Chinese exports come above expectations, imports remain lacklustre

Summary:

• October bring relief to Chinese companies as exports rose much more than expected on the back of improved sentiment surrounding a partial trade deal with the US
• Imports remained lacklustre from major destinations pointing to rather a fragile demand there
• A trade surplus with the US kept diminishing when measured by a 12-month rolling window

Chinese exports unexpectedly fell much less than anticipated in October driven by rising optimism regarding an interim trade agreement between Washington and Beijing. In dollar terms exports declined 0.9% compared to the same period last year, while the Bloomberg median estimate had suggested a 3.9% fall. This better than expected reading seems to offer some relief to Chinese companies struggling with falling profits amid factory deflation. At the same time, imports plunged as much as 6.4% in annual terms, producing a lower than expected decline but still remaining deep in the negative territory. Moreover, underperformance in imports has been seen in various destinations for months, as evidenced by the chart below. It implies that domestic demand is rather poor and it may struggle to make a noticeable improvement without a more permanent trade agreement between the US and China leading to some tariff rollbacks. 

Overall, a trade surplus in October amounted to $42.8 billion, up from downwardly revised $39.2 billion. Nevertheless, what could be more important is the fact that since July a Chinese trade overhang has shrunk, when measured by a 12-month rolling window, reaching its lowest level since October 2018. Looking forward, there is a chance to see a more notable improvement in trade activity across the globe once both China and the US stick to their latest non-binding commitments and act toward rolling tariffs back.

Chinese imports kept falling in October, only Australia has resisted this trend. Source: Macrobond, XTB