Lu Ting, Zeng Hanyi: Why did the August foreign trade data fully beat expectations

China's August trade data beat expectations across the board. In dollar terms, export growth accelerated to 25.6 percent year-on-year in August, up from 19.3 percent in July. The Wall Street Journal said the results easily exceeded the 17 percent increase expected by the economists they surveyed. Import growth accelerated to 33.1%, and the trade surplus further widened to $58.34 billion, both higher than market expectations.

Among them, the import and export growth rate of private enterprises is the fastest, reaching 29.9%, and the proportion of China's foreign trade has also increased to 48.1% year-on-year.

Zeng: Why did China's foreign trade perform much better than market expectations in August? And the expectations of many institutions are all underestimated, why?

Lu Ting: I think there are probably two factors, the first is that it has a certain relationship with the weather. In the last week of July, East China was greatly affected by typhoon fireworks, affecting export freight and customs declarations, when a batch of goods did not have time to declare exports, was pressed to August, so it affected the export data of July, and raised the export data of August, and many of us who made forecasts may not have handled this factor well.

Second, in the past few months in Southeast Asian countries, including Vietnam, Indonesia, Malaysia, and South Asia's India, the impact of the Delta virus is very large, affecting the local production and export delivery and logistics, so there may be a batch of orders in the past few months to China, it will be manifested in our August exports, and there may be some positive impacts in the next September and October.

Considering these two points together, it is understandable why we underestimate the momentum of China's exports.

Zeng Haoyi: China's foreign trade data in August performed very well, but everyone is also paying attention to a series of recent data, such as the decline in the PMI of manufacturing and non-manufacturing in August. What will china's economic performance look like in the next three or four quarters? What risks do you think remain?

Lu Ting: In terms of exports, I estimate that there will still be relatively high growth in September and October, especially considering that some of the orders transferred from Southeast Asia to China, but in November and December, I think that on the one hand, due to the high base, on the other hand, because the developed countries have adopted a strategy of coexisting with the virus, the degree of economic unsealing is getting higher and higher, and the consumption of many of their residents has shifted to the service industry, which may have a certain negative impact on China's exports, so it cannot be overestimated (exports at that time).

I think by December, China's export growth rate is likely to return to a level of 8 to 10%, which is a trend, overall it is still good, but we must see a downward trend.

As for domestic demand, the downward pressure is still relatively large, like the third quarter we because of the epidemic, the impact of the service industry is indeed not small, the PMI of the service industry in August is only 45, which is obviously in a state of contraction. If you look at a leading indicator, for example, crude steel production in August should be more than 10% down compared with the same period last year, and passenger cars fell by 13%.

If you look at the real estate sector, developers may have a 24% decline in home sales, while their land purchases have fallen by 53%. Therefore, from all angles, the overall downward trend of domestic demand is very obvious, if the external demand and domestic demand are combined, the downward pressure on economic growth will also increase significantly.

Source: Yiyi Jinshi Finance

(About the author: Lu Ting, Chief Economist of Nomura China, Zeng Hanyi, Moderator/Producer of Jinshi Finance)