China: Import and export growth slows – ABN AMRO

Arjen van Dijkhuizen, Sr. Economist at ABN AMRO, suggests that general expectation, including theirs, was that Chinese import value growth would slow in 2018, but in the first half of this year, import value growth has remained strong (around 20% yoy), supported by solid domestic demand growth and also reflecting strong export growth.

Key Quotes

“With some more signs of a weakening of domestic demand – reflecting the effects of the ongoing financial deleveraging campaign and a slowdown in infrastructure spending – import growth came out much lower in June (at 14.1% yoy, from 26% in May), clearly below market expectations.”

“In terms of geographical orientation, annual import from the EU/Germany was negative in June. Import growth from the US was still almost 10%, although slowing in recent months. Regarding commodity imports, overall import volumes of key items also slowed in June. That said, import growth remains at solid levels, remaining firmly above nominal GDP growth.”

“Still, we expect a further slowdown in the second half of this year, as the economy is resuming a gradual slowdown and trade and investment tensions with the US are accelerating.”

“Export growth slows a bit in June, but risk from trade war is rising

Annual export growth (in dollar values) slowed a bit, to 11.3% yoy (May: 12.6%), but remained solid and did better than expected. That reflected strong external demand, which was quite broad-based.

Despite rising trade tensions, exports to the US accelerated to 12.6% yoy, reflecting the booming US economy and possibly also US importers frontloading imports to avoid Section 301 tariffs implemented in early July. Exports to the ASEAN and the EU also accelerated, but those to Japan slowed. Export growth in the first half of this year averaged 13% yoy, clearly higher than the 8% reached in 2017.

We also expect a moderation of export growth in the second half of this year, reflecting the escalating trade war with the US next to base effects. The more difficult external outlook is also illustrated by the drop in the PMI export subindices in June. These indicators – both for Caixin and NBS – have fallen below the neutral 50 mark, with Caixin’s one even reaching a two-year low of 48.8.”