Daily Management Review

For The First Time In Six Months, China's Exports Increase, Helping Manufacturing


For The First Time In Six Months, China's Exports Increase, Helping Manufacturing
For the first time in six months, China's exports increased in November, indicating that manufacturers in the second-biggest economy in the world are drawing customers with low prices in an effort to recover from a protracted decline in demand.
Although calls for additional policy support to promote growth have not waned, mixed manufacturing data for November has sparked concerns about whether improvements in conditions have been hidden by polls that are primarily negative in sentiment.
Customs statistics from Thursday indicated that exports increased by 0.5% in November compared to a 6.4% decline in October, exceeding the 1.1% decline predicted by a Reuters poll. After rising 3.0% the previous month, imports dropped 0.6%, shattering predictions of a 3.3% gain.
"The improvement in exports is broadly in line with market expectations... sequential growth in China's exports in the past few months has strengthened," said Zhiwei Zhang, chief economist at Pinpoint Asset Management. "There are green shoots in other Asian countries' export data as well in recent months."
November saw a three-year high for the Baltic Dry Index, a leading indicator of global commerce, thanks to better demand, especially from China, for industrial goods.
November saw a second month of growth in South Korean exports, a key indicator of the state of international commerce, helped by semiconductor exports, which ended a 15-month downward trend.
The picture of trade with China's key trading partners was similarly positive, with exports to the US, Japan, South Korea, and Taiwan all rising in October.
However, there are no immediate signs that the pressure on Chinese manufacturing will lessen.
Last week, China's official purchasing managers' index (PMI) revealed a decline in new export orders for the ninth consecutive month, while a poll conducted by the private sector revealed that factory owners have been finding it difficult to draw in foreign customers for the fifth consecutive month.
"While the level of export volumes hit a fresh high, (they were) supported by exporters reducing prices," noted Zichun Huang, China economist at Capital Economics.
"We doubt this robustness will persist," Huang cautioned, "as exporters won't be able to continue cutting prices for much longer."
In November, factory gate prices in the official PMI fell for a second consecutive month, but input costs increased for the fifth consecutive month.
However, other analysts contend that recent real data presents a less dire image of the Asian giant's economic health than the sentiment-based surveys, citing faster-than-expected growth in the third quarter and a run of largely positive statistics from October. They claim that the hard data also indicates that the support measures that Beijing has been leaking out since June have had some impact.
"The data shows overseas demand is stronger than we thought and domestic demand is weaker than we thought," said Dan Wang, chief economist at Hang Seng Bank China. "The biggest export items are still electrical machinery and cars, so demand in Europe and Russia will have bolstered outbound shipments."
It's too soon to tell, according to analysts, whether the recent policy support will be sufficient to boost domestic demand or how long-lasting any increase in demand abroad will be, since weak consumer and business confidence, real estate, and unemployment all pose threats to a long-term recovery in domestic demand.
Although it started from a weaker foundation, the International Monetary Fund increased its China growth projections for 2023 and 2024 by 0.4% percentage points each in November. Additionally, Moody's downgraded China's A1 credit rating on Tuesday and issued a warning.
With the yuan weakening versus the dollar following the report, the country's blue-chip CSI300 stock index dropped 0.44%, and Hong Kong's Hang Seng saw a 1.46% decline, the Chinese markets appeared to reflect this caution.
November saw a 9.2% year-over-year reduction in China's imports of crude oil, the first such drop since April as the country's large inventory levels and weak manufacturing activity affected consumer demand for goods like diesel. However, imports of iron ore increased somewhat last month.
"While export demand improved, it is unclear if exports can contribute as a growth pillar into next year," Pinpoint Asset Management's Zhang warned.
"The European and United States economies are cooling. China still needs to depend on domestic demand as the main driver for growth in 2024."