China’s exports grow for the first time in 6 months to support factories

BEIJING (Reuters) – China’s exports grew for the first time in six months in November, suggesting factories in the world’s second-largest economy are luring buyers with cut prices to overcome a long decline in demand.

Mixed November manufacturing data kept alive calls for more policy support to support growth but also raised questions about whether surveys based on mostly negative sentiment have masked an improvement in conditions.

Customs data showed on Thursday that exports grew 0.5 percent year-on-year in November, compared with a 6.4 percent decline in October and exceeding the 1.1 percent decline expected in a Reuters poll. Imports fell 0.6%, beating expectations for a 3.3% increase and reversing from a 3.0% jump last month.

“The improvement in exports is largely in line with market expectations… The sequential growth in China’s exports has strengthened in the past few months,” said Qiu Zhang, chief economist at Pinpoint Asset Management. “There are green shoots in other Asian countries’ export data as well in recent months.”

The Baltic Dry Area Index, a leading measure of global trade, rose to a three-year high in November, supported by improving demand for industrial goods, especially from China.

South Korea’s exports, another measure of the health of global trade, rose for a second month in November, boosted by chip exports, which ended 15 months of decline.

Trade with China’s major counterparts also painted a rosy picture, with exports to the United States, Japan, South Korea and Taiwan rising in October.

Discounted exports

However, in the short term, the pressure on Chinese manufacturers shows little sign of completely abating.

China’s official purchasing managers’ index last week showed new export orders contracting for the ninth straight month, while a private sector survey highlighted the difficulties factory owners face to attract foreign buyers for a fifth month.

“While export volumes reached a new high, they were supported by exporters cutting prices,” noted Zichun Huang, China economist at Capital Economics.

“We doubt this strength will continue, as exporters will not be able to continue lowering prices for much longer,” Huang warned.

Factory gate prices in the official PMI contracted for a second month in November, while input costs expanded for a fifth straight month.

However, some analysts point to faster-than-expected growth in the third quarter and a string of mostly upbeat data from October, and say the recent tough data paints a less bleak picture of the Asian giant’s economic health than sentiment-based surveys. . They say the hard data also suggests that support measures emerging from Beijing since June have had some impact.

“The data shows that external demand is stronger than we thought, and domestic demand is weaker than we thought,” said Dan Wang, chief economist at Hang Seng Bank China. “The largest export goods remain electrical machinery and cars, so demand in Europe and Russia will boost overseas shipments.”

Uneven recovery

Analysts say it is too early to know whether the latest political support will be enough to support domestic demand and how sustainable any increase in external demand will be, as real estate, unemployment and weak household and business confidence threaten a sustainable recovery at home.

The International Monetary Fund in November updated its growth forecasts for China for 2023 and 2024 by 0.4% each, but this came from a lower base. On Tuesday, Moody’s issued a warning about lowering China’s credit rating to A1.

Chinese markets appear to be reflecting this caution, with the yuan falling against the dollar after the data, while the country’s blue-chip CSI300 index fell 0.44% and Hong Kong’s Hang Seng lost 1.46%.

China’s crude oil imports in November fell by 9.2% year-on-year, the first annual decline since April, as high inventory levels and weak manufacturing activity weighed on demand for products such as diesel. But iron ore imports rose slightly last month.

“While export demand has improved, it is unclear whether exports can contribute as a pillar of growth next year,” warned Pinpoint Asset Management’s Zhang.

“The European and US economies are slowing. China still needs to rely on domestic demand as the main driver of growth in 2024.”

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