Surge in China exports, imports boost recovery hopes
By Nick Edwards | February 8, 2013 5:49 PM EST
China's exports and imports surged in January as the first hard data of the year pointed to robust domestic demand and a pick up in the economy not solely explained by the timing of the Lunar New Year holiday.
Exports grew 25 percent from a year earlier versus a forecast of 17 percent in a Reuters poll. Imports surged 28.8 percent to comfortably beat a consensus call of 23.3 percent and the resulting $29.2 billion trade surplus topped a market expectation of $22 billion.
"I think the Chinese New Year effect only explains part of the story," Zhang Zhiwei, chief China economist at Nomura in Hong Kong, told Reuters. "After controlling for the Chinese New Year, the numbers are still very strong and show the economic recovery is on track."
Other figures showed that inflationary pressures were subdued. Consumer prices rose 2.0 percent in January from a year earlier, bang in line with expectations and down from a seven-month high of 2.5 percent in December. Food prices rose 2.9 percent in January from a year earlier.
Investors bought the argument that an economic recovery that kicked off in the last few months of 2012 was intact. Stock prices in Australia and South Korea rose, despite pressure to take profits around the region ahead of next week's Lunar New Year lull, while oil and copper futures also gained ground.
Global markets have risen in anticipation of a surge in China's export growth as a signal of recovering demand in the giant economies of the United States and the European Union.
China's year-on-year exports growth to the United States of 14.5 percent was the strongest in 10 months, while the rise in exports to the European Union were the highest in 13 months at 5.2 percent.
Exports to China's neighbouring economies in the Association of South East Asian Nations (ASEAN) leapt 48.6 percent versus January 2012, worth $20.1 billion.
External demand appeared strong, even adjusting for the five additional working days the Customs Administration said were included in its January 2013 data versus January 2012. Exports rose 12.4 percent after adjusting for the holiday factor while imports rose 3.4 percent.
China publishes the bulk of its economic data for January and February combined in March to smooth the effects of the annual shift in the Lunar New Year holidays when many factories shut for at least a week and often longer. The holiday fell in January in 2012 and will be in February this year.
DOMESTIC DEMAND STRONG
The strength of imports and what that implied for the health of the domestic economy that was most telling to Tao Wang, China economist at UBS in Hong Kong.
"It seems to me that imports were particularly strong and that reflects two things: one is that the domestic demand, in particular investment demand, is very strong. The second thing is that it seems that companies are restocking ahead of the Chinese New Year and ahead of the peak season in March and April," she said.
Imports from the United States soared 49.7 percent, those from ASEAN jumped 36.5 percent and imports from the European Union rose 20.7 percent. Imports from Taiwan rocketed 74.8 percent, making the 12.9 percent rise in imports from Australia look anaemic.
Analysts in general, however, are wary of reading too much into data coming just one month after the world's second-biggest economy posted its slowest full-year expansion since 1999 at 7.8 percent.
Ting Lu, head of Greater China economics at Bank of America/Merrill Lynch, was particularly cautious in his reading of the trade data, noting that import prices were rising in tandem with China's recovery. Iron ore, for example, has surged 79 percent from September 2012 - the bottom of China's 2012 growth cycle.
Lu forecasts 2013 export growth unchanged from the 7.9 percent pace in 2012, but thinks import growth could rise to 11.5 percent from 4.3 percent in 2012 as prices rebound.
An uptick in imported inflation already appears to be on the mind of the central bank, even though economists expect it to remain subdued through the first quarter of the year and unlikely to breach 3.5 percent in 2013, a level they think the government will soon announce as its target.
"As the economy transits into another stage of growth, economic controls need to always emphasise containing inflation risks," the People's Bank of China said in a fourth-quarter monetary policy report published on Wednesday, shifting the bias of policy back to inflation from growth risks.
Yao Wei, an economist at Societe Generale in Hong Kong, was also wary of inflation.
"The underlying inflation trend seems to be on the rise. Look at food prices, which rose sharply month-on-month. This is also seasonal, but if you adjust it, it does show that inflationary pressure is coming back."
The trajectory of money supply is also important against that backdrop, with bank lending a focal point for investors trying to assess the bias of monetary policy as loans are made at Beijing's behest in the state-directed financial system.
China's new yuan loans may have totalled 1 trillion yuan in January, according to a Reuters poll - up sharply on December's 454.3 billion yuan and November's 522.9 billion yuan.
A surge could indicate a supportive policy stance - despite the PBOC's inflation alert - as well as strong credit demand in the real economy, but it could just as easily show banks flush with fresh state-directed lending quotas and anxious to put them to work early.
(Additional reporting by China Economics Team; Editing by Neil Fullick)
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