Tao Wang is the Head of Asian Economic Research and Chief Economist at UBS, and a member of the Board of Directors of the China Chief Economist Forum
Following the year-on-year decline in exports in March, exports returned to year-on-year growth in April, and the year-on-year growth rate of imports jumped more than expected.
Exports returned to positive year-on-year growth, and the month-on-month growth momentum was strong
After falling 7.5% year-on-year in March, exports rebounded to 1.5% year-on-year in April, largely in line with market expectations. Seasonally adjusted for weekdays, we estimate exports to continue to grow by 1.5% month-on-month, offsetting the drag from a high base and driving year-on-year growth. The momentum of export growth, estimated at the three-month moving month-on-month growth rate, also accelerated. Taking 2019 as a benchmark, the compound annual growth rate of exports also rebounded in April.
Exports to major destinations have mostly improved, with exports to ASEAN economies increasing significantly
The year-on-year decline in exports to the G3 (United States, European Union, Japan) narrowed sharply to 2.9%, compared to -10.4% in the previous month. Although the base remains high, exports to the United States fell by only 0.2% year-on-year. Exports to ASEAN economies once again outpaced the rest of the region, with year-on-year growth accelerating from 2.4% to 11.1%. Among the top export destinations, ASEAN is the only one to see year-on-year growth in both of the first four months of 2024. The year-on-year decline in exports to other emerging market economies mostly narrowed.
The drag of consumer goods exports on overall exports has weakened, and the year-on-year growth rate of IT exports has further accelerated
After falling 17.2% y/y in March, the year-on-year decline in consumer goods exports narrowed sharply to 3.5% in April, supported by a weakening of the drag from a high base and an improvement month-on-month. The year-on-year growth rate of exports of IT products accelerated to 11.4% in April from 7.4% in March, and the export growth of major IT products such as computers, mobile phones and integrated circuits accelerated, which corresponds to the continuation of the upward cycle of exports of technology-related products.
Commodities and IT components drove the overall import improvement
Imports of a basket of major commodities improved to 9.9% year-on-year from a 1.4% year-on-year decline in March. The growth rate of crude oil imports has accelerated significantly, the growth rate of iron ore imports has also rebounded, and the growth rate of copper ore imports has slowed down to 13.8%, and the growth rate is still relatively stable. In line with the continuous improvement in the export cycle of technology-related products, the year-on-year growth rate of IT parts imports further accelerated to 16.4%, contributing 2.4 percentage points to the overall import growth in April (compared to 0.3 percentage points in March).
Exports are recovering steadily, and overall exports are expected to maintain year-on-year growth in the coming months
Trade data from neighbouring economies suggest that external demand remains steady. On the other hand, survey data showed mixed performance in new orders. Based on the current data performance, from the beginning of the year to the second quarter, the continued recovery of external demand supported China's export performance, and the quarter-on-quarter growth momentum was relatively stable, but the current data is not enough to indicate that export demand will rebound strongly. Given the continued decline in base in the coming months, the solid sequential growth momentum will support continued year-on-year growth in exports in the coming months. In view of the expected continued recovery in exports, we recently raised our full-year export growth forecast to 3.5%.
The U.S. dollar strengthened moderately, the renminbi weakened against the U.S. dollar, and the scale of foreign exchange reserves declined
The renminbi depreciated slightly against the dollar in April against the backdrop of further strength in the dollar index. Looking ahead, the fluctuations in interest rate differentials between China and the United States, US Treasury yields and the US dollar index will continue to affect the trend of the RMB exchange rate, and depreciation pressure may persist in the short term. We still expect the PBOC to use a variety of tools, including the reintroduction of a countercyclical factor in the central parity, to prevent the RMB from weakening significantly against the USD from the 7.3 level. Considering that the Fed is likely to cut interest rates in Q4, we expect the RMB to appreciate to a range of 7.1-7.2 against the USD by the end of the year.
