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China’s trade surplus surges in December boosted by strong export

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 13, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

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    FXStreet (Mumbai) - China’s December trade data took the market by surprise. Fortunately for China, the surprise was a pleasant one. Official data showed a surge in China’s trade surplus. The exports figure brought a sense of relief to the tense policy makers who had been distraught following the sharp fall in stock prices last week. Exports rose for the first time since February 2015. Year on year exports increased 2.3%, much better than the 4.1% plunge expected. Exports to Hong Kong rose 10.8 per cent in December while and exports to the U.K. jumped 19.6 per cent in dollar terms. The trade balance widened to $60 billion. It helped to offset capital outflows that raised the fear of a capital crunch in the economy and had kept the yuan under pressure.

    Imports declined for the 14th month. Imports dropped 4.0 per cent in local currency, less than the 7.9 per cent drop expected in December, marking the smallest decline since December 2014. In U.S. dollar terms, imports fell 7.6 per cent from a year earlier, less than the 11 per cent drop estimated. Data released by the Beijing-based General Administration of Customs today also showed China imported a record amount of crude in 2015 as slump in oil price prompted stockpiling. China increased imports by 8.8 per cent to a record 334 million metric tons in 2015.

    According to Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd., the Chinese trade data signifies economy is gradually stabilizing and not collapsing as feared by markets. Also, he added that a surge in trade surplus will lower the possibility of further devaluation of the yuan. The PBoC had devalued the yuan twice last week before setting it higher on Friday with the objective to help exporters. Last week’s slide in shares and eventual suspension of trading activities on Monday and then again on Thursday and the central bank’s measures to guide the yuan lower led economists question the health of the Chinese economy. Growth had slipped to below 7 per cent for the first time since the financial crisis in the third quarter. It is being feared that the economy grew at the slowest pace in a quarter of a century in 2015. Factors such as these caused the investors to become a little jittery. If China has to restore the faith of investors in its economy, it has to post strong figures to indicate that recovery is in process and calm fears of a slow-down in the world’s second largest economy.

    Yuan devaluation was largely to help exporters. But guiding the currency lower had its own disadvantages. It resulted in capital flight as investors yanked capital from the China to park it overseas markets. Strong export figures will now reduce the pressure on policy makers to further devalue the yuan.

    Market impact

    Post the release of the report, the Australian dollar and S&P 500 Index futures showed considerable jump. The MSCI Asia Pacific Index on the other hand climbed 2 per cent as of 12:55 p.m. Hong Kong time. The yuan strengthened in the offshore market, heading for the biggest five-day advance.

    Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong feels that today’s data could mark the “beginning of an improvement in China’s trade data". He further added "When the exchange rate starts to move it usually takes about three to six months for trade data to respond. Last August was the beginning, so it makes sense for the trade data to respond after three to four months. "He also opined that a stable exchange rate in coming days will enable China to become more competitive.

    Spokesman for the customs office however noted that enthusiasm over a strong exports data may be short lived. He said that the increase in exports seen in December may was likely due to a temporary seasonal jump at the end of the year and does not necessarily represent a trend.

    Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong also feels that the improvement is probably temporary. He explained "There will be some front-loading of shipments before the Chinese New Year, but that boost could fizzle again quickly thereafter”. He also warned that exports cannot be expected to end China’s economic woes. Domestic demand, he feels will remain the main growth driver.
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