Coronavirus: China’s trade recovery to be short-lived with overseas demand set to fall amid Covid-19



Andrew Mullen and Orange Wang | South China Morning Post

China’s exports only fell 6.6 per cent in March after having contracted 17.2 per cent in combined figures for January and February. But with global demand set to drop amid antivirus measures in US and Europe, analysts have warned of a substantial fall in the coming months.

China’s mild trade recovery in March should be taken with a pinch of salt, with overseas demand for its products set to fall further in the coming months under pressure from the coronavirus outbreak.

Exports from the world’s second largest economy still fell by 6.6 per cent in US dollar terms in March compared to a year earlier, but having suffered a 17.2 per cent contraction in combined figures for January and February, this could on the surface be seen as a rare piece of positive economic news. It also beat the 13.9 per cent decline predicted in the median forecast of analysts surveyed by Bloomberg.

Data released on Tuesday by the General Administration of Customs also showed imports only dropped 0.9 per cent from a year earlier, compared to a 4 per cent decline in January and February. Analysts surveyed by Bloomberg had predicted imports to drop 9.5 per cent.

But while China reported just three domestic cases and zero coronavirus deaths on Tuesday, its main trading partners – particularly the United States and Europe – are still getting to grips with the pandemic, which is expected to lead to a drop in overseas orders in the period ahead.

“Shipments picked up last month as factories reopened and domestic demand began to recover. But with economic activity in the rest of the world now collapsing, the worst is still to come for China’s export sector,” said Julian Evans-Pritchard, senior China Economist at Capital Economics.

“Foreign demand will slump this quarter as Covid-19 weighs on economic activity outside of China. Imports should hold up better given that domestic demand looks set to stage a further recovery in the coming months. But since a sizeable portion of imports feed into China’s export sector, inbound shipments will also come under pressure.”

Figures showed that China’s manufacturing engine bounced back strongly in March from an all-time low in February, but crucially the new export orders element of the official manufacturing purchasing managers’ index (PMI) remained negative. 

The PMI, a survey of sentiment among factory owners – was 52.0 in March, up from 35.7 in February. A reading above 50 shows growth in the sector, while the further below 50, the deeper the contraction.

And while the new orders element of the manufacturing PMI was also 52.0 in March, suggesting producers are positive about the month ahead domestically, the new export orders element continued to show contraction at 46.4.

“Sliding global demand amid lockdowns and social distancing measures implemented in China’s trading partners means that China’s exports will fall more substantially in upcoming months,” said Louis Kuijs, head of Asia economics at Oxford Economics.

“Looking ahead, we expect imports to be under pressure as consumers remain reluctant, while demand for inputs used in exports will falter.”

Overall in the first quarter of 2020, China’s exports dropped 13.3 per cent, with imports were down 2.9 per cent.


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