China’s trade fell less than expected but more pain lies ahead

China’s trade performed better than expected in March, though economists said the full impact of the shutdowns rippling across the global economy are yet to be felt.

Exports declined 6.6% in dollar terms in March from a year earlier, while imports fell 0.9%, the customs administration said Tuesday. Economists had forecast that exports would decline by 13.9% while imports would shrink by 9.8%. The trade balance narrowed to $19.9 billion in the month.

The data indicate that global supply chains took less of an initial hit than thought, and that China’s gradual economic restart is proceeding. At the same time, with the European economy heading for a double digit decline in the first half and severe lockdowns still in place in the U.S. and elsewhere, there is more pain ahead for China’s exporters.

“Exports did better than people thought as most exporters only saw orders canceled since the middle of the month,” said Zhou Xue, an economist at Mizuho Securities Asia Ltd. in Hong Kong. “The expected plunge in exports was not fully reflected in the data and the second quarter could be much worse.”

Gross domestic product data for the first quarter is due for release on Friday, with the median estimate of economists surveyed by Bloomberg showing a contraction of 6% in the first quarter from a year earlier.

The Association of South East Asian Nations became China’s biggest trading partner bloc, surpassing the European Union, partly due to the effect of Brexit but also increasing regional semiconductor trade, the customs administration Spokesman Li Kuiwen said at a press conference in Beijing.

Now, even as the domestic virus situation is improving, more and more of China’s overseas markets are locking down. That will hit not only demand for China’s goods, but could also damage the supply of raw materials and intermediate components.

“Export orders have been stopped by U.S. and Europe importers after early March as the number of city lockdowns increased. This will affect April’s exports,” according to Iris Pang, an economist at ING NV in Hong Kong. “Unless the world relaxes measures of social distancing after relaxing lockdowns altogether, trade flows will be disrupted, exporters will face dismal demand from the whole world.”

What Our Economists Say…

Upside surprises to China’s exports and imports for March suggest production is recovering faster than expected. That said, it’s likely the readings were buoyed by deliveries on orders made before the pandemic hammered the economy—meaning the true picture of trade is probably weaker than the data suggest.

David Qu, Bloomberg economist

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Policy makers across the globe have rushed to introduce stimulus to help their economies over the shutdowns and social distancing, but there’s little hard evidence of a peak in infections yet. In China, the State Council has ordered more measures to “stabilize trade,” including building more cross-border e-commerce zones and moving the main trade fair online.

The World Trade Organization said last week that this year could see the worst collapse in international trade since the Great Depression. Their optimistic scenario saw a 13% drop in the volume of international goods trade in 2020, worse than the 12% fall during the financial crisis in 2009. Their pessimistic scenario sees the volume of global goods trade dropping by as much as 32% this year.

“There were some catch up effects in March, which can be tracked from the port throughput data as most ports at least reported data improvement,” said Zhou Hao, senior emerging markets economist at Commerzbank AG in Singapore. “However, the overall trade picture remains challenging if we track the high-frequency data from South Korea and recent news that many Chinese firms are facing plunging orders.”