Exports returned to year-on-year growth, and imports grew faster than expected
Exports in April returned to 1.5% y-o-y from a 7.5% y-o-y decline in March, in line with consensus expectations of 1.3% y-o-y. Imports jumped to 8.4% y/y, down 1.9% y/y in March, beating consensus expectations of 4.5% y-o-y. The trade surplus widened to $72.4 billion in April from $58.5 billion in March.
We estimate exports to rise 1.5% m/m in April, adjusted for seasonality and working days, down slightly from 3.3% in March, but the three-month moving m/m pace has accelerated to 5.6%, indicating a continued recovery in exports. Using 2019 as a baseline, exports grew at a CAGR of 9.0% in April, compared to 7.1% in March.
Based on preliminary data, we estimate that real exports increased by 11.3% year-on-year in April, compared to a 1.3% year-on-year decline in March. Real imports increased by 9.3% year-on-year, compared with a year-on-year decrease of 0.7% in the previous month. We estimate that the year-on-year price decline is a slight drag on exports, but a smaller drag on imports.
Exports to major destinations have mostly improved, with exports to ASEAN economies leading the way
The year-on-year decline in exports to the G3 (United States, European Union, Japan) narrowed sharply to 2.9%, compared to -10.4% in the previous month. Exports to the U.S. fell just 0.2% year-on-year, a significant improvement from the 11.9% year-on-year decline in March. On the other hand, the year-on-year decline in exports to Japan widened. The high base is still the main factor dragging down the year-on-year growth rate of overall exports, assuming that exports in April remain at the level of March, exports to G3 will fall by 11.4% year-on-year, much lower than the actual year-on-year decline of 2.9%. (Please note that the month-on-month growth rate is calculated based on the cumulative growth rate of the customs after retrospectively adjusting the import and export volume for the same period in 2023.) ）
Export growth to ASEAN economies in April once again led the rest of the region. Exports to ASEAN economies accelerated to 11.1% year-on-year from 2.4% in March. Among the top export destinations, ASEAN is the only one to see year-on-year growth in both of the first four months of 2024. Exports to Taiwan and Hong Kong also increased year-on-year. The year-on-year decline in exports to South Korea narrowed sharply.
The year-on-year decline in exports to other emerging markets has mostly narrowed, and their exports have remained largely stable, while the drag from a high base has weakened. Exports to BRI economies fell 3.8% year-on-year, compared with a 12.1% year-on-year decline in March. Exports to African and Latin American economies also improved.
The year-on-year decline in exports of consumer goods narrowed sharply, and exports of IT products are still in an upward cycle
Exports of consumer goods weakened sharply from a 20.3% year-on-year increase in January-February to a 17.2% year-on-year decline in March, and narrowed sharply to 3.5% year-on-year in April. Among them, footwear fell the most year-on-year (down 14.9% year-on-year), and furniture exports returned to positive year-on-year growth (up 8.6% year-on-year).
The growth rate of exports of automobiles and auto parts rebounded to 14.5% from 11.8% in March. Auto exports maintained a year-on-year increase of 28.9%, and the year-on-year decline in auto parts exports narrowed to 1.1% from 4.3% in March.
Mobile phone exports improved to 7.7% year-on-year in April, with the decline in export volume narrowing while export prices grew steadily. Computer exports in April increased by 9.0% year-on-year, accelerating from the 6.2% year-on-year increase in March, and integrated circuit exports also improved. Exports of computers and integrated circuits both achieved positive year-on-year growth in the first four months of this year. The year-on-year growth rate of IT exports accelerated to 11.4% in April from 7.4% in March, which is in line with the continued technology upcycle reflected in other data.
Commodities and IT components supported overall imports
Imports of a basket of major commodities improved to 9.9% year-on-year from a 1.4% year-on-year decline in March. Imports of major commodities contributed 3.0 percentage points to overall import growth in April, compared with 0.4 percentage points in March. Among energy products, crude oil imports rebounded from a year-on-year decline of 3.0% in March to a year-on-year increase of 15.3%, with the growth rate of import volume and price growth accelerating. The year-on-year decline in coal imports narrowed. On the other hand, the year-on-year growth rate of natural gas imports slowed from 7.0% to 2.6%, and the price decline narrowed, but it could not fully offset the drag of the slowdown in import growth.
