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When China reported its January-February trade data, the strength of export growth came as a surprise considering expectations of slowing global demand and weakness in the domestic economy.
According to customs figures, China's exports grow by 16.3% compared to the same period last year while imports were up by 15.5%. Most analysts had predicted single-digit export growth for the first two months of 2024 given ongoing economic headwinds and strict Covid lockdowns suppressing domestic consumption.
A deeper dive into the trade figures offers some clues behind the surprising resilience in Chinese exports. Shipments to some of China's largest trading partners performed far better than anticipated, helping drive robust growth despite challenges. Exports to the Association of Southeast Asian Nations (ASEAN) surged nearly 30%, boosted by ongoing pandemic recovery in nations like Vietnam, Thailand and Malaysia.
Exports to the United States and European Union also held up stronger than expected, increasing 13.5% and 14% respectively. With major Western economies facing inflation and economic uncertainty, the continued appetite for Chinese-made goods was an encouraging sign exporters could withstand a potential recession. Even China's exports to Hong Kong, usually an indicator of mainland China's exports to advanced nations, spiked over 30% in January-February.
Some economists point to front-loading behavior as another factor supporting export growth ahead of expectations. Foreign buyers rushed to secure supplies before potential global trade disruptions arising from the Ukraine conflict and lockdowns in Chinese manufacturing hubs like Shenzhen. Strong pent-up demand for work-from-home equipment and pandemic-related goods sustained exports of electronics and medical supplies.
On the services side, robust export gains in travel and transportation likely reflected relaxed border controls and resumed tourism in Hong Kong and Macau. Overall trade figures benefited as well from higher energy prices inflating the value of Chinese fuel exports.
Yet not all export categories saw such robust expansion. Shipments of labor-intensive goods reliant on consumption were more mixed, with textiles and clothing exports rising just 4.5%. Exports of toys, furniture and footwear actually declined as lockdowns weighed on consumer demand. This indicates domestic conditions remained a constraint, with external demand alone insufficient to drive balanced growth across all industries.
Looking past the short-term drivers, structural factors also lent unexpected support to Chinese exports. Government policies to promote high-tech, green manufacturing from semiconductor production to new energy vehicles paid dividends. Exports of integrated circuits, solar panels and electric vehicles surged over 50% in January-February, gaining market share and diversifying China's export composition away from lower-value goods prone to economic volatility.
A weaker yuan exchange rate since mid-March also made Chinese exports cheaper and improved their price competitiveness. While a strong currency had raised costs and weighed on exporters last year, foreign demand appears resilient enough to offset the impact of a moderately depreciating yuan. This exchange rate buffer could lend stability to Chinese export volumes should global conditions deteriorate.
At this point, it remains unclear if the first quarter export rebound simply reflected temporary pull-forward effects and front-loading that may not persist for the full year. Subsequent trade figures will reveal if solid foreign demand is here to stay or starts to retract under weaker global growth. Much also hinges upon how long China adheres to its zero-Covid policies stifling consumption. A protracted slowdown could sap the momentum driving the surprise export surge against expectations.
Still, optimism is warranted that China's export engine is proving more adaptive than forecasters projected, aided by ongoing diversification into new products and markets. Policy support for advanced manufacturing served as a stabilizing force when other industries faltered. With pandemic disruptions gradually diminishing, stronger trade should fuel broader economic improvements across China after a rocky start to 2024.