MNI EXCLUSIVE: China Exports Weak, CNY Supported, Advisors Say

By Wanxia Lin

     BEIJING (MNI) - China's exports are likely to weaken further in the second

quarter as the coronavirus pandemic saps international demand, although the yuan

may strengthen as the world's second-largest economy makes a quicker recovery

than elsewhere, government advisors told MNI in interviews.

     While exports in March showed some improvement, they were lifted by

shipments of virus-prevention materials such as masks, said Wang Haifeng,

director of International Trade and Investment at the Chinese Academy of

Macroeconomic Research, run by the National Development and Reform Commission.

     "When the outbreak situations overseas reach a plateau, possibly in May or

June, this source of demand may also decrease, as other countries may have built

up their own anti-virus supplies by then," Wang said.

     Exports fell 6.6% y/y in March, moderating the 17.2% y/y drop seen in

January-February and beating market expectations.

     But many Chinese exporters received requests to delay or cancel orders in

the second half of March, which will impact sales in two to three months, said

Bai Ming, a researcher with the Ministry of Commerce. Banks' forecasts of a Q2

decline in exports of 20% may turn out to be accurate, Bai said, although he

added that there could be a rebound in the near future as the U.S. and European

countries restock supplies after lockdowns are lifted.

     Export performance this year will be worse than in the period immediately

following the 2008 financial crisis when they fell more than 20%, said Song

Hong, head of the international trade research at the Institute of World

Economics and Politics under the Chinese Academy of Social Sciences. Any

near-term recovery in shipments was likely to focus on essential goods, while

demand for electronic and electrical products requiring global supply chain

coordination may decrease, he said.

     --YUAN SUPPORT

     Wang, though, was more optimistic, arguing that the likelihood that China's

production capacity will have recovered more quickly than elsewhere will give

its exporters an advantage, keeping the year's decline to less than 2009 levels.

     The yuan should benefit as China leads the post-virus bounce back, advisors

said, adding that this should favour the country's long-term campaign to boost

the international role of its currency.

     The exchange rate, currently at around 7.07 to the dollar, may stabilise at

around 7 or strengthen slightly, generally trading in the range of 6.8 to 7.1,

Wang said.

     "China has very little room for any competitive devaluation and is

reluctant to adjust the currency," said Song, adding that such a move would not

be in line with the country's plans to upgrade its industry.

     While a global rush for dollars might prompt some short-term weakness, the

yuan should tend to strengthen in the longer run due to China's economic

performance and as it becomes increasingly attractive as an alternative to the

dollar in international settlements, said Mei Xinyu, another MOFCOM researcher.

     In the meantime, companies in the foreign trade sector, which employs 180

million, face a complicated outlook. More than 460,000 Chinese companies closed

permanently in Q1, including 26,000 exporters, data from TianYanCha.com shows,

although Mei thought the urban unemployment rate should not rise above 6% even

in a worst-case scenario, as the government and People's Bank of China support

the economy via stimulus.

     Authorities have moved to boost exports to markets less affected by the

pandemic, including Belt & Road countries, and to encourage cross-border

e-commerce, according to Bai.

     "Exporters are also being encouraged to tap into the domestic market," said

Bai, noting measures including tax breaks for exporters diverting sales to home

consumers and to allow the domestic sale of goods originally intended for

countries with different product standards.

     Some products intended for export, though, might prove a difficult sell in

China, noted Tu Xinquan, dean of the China Institute for WTO Studies.

     "Few Chinese would light candles at home," Tu said.

--MNI Beijing Bureau; +86 (10) 8532-5998; email: wanxia.lin@marketnews.com

--MNI Beijing Bureau; +86 10 8532 5998; email: william.bi@mni-news.com

--MNI London Bureau; +44 203 865 3829; email: jason.webb@marketnews.com

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