- Trade one but most important topic after N. Korea when Trump and Xi meet
- Chinese import growth remains elevated, although some slowdown is expected
- Growth commodity import volumes slows further
US president Donald Trump will visit China today and tomorrow. While North Korea will likely be the most important issue to discuss with China’s president Xi, trade issues are probably the second most important one. The Chinese yuan has appreciated by around 4.5% versus the US dollar this year. The US including Trump have stopped threatening to call China a currency manipulator, although China remains on the US Treasury’s ‘watchlist’. However, China’s bilateral surplus versus the US has risen again in recent months. This partly reflects strong demand from the US, with Chinese exports to the US rising by 10.4% yoy in January-October. We should add that China’s imports from the US rose by around 18% yoy in the same period. All in all, as the US bilateral trade deficit with China is by far the largest, we expect this item to remain politically important. Trump will likely seize the opportunity to present key business deals with China, claiming these will lower the bilateral deficit.
Early today, China published foreign trade data for October. Imports in US dollars fell by 11.1% mom, but that happens every year reflecting the national holiday week that month. In annual terms, import growth remained solid at 17.2% yoy, a bit better than expected. Although this growth rate was a tad weaker than September’s number (+18.6%), import growth has been solid so far this year at 17% yoy in January-October. That contrasts sharply with an import contraction in 2016 (-5.7%) and 2015 (-14.2%). This recovery relates to the firming of domestic demand since Q4-2016, supporting emerging Asian economies and the global economy more broadly. Still, it also reflects the general rise in import prices as well as the pick-up of exports (part of China’s imports are strongly related to exports). In annual growth terms, imports from the EU and Asia were particularly strong in October. Going forward, we anticipate the pace of import growth to slow next year, in line with our expectation of a gradual slowdown in GDP growth.
Export growth in US dollars in October was reported at 6.9% yoy. That was slightly weaker than consensus expectation and also below September’s growth rate (+8.1% yoy). Still, looking through the monthly volatility of trade data, exports are also still in recovery mode. Despite concerns about trade protectionism, export growth has recovered to 7.5% yoy in January-October, compared with a contraction of -8.4% in 2016 and -2.3% in 2015. This recovery points to stronger external demand, as well as to the lagging effects of a more competitive yuan and rising export prices. The improvement is broad based in terms of export destination, with exports to the US up by an average of 10.5% yoy so far in 2017 (EU +8%,Japan +4.5%, ASEAN +5.2%, Brazil +33%, Russia +17%). We expect export growth to slow moderately in 2018, compared to 2017.
Looking more specifically at commodity imports, import volume growth has clearly trended down in the course of this year. Import volumes obviously came down in October on a mom basis reflecting the national holiday week. However, in annual growth terms, oil imports remained solid at 7.8% yoy, whereas iron ore (-1.6% yoy) and copper ore (+0.7% yoy) did much weaker. Looking through the monthly volatilility of these data by using 12 months moving averages, we can see that import volume growth has fallen sharply for copper ore but also for iron ore and oil. However, particularly oil import volume growth is still solid at an average of 12.4% in the past twelve months.