Among non-energy goods, the year-on-year growth rate of copper ore imports slowed to 13.8% in April from 15.3% in March, but still maintained solid growth. The growth rate of its import volume remained above 10%, and although the growth rate has slowed down, the import price has increased moderately. The year-on-year growth rate of iron ore imports improved to 7.5% from 5.6% previously, with import volume growth accelerating sharply, offsetting the year-on-year decline in prices.
The year-on-year growth rate of IT parts imports rose to 16.4% in April, compared with 2.2% previously, and the contribution of IT parts to import growth was 2.4 percentage points in April (0.3 percentage points in March). Year-to-date 2024 imports of IT components have increased year-on-year, in line with IT export growth and an improving global technology cycle. The year-on-year growth rate of computer imports rose to 52% from 28% in March, and the acceleration may be related to continued imports of computers related to generative AI.
Among imported products, the year-on-year growth rate of processing trade imports accelerated to 17.3% from 6.8% in March, indicating that the improvement in external demand supported the rebound in overall import growth to a certain extent. Imports of general trade goods turned from a year-on-year decline of 6.3% to a year-on-year increase of 4.1%. This may indicate an improvement in domestic demand, although last year's low base was also an important factor.
Exports are recovering steadily, and overall exports are likely to return to year-on-year growth in the coming months
Trade data from neighbouring economies suggest that external demand remains steady. For example, South Korea's exports accelerated year-on-year in April, and the month-on-month growth momentum also accelerated (three-month moving month-on-month growth), while Vietnam's trade data (adjusted for working days) also improved.
Survey data shows mixed performance of new orders. The US ISM manufacturing import orders index fell back to 51.9 in April, remaining in expansionary territory. The developed market PMI new orders index retreated, but the emerging market export new orders index rebounded. The PMI new orders index of the China Bureau of Statistics retreated, and the Caixin PMI index improved, but both remained in the month-on-month expansion range.
Based on the current data performance, from the beginning of the year to the second quarter, the continuous recovery of external demand has supported China's export performance, and the month-on-month growth momentum of exports is relatively stable, but the current data is not enough to confirm that export demand will rebound strongly. Given the continued decline in base in the coming months, the solid sequential growth momentum will likely push overall exports back to year-on-year growth. In view of the expected continued recovery in exports, we recently raised our full-year export growth forecast to 3.5%, compared to our previous forecast of 1.2% and a 5.0% year-on-year decline in 2023.
The U.S. dollar strengthened moderately, the renminbi weakened slightly against the U.S. dollar, and the size of foreign exchange reserves declined
Against the backdrop of further strength in the U.S. dollar index, the renminbi depreciated by 0.3% against the U.S. dollar at the end of April compared to the end of March. However, the renminbi appreciated against a basket of CFETs in April. As the dollar index has weakened since May, the renminbi has also appreciated slightly against the dollar.
Looking ahead, the fluctuations in interest rate differentials between China and the United States, US Treasury yields and the US dollar index will continue to affect the trend of the RMB exchange rate, and depreciation pressure may persist in the short term. On the other hand, we still expect the PBOC to use a variety of tools, including the reintroduction of a countercyclical factor in the central parity, to prevent the RMB from weakening significantly against the USD from the 7.3 level. Corresponding to UBS US team expecting the Fed to cut interest rates in the fourth quarter, we expect the RMB to appreciate to a range of 7.1-7.2 against the USD by the end of the year.
Foreign exchange reserves fell by US$44.8 billion in April from March to US$3.2 trillion. We estimate that the valuation loss from changes in the exchange rates of the major reserve currencies could amount to $19 billion. In addition, price corrections in global financial markets could result in additional valuation losses. Capital outflow pressures appear to persist in April. On the other hand, the widening of the trade surplus from March may partially offset the valuation losses.
