China exports rise 15% in first two months amid headwinds

[BEIJING] China's exports grew steadily in the first two months of the year, driven by the US economic recovery, while imports fell in a reflection of weakened domestic demand and lower commodity prices.

Exports gained more than 48 per cent from a year earlier in February, defying analyst estimates for a 14 per cent jump, though the number was skewed by distortions from the timing of the Lunar New Year holiday. Together with January, overseas sales rose 15 per cent, surpassing the government's goal for 2015 of 6 per cent.

A recovering US has helped underpin China's economy as it seeks to cut down excess capacity and transition to a reliance on domestic consumption rather than infrastructure investment and exports. The import numbers reflected headwinds facing the world's second-biggest economy. In his work report to the annual National People's Congress session last week, Premier Li Keqiang said those challenges include overcapacity and insufficient innovation.

"Chinese exports are humming along, which is a relief as the domestic investment momentum is struggling," said Yao Wei, a Paris-based China economist at Societe Generale SA.

The trade surplus for February was US$60.6 billion, above January's record of US$60 billion, the customs administration said in Beijing yesterday. Exports to the US in the first two months jumped 21 per cent in yuan terms. Shipments to Association of Southeast Asian Nations rose 38 per cent.

In his work report March 5, Li announced a 2015 growth target of 7 per cent, the lowest set in more than 15 years. The government set the expansion goal for total trade at 6 per cent. Chinese Commerce Minister Gao Hucheng said Saturday that he is "confident" the target will be reached.

Whether China can do so will depend in part on the US, where labor data last week showed employers added more jobs than forecast in February and the jobless rate fell to the lowest since 2008.

"The US is the single most important propeller, and Chinese exports basically follow the US economy," said Larry Hu, head of China Economics at Macquarie Securities in Hong Kong. Mr Hu estimates that a 3 per cent expansion in the American economy will add an additional 0.5 to 1 percentage point to China's growth by boosting the exports by 8 to 9 per cent.

The drop in imports was sharper than the median estimate of a 10 per cent decline, signaling continued weakness in internal demand as well as the fall in commodity prices. Analysts said producers may be seeking to maximize exports to compensate for weak domestic demand.

"If exports are good, they can do less in other aspects such as infrastructure investment," Hu said.

The larger trade balance, which compared to a survey figure of US$6 billion, will add uncertainty for the Chinese currency. The yuan, which posted its first weekly advance in three last week, has declined 1.2 per cent against the dollar since Jan 15. China has cut interest rates twice since November and lowered the reserve-ratio requirement.

"It's only the central bank leaning against market pressure that is preventing sharper falls," Tom Orlik, chief Asia economist at Bloomberg Intelligence in Beijing, wrote in a note.

BLOOMBERG