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China on Thursday reported exports and imports data for January that surprisingly exceeded expectations, although analysts see trade weakness to resume.

Figures from the country’s customs showed dollar-denominated exports for last month grew 9.1 percent from a year earlier, defying forecasts of a 3.2 percent decline and recovering from December’s 4.4 percent drop.

Imports were down 1.5 percent, but still came in better than economists’ estimate of a 10 percent slump and shrinking from the 7.6 percent fall booked in December.

That left China with an overall trade surplus of $39.16 billion in January, which easily beat the expected $33.5 billion, although it was below December’s trade surplus of $57.06 billion.

The country’s trade surplus with the US slipped to $27.3 billion last month, from $29.87 billion in December. That is the lowest since May 2018, Thursday’s report showed.

Fleeting Sustainability

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While the data offered good news, numbers from the world’s second-largest economy early in the year should be treated with caution due to business distortions triggered by the timing of the week-long Lunar New Year public holiday, according to analysts.

Ahead of the Chinese New Year, which began on February 4, several companies had rushed out shipments or restocked their inventories of raw materials.

Asia Equity Strategist Mixo Das said he would not read too much into a single data point, especially with the presence of such distortions like the national holidays, cyclical trends, and ongoing structural changes.

Das still expects China’s economy to falter in the first half of 2019, while economists had widely signaled weaker exports early this year.

The country’s economy expanded at slow rate of 6.6 percent in 2018 due to growing borrowing costs and a crackdown on riskier lending that deteriorated smaller, private companies’ capital and curbed investment.   

Clearly, the numbers surprised the market on the upside, but given the deceleration of global (factory readings) and weak Korean trade data, it might be pre-mature to conclude that the trade prospect has improved based on the January number alone, China Economist Tommy Xie stated.

Xie added that he suspects the recovery may be partially due to the Lunar New Year effect as this 2019 it is slightly earlier as compared to last year.

Factory orders overseas have contracted for months and warehouses in the US are completely filled with Chinese products that retailers stored in 2018 in preparation for further US tariffs.

Trade has also been losing momentum worldwide amid increasing protectionism and a slowdown in some key economies, particularly in Europe.

Thursday’s report comes as US and Chinese officials engaged in new round of trade talks in Beijing this week aimed at establishing a deal.

The world’s two biggest economies are trying to seal a trade agreement ahead of March 1 deadline when US duties on $200 billion of Chinese imports are set to advanced sharply at 25 percent from 10 percent if no deal materializes by then.

Based on the positive signals regarding the US-China trade negotiations, head of Asia economics Louis Kujis said they think it is likely that further tariff hikes will be suspended.

An agreement and prolonged tariff suspension would be an obvious plus and imply an upside risk to growth of China’s exports and economy more generally, Kujis added.

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