Daily Management Review

China Reports Unexpected High Import Level With A Cautious Recovery Of Domestic Demand


China Reports Unexpected High Import Level With A Cautious Recovery Of Domestic Demand
Despite a recent rebound in domestic demand, China's economy remains vulnerable to persistent threats, as evidenced by a mixed set of statistics that saw imports grow unexpectedly in October while exports declined at a faster rate.
The trade numbers come after a string of largely positive data points that demonstrated Beijing's support policies have supported a cautious recovery, even if policymakers will still be plagued by a lengthy real estate crisis and weak global demand well into 2024.
Customs statistics from October revealed a 6.4% decrease in exports from the same month last year, which was worse than the 3.3% reduction predicted by a Reuters poll and faster than the 6.2% decline in September. Imports increased 3.0%, defying estimates of a 4.8% decline and reversing a 6.2% decline in September. A drop of 11 consecutive months was ended by imports.
"The figures are in contrast to market expectations. The bad exports data may hit market confidence as we had expected the supply chain of exports to recover," said Zhou Hao, economist at Guotai Junan International.
"The significant improvement in imports may come from rising domestic demand, in particular a demand to replenish stocks."
Following the statistics, the yuan and Chinese stocks declined, confirming the markets' ongoing fears about a brittle and uneven recovery.
October saw a decline in new export and import orders for the eighth consecutive month, according to China's official purchasing managers' index, which was released last week. This suggests that manufacturers are having trouble finding customers abroad and are placing fewer component orders.
"Since the global electronics market is on the rise, as affirmed by South Korea and Vietnam's export performance, China's poor export data points to weak demand in other categories, such as Christmas goods and garments," said Xu Tianchen, senior economist at the Economist Intelligence Unit.
"The positive surprise on imports seems to reflect a firming up in domestic demand, rather than deriving from distortions caused by the one-time bulk buying of commodities," he added.
In October, China's imports of crude oil increased by 13.52% compared to the same month last year, albeit only slightly. Imports of soybeans increased by 25% from the previous year as a result of the ongoing growth in cheap and plentiful exports from Brazil.
Trade with China's main trading partners declined further, with exports falling 15.1% to Southeast Asia, its biggest trading partner.
The exception was trade with Australia, as Beijing and Canberra's relations improved and diplomatic tensions that had recently surfaced over a number of issues, including national security and COVID, subsided. China has recently reduced trade restrictions on Australian wine and barley exports.
October saw a 5.9% increase in exports to Australia and a 12.0% increase in imports from the resource-rich country.
The total trade surplus decreased to $56.53 billion in October from $77.71 billion in September as a result of China's increased imports, falling short of the projected $82 billion.
It is too soon to tell, according to analysts, whether the recent policy support will be sufficient to boost domestic demand, as weak consumer and business confidence, real estate, and unemployment all pose risks to a long-term recovery.
Data released last week revealed that China's manufacturing activity unexpectedly shrank in October, making officials' attempts to spur development more difficult.
"Measures of foreign orders hint at a more significant drop in foreign demand than what has so far been observed in the customs data," said Julian Evans-Pritchard, head of China Economics at Capital Economics.
"We expect most advanced economies to experience either mild recessions or weak GDP growth in the near-term, which will weigh on their demand for foreign goods."