Australian dollar, which is used as a barometer for Chinese demand for commodities, increased marginally.
The General Administration of Customs spokesperson, Lv Daliang, ascribed the positive surprise to the growth in demand for lithium batteries, solar items, and electric vehicles.
But he issued a warning that things can get worse in the future.
"The external environment is still severe and complicated at present," Lv told reporters in Beijing on Thursday. "Sluggish external demand and geopolitical factors will bring greater challenges to China's trade development," he added.
Other Asian exporters like South Korea and Vietnam, whose exports both fell in the first few months of 2023, contrast China's strong success, raising questions about whether it can continue.
"We aren’t convinced that this rebound will be sustained given the still gloomy outlook for foreign demand," Capital Economics analysts said in a note.
"We expect most developed economies to slip into recession this year and think that the downturn in Chinese exports still has some way to run before it reaches a bottom later this year."
In contrast to more optimistic readings for the services sector, which has profited from China's reopening, factory surveys showed declining export orders in March.
Chinese officials should "try every method" to increase commerce with established economies, according to Li Qiang, China's newly appointed premier, who also urged businesses to continue investigating emerging market economies like those in Southeast Asia.
After strong pandemic controls last year caused the economy to develop at one of its slowest rates in decades, Beijing has set a growth target for the GDP of roughly 5% this year. Only 3% of GDP increased in 2017.