Export Growth Unhelpful For The Yuan, Imports Still Negative But Above Expectations

China's May trade data saw export growth catch up to the downside. Base effects from last year, coupled with softer global growth has weighed on external demand momentum. At -7.5% y/y, export growth back close to late 2022/early 2023 lows. It remains above the pace of other NEA economies though, where export growth is still running at a negative double digit pace.

• The first chart below overlays export growth against CNY NEER (J.P. Morgan Index) y/y changes, with this series inverted on the chart. The NEER fall looks too weak relative to the export trend, but there are other factors at play in terms of weaker growth conditions more broadly, which is fueling easing expectations.
• In any case, weaker than expected export growth will be difficult to be seen as a positive for the local FX. Also, the export miss helped weaken the trade surplus position, back to $65.81bn, which is still very elevated by historical standards but was below expectations.

Fig 1: China Exports Y/Y & CNY NEER Y/Y (Inverted)

Source: J.P. Morgan/MNI - Market News/Bloomberg

• On the import side, things were a little bit better relative to expectations, growth at -4.5% y/y, versus -8.0% forecast. Some of the headlines showed impressive y/y bounces in commodity imports (such as iron ore and oil), but coal imports were still reportedly down versus April levels.
• The second chart below overlays China import growth against the spot commodity price changes. The two series are reasonably linked with each other.
• The market may want to see further improvement in domestic demand indicators/and or fresh stimulus measures before it turns more constructive on the China demand outlook than just a modest import beat.

Fig 2: China Import Growth & Global Spot Commodity Prices (Y/Y)

Source: MNI - Market News/Bloomberg