Cristian Maggio, Head of Emerging Markets Strategy at TDS, suggests that after the week-long closure due to the Lunar New Year celebrations, we had two surprises on the China front. Key Quotes “On the one hand, a really poor trade report saw both exports and imports crashing: • Exports -11.2% Y/Y (cons: -1.8% prior: -1.4%) • Imports -18.8% Y/Y (cons: -3.6% prior -7.6%) and the trade surplus bouncing to $63.3bn in January, up from $60.1bn in the prior month and higher than consensus’ $60.6bn. Both prices and volumes eased, but New Year’s distortions in trade demand some caution. To minimise seasonal effects, we look at the rolling 12-month trade balance, the rise of which appears even more staggering at $604.4bn, up $4bn from December and $194.3bn since Jan 2015. However, as the rise in the trade surplus comes at a time that exports are falling, it means that imports are falling faster. On a seasonally adjusted basis, imports dropped to $116.1bn in January, the lowest level since August 2010. From a local market perspective, this may be a good development as it reduces negative pressure on the renminbi, but it leaves little hope that China will actively contribute to pushing regional growth faster in the coming months. Alternatively, one could focus on the dynamic of re-exports vs re-imports, which helps measure the value of the assembly processing and feed processing chains between China and its trading partners. A slow but steady decline since late 2012 continues to subtract demand for the countries that manufacture low-cost products for China, especially Southeast Asians.” For more information, read our latest forex news.