China recorded a larger than expected trade surplus in May, but mainly due to weakness on the import side rather than any underlying improvement in export performance.
While the headline China April PMIs released his morning might have disappointed, the breakdown shows these releases were not entirely all bad news. Indeed, there were a number of positive in the structure, notably the continuing recovery in NBS manufacturing export orders while output overall is still expanding at a reasonable rate and we saw some mild de-stocking.
Chinese stimulus effects have already shown up with an improvement of the macro data, notably the manufacturing PMI surveys, but the real economy numbers have also bounced. This improvement now also has official recognition, with the Chinese authorities shifting their economic assessment.
A solid set of credit numbers, suggesting the government is succeeding in reopening this transmission channel, which should begin to show up more notably in the activity and growth data from hereon in.
Larger than expected surplus and notable bounce in export growth. But given the calendar effects of Chinese New Year it’s probably best to view February/March trade data as a single batch, thus smoothing these effects.
The slowdown in global growth has been accompanied by an inversion of the US yield curve — the one recession indicator that always enlivens markets. While statistically the curve is an excellent forecaster of downturns, there is much to suggest things might be a little different this time.
People are always keen to write off China. Its authoritarian regime has built up malinvestments and debt beyond that of any other emerging economy, both in nominal terms and as a share of GDP. Even its GDP is often deemed to be over-inflated. But we are not on the cusp of a collapse. For a start, China’s financial system still has relatively closed circuitry, with the money being owed mostly by state-owned enterprises (SOEs) to state-owned banks, meaning relatively modest connectivity to the wider world.
China February IP, retail sales & fixed investment chart pack
Macro Data – China February money supply & credit chart pack
China February trade chart pack
China February NBS PMIs charts
China January inflation, money supply & credit (TSF) chart pack
China January FX reserves data adjusted for valuation effects
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