Economics China Economic Comment - May Exports Beat Expectation Again

China’s exports slowed to -3.3% year over year in May from April’s 3.5%,stronger than expected again. Resilience was likely boosted by acceleration of anti-COVID-19 related exports, which may have accounted for 8-9% of total exports in May.

08 Jun 2020

Anti-virus products and computers surged, while garment & footwear slid in recent months

Source: CEIC, UBS estimates

This line chart illustrates the export value growth of several products, including textiles, medical instruments, garments, footwear and ADP, from 2017 to 2020.

Exports beat expectation again, thanks to anti-virus and electronics orders...

China’s exports only slowed to -3.3% year over year in May from April’s robust reading of 3.5%, stronger than expected again (BBG average -6.5%). Such resilience was likely boosted by sharp acceleration of anti-COVID-19 related exports, which may have accounted for 8-9% of total exports in May (UBSe: $17-19bn), notably higher than 4% in April and merely negligible in Q1 and 2019. Echoing this, export growth of textile and medical instruments surged further from ~50% year over year to 77%/89%. Therefore, China’s exports excluding anti-virus products may have declined by >10% in May, much weaker than the headline growth. In addition, hi-tech exports stayed robust at 8%, especially some electronics goods, e.g. ADP (computers, 48%, likely due to rising need of “working from home”) and electronic ICs (19%). In contrast, some ordinary consumer products weakened notably, e.g. garments (-27%), footwear (-45%), furniture (-15%), etc

....with resilient shipment to G3 while sliding exports to HKT/BRI/ASEAN

By export destination, HKT (HK/Taiwan/Korea), BRI (Brazil/Russia/India), and ASEAN led the slowdown, sliding by 10-13ppt from April growth. On the other hand, export growth to G3 only edged down by 3.7ppt to a robust pace of 6.5%, with those to US down by 3.5ppt to -1% on a high base, while those to EU even picking up by 3ppt to 14%. Robust exports to G3 seem to contradict the sharp slowdown of developed economies’ growth in April and May. It may be related with surging exports of anti-virus products and continued delivery of previous backlog orders.

Imports weakened across the board, except for some agricultural products

China’s import growth slid by 2.5ppt to -16.7% year over year in May, weaker than expected (BBG average: -7.9%). The weakness was across major partners, with those from G3 sliding by 5ppt to -15.5%, ASEAN and HKT down by 2-3ppt to -5.7%/-4.6%, and commodity producers down by 4ppt to -14.9%. The sharp decline of commodity prices was to blame, dragging down import value of crude oil to -55%, while its import volume jumped notably by 27ppt to 19%. Import volume of iron ore and copper ore both dipped in May, possibly indicating soft related domestic demand. In contrast, import growth of agricultural goods picked up by 6ppt to 12%, in particular soybean and grain (both up by 40ppt to 25%/29%), partly helped by China’s increasing purchase of US agricultural goods. In addition, imports of some electronics products stayed resilient, e.g. ADPs (+55%), electronic ICs (+11%), possibly related to their strong exports and front-running activities amid further tightening of US tech restrictions on China.

Trade deal: China fell behind the purchase schedule, but accelerating lately

China’s imports from the US slid further by 2.4ppt to 13.5% year over year, leading to YTD decline of 7%. It seems China has been falling behind its purchase schedule in the Phase One deal. The latest data from US Census suggests that US goods exports to China on the shopping list in the Phase One deal recorded $21bn in January-April, or 14% of its 2020 annual target. US exports of manufactured goods (19% of annual target) saw more progress than energy products (3% of annual target), with low energy prices to blame. From alternative statistics from the USDA, in the first 5 months, China’s import volume of most US agricultural goods picked up notably from its 2017 level, except soybean and wheat. In particular, China’s YTD imports of pork were >210% higher than 2017 and those of corn 440% higher. More importantly, the pace of China purchase accelerated sharply in April and May from Q1’s weakness, with most agricultural goods more than doubling import volume from the same period in 2017. This echoes the USTR Lighthizer’s recent comment of feeling "very good" about the progress of the Phase One.

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