China's March exports fall, but Q1 trade surplus with US still up

Beijing

CHINA'S exports growth unexpectedly fell in March, the first drop since February last year, raising questions about the health of one of the economy's key growth drivers even as trade tensions rapidly escalate with the United States.

March import growth beat expectations, however, suggesting its domestic demand may still be solid enough to cushion the blow from any trade shocks. That left China with a rare trade deficit for the month, also the first drop since last February.

The latest readings on the health of China's trade sector follow weeks of tit-for-tat tariff threats by Washington and Beijing, sparked by US frustration with China's massive bilateral trade surplus and intellectual property policies, that have fuelled fears of a global trade war.

China's March exports fell 2.7 per cent from a year earlier, lagging analysts' forecasts for a 10 per cent increase, and down from a sharper-than-expected 44.5 per cent jump in February, which economists believe was heavily distorted by seasonal factors.

For the first quarter as a whole, however, exports still grew a hearty 14.1 percent.

Some analysts had expected a pullback in March exports following an unusually strong start to the year, when firms stepped up shipments before the long Lunar New Year holiday in mid-February. That scenario did not alter their view that global demand remains robust.

But a stronger currency could also be starting to erode Chinese exporters' competitiveness. The yuan appreciated around 3.7 per cent against the US dollar in the first quarter this year, on top of a 6.6 per cent gain last year.

No hard timeline has been set by either Washington or Beijing for the actual imposition of tariffs, which leaves the door open to negotiations and a possible compromise which could limit the damage to both sides and other trade-reliant economies.

But analysts said the trade threats may already be having an impact on exporters' activity.

With the threat of tariffs hanging over nearly a third of China's exports to the United States, economists at Nomura say its companies may have front-loaded shipments early this year before any measures kick in.

China's exports to the US rose 14.8 per cent in the first quarter from a year earlier, while imports rose 8.9 per cent.

That sent its quarterly trade surplus with the US surging 19.4 per cent to US$58.25 billion, though the March reading narrowed to US$15.43 billion from US$20.96 billion in February.

China's total aluminium exports in March rose to their highest since June, just as the US imposed tariffs on imports of the metal and steel on March 23.

China's overall March imports grew 14.4 per cent from a year ago, beating analysts' forecast for 10 per cent growth, and compared with 6.3 per cent growth in February.

That produced a trade deficit of US$4.98 billion for the month, but such shortfalls are not uncommon for China early in the year, likely due to seasonal factors.

For January-March, imports rose a strong 18.9 per cent on-year.

Analysts expected China would record a trade surplus of US$27.21 billion for last month, from February's surplus of US$33.75 billion.

Imports of commodities continued to lead the way in March, with shipments of copper, crude oil, iron ore and soybeans all rising from the previous month.

China's exports rode a global trade boom last year, expanding at the fastest pace since 2013. But the sudden spike in trade tensions with the United States is clouding the outlook for both China's "old economy" heavy industries and "new economy" tech firms.

Washington says China's US$375 billion trade surplus with the United States is unacceptable, and has demanded Beijing reduce it by US$100 billion immediately.

US President Donald Trump unveiled more tariffs, representing about US$50 billion of technology, transport and medical products early this month.

China's tech sector, a key part of Beijing's longer-term "Made in China 2025" strategy to move from cheap goods to higher-value manufacturing, may be particularly vulnerable.

High-tech products have been among its fastest growing export segments. China exported US$137.8 billion worth of such products in the first quarter, up 20.5 per cent on-year. REUTERS