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.
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.
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.
Trade and output data surprising to the upside, boosted by what looks to be activity as firms seek to get ahead of the curve pending the previously expected March 29 Brexit data – which the March PMIs also showed amid a record increase in inventories (and not just compared to UK history, but globally).
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.
Global activity is on the back foot. World trade has been weakening for months and the economic soft patch has turned into a more prolonged slowdown, certainly in Europe and Asia.