Exports from China exceed forecasts as global demand rebounds

China's exports outperformed expectations, indicating a resurgence in global demand. Both export and import growth during the January-February period surpassed forecasts, providing an encouraging signal for policymakers as they strive to stabilize a wavering economic recovery.

The improved export figures from China align with similar positive trends observed in South Korea, Germany, and Taiwan during the initial two months of the year. These Asian economies benefited from a surge in demand for semiconductors.

According to customs data released on Thursday, China's exports in the two-month period were 7.1% higher than the previous year, surpassing the Reuters poll projection of a 1.9% increase. Imports also saw growth, rising by 3.5%, compared to the forecasted 1.5% growth.

Xu Tianchen, a senior economist at the Economist Intelligence Unit, noted that the better-than-expected data reflects a recovery in global trade driven by the electronics sector, compounded by the favorable base effect resulting from a -6.8% export growth in January-February 2023.

To mitigate distortions caused by the shifting timing of the Lunar New Year, which occurred in February this year, the customs agency combined January and February trade data.

Chinese Premier Li Qiang recently announced a 2024 economic growth target of around 5%, similar to the previous year, and pledged to transform the country's development model, reducing reliance on exporting finished goods and addressing industrial overcapacity.

Despite the positive trade data, policymakers remain concerned about sub-par growth over the past year, attributed to a property crisis, cautious consumer spending, divestment by foreign firms, challenges for manufacturers in finding buyers, and the burden of local government debt. A sustained rebound in exports is essential to bolster the economy.

In contrast to the trade data, manufacturing activity in China contracted for a fifth consecutive month in February, according to the government's purchasing managers' index released a week ago, while new export orders declined for the 11th straight month.

Huang Zichun, a China economist at Capital Economics, cautioned about the sustainability of export strength, suggesting that recent gains could partly be attributed to Chinese manufacturers slashing prices to secure orders.

Despite the positive trade figures, market reaction remained subdued, with China's blue-chip CSI300 stock index and Hong Kong's Hang Seng Index experiencing minor declines.

China's trade surplus expanded to $125.16 billion, exceeding forecasts, with separate commodities data showing increases in crude oil and copper imports.

Optimism can be found in China's overall exports to the United States returning to growth in January-February, though outbound shipments to the EU continued to decline.

Expectations of global monetary easing may provide some relief for China's export prospects, although economic conditions in key developed nations remain challenging.

Policymakers have pledged further measures to support growth, but analysts caution about Beijing's limited fiscal capacity. Concerns about a potential Japan-style stagnation in the future underscore the need for structural reforms to promote household consumption and market-oriented resource allocation.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, emphasized that strong exports could offset weaknesses from the property sector and reinforce policymakers' confidence in China's economy, supporting structural policy objectives such as deleveraging local government financing vehicles.