China’s import surprise offers hope as recovery risks linger

China’s trade data for October offered a mixed picture for the economy’s outlook, as an unexpected pickup in imports was offset by signs that global demand for Chinese goods is struggling to gain traction.

Imports rose 3% from a year earlier last month, the first gain in eight months and bucking the consensus forecast for a drop. Overseas shipments dropped 6.4%, worse than expectations. The resulting trade surplus was $56.5 billion. 

The data underlines the fragility of the recovery in the final three months of 2023. Import growth suggests domestic demand may be recovering, but the decline in exports was a big disappointment for a period that should have been more favorable: This October compared to a month in 2022 when the pandemic and controls to contain it disrupted logistics and production.

“Exports conditions remain fragile,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Plc. “We’ll need more real activity data to verify whether the strong imports data indicates a recovery in domestic demand.”

China stocks maintained  losses after the data release. The Hang Seng China Enterprises Index dropped 1.6% and the CSI 300 Index declined 0.7% as of the mid-day break. Chinese stocks traded weak in the morning session as part of a selloff across Asia on fresh doubts over the Federal Reserve’s policy path.

Investors are assessing the sustainability of China’s economic recovery. While figures in recent months have shown improvement, the rebound remains uncertain amid low consumer and business confidence. Economic data for October pointed to weakness in the manufacturing and services sectors. Official statistics this week are likely to show consumer prices slid back into deflation last month.

Economies elsewhere in the region had offered some positive signs for trade. South Korea’s exports — which are seen as a bellwether for global demand and Asia exports — rose for the first time since late last year in October. That has fueled hopes for an improvement in tech industries such as semiconductors. 

What Bloomberg Economics Says...

“Domestic manufacturing demand is picking up as stimulus feeds through the economy. On the downside, though, a bigger drop in exports — despite a more supportive base effect — suggests global demand is weakening. Putting the two together, reduced support from net exports poses downside risks to growth.”

Eric Zhu, economist

For China, however, exports to the US declined 8.2% in the first 10 months from a year ago in dollar terms, while that to the European Union dropped 12.6%, according to customs data.

The PBOC’s strong control on the daily yuan fixing to support the exchange rate — at a level unseen for well over a decade — may undermine the competitiveness of Chinese exports and encourage imports, according to Ken Cheung, chief Asian FX strategist at Mizuho Bank Ltd.

Recent fiscal stimulus including an additional 1 trillion yuan of sovereign debt to support infrastructure construction may also drive Chinese producers to pile up inventories for materials and boosted imports, he said.

The volume of China’s crude oil imports climbed 14.4% in the first 10 months of the year from a year ago, while that of coal surged 66.8%, according to customs data.