China’s economy to take time to regain its mojo: 7 takeaways from December’s trade, inflation data

Overall in 2023, China’s exports fell by 4.6 per cent to US$3.38 trillion, year on year, below Wind’s prediction of a 1.8 per cent increase.

2. Imports ‘sluggish’ in December

China’s imports rose by 0.2 per cent in December from a year earlier to US$228.2 billion, bouncing back from a drop of 0.6 per cent in November.

But the reading was lower than the 0.3 per cent increase predicted by Wind.

Analysts at Nomura said import growth remained “sluggish” in December, with the weakness driven by the processing trade, pointing to multinational corporations withdrawing investment and earnings and moving factories out of China.

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“In volume terms, imports appear to have been broadly unchanged in December following a pullback the previous month,” said analysts at Capital Economics.

“But it’s too early to conclude that last year’s rebound, initially due to reopening effects and subsequently thanks to policy stimulus, has already run its course.”

Overall in 2023, China’s imports declined by 5.5 per cent to US$2.56 trillion last year, below expectations set by Wind for an increase of 1.8 per cent.

3. Trade surplus grows as exports rise more than imports

In December, China’s total trade surplus was US$75.3 billion, up from US$68.3 billion in November.

“China’s trade surplus grew in December as exports rose more than imports. This brings 2023 to a good finish as it is the first time in the year that both exports and imports recorded gains on a year-earlier basis,” said analysts at Moody’s Analytics.

Overall last year, China’s total trade declined by 5 per cent to US$5.94 trillion, year on year.

4. China’s exports continue to show divergence

China’s shipments to the United States declined by 6.89 per cent year on year in December, having grown for the first time in 16 months in November.

Exports to the European Union fell by 1.93 per cent in December, narrowing from a fall of 14.51 per cent in November.

China’s exports to the Association of Southeast Asian Nations dropped by 6.14 per cent from a year earlier in December, up from a fall of 7.07 per cent in November.

Of its major trading partners, trade with Russia grew the fastest at 26.3 per cent year on year in 2023. Exports to Russia surged by 46.9 per cent, while imports from Russia grew by 12.7 per cent.

“In December, exports by region continued to show divergence. Overall, China’s trading partners are becoming more diversified,” said analysts at HSBC.

5. Weak food prices drag down CPI

Food was a major driver for the change in December, said analysts at Nomura, while they also pointed to non-food price inflation inching up.

Analysts at HSBC agreed the “main drag of headline CPI continued to stem from the weak food prices”, pointing particularly to pork prices.

“The rebound in the year-on-year CPI reading was due to a sequential rise in some major components, as CPI inflation rebounded to 0.1 per cent month on month in December from minus 0.5 per cent in November,” said the analysts at Nomura.

“Following the much weaker-than-expected reading for November, the latest December figure suggests economic momentum remained weak and that the latest economic dip is ongoing.”

Overall last year, the annual CPI reading stood at a 13-year low of 0.2 per cent.

6. Lacklustre domestic demand, downturn in global energy prices drag down PPI

China’s producer price index (PPI), which measures costs for goods at the factory gate, fell for the 15th consecutive month in December after dropping by 2.7 per cent year on year.

This was lower than the estimated dip of 2.6 per cent polled by Wind, after the gauge had fallen by 3 per cent in the previous month.

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The moderate uptick in December was largely driven by a lower base from last year, said analysts at Nomura.

“The continued weakness in PPI inflation in December is largely due to lacklustre domestic demand and the continued downturn in global energy prices,” they said.

7. What’s expected for China’s trade, inflation in 2024?

In terms of trade, analysts at Moody’s Analytics expect China’s exports growth in the opening six months of the year to be capped as high borrowing costs keep global demand soft.

“As borrowing costs ease, trade should benefit. Meanwhile, the domestic economy will take its time to fully regain their mojo,” they said.

HSBC trade economist Shanella Rajanayagam expects global trade to rise moderately in 2024 at 1.8 per cent year on year from an estimated minus 0.7 per cent in 2023.

“On China’s import demand, we expect the government to remain supportive to further unleash investment and consumption demand. We expect a soft landing for the property market which could further enhance consumer confidence,” said analysts at HSBC.

In terms of inflation, Nomura expects China’s CPI inflation to remain low at 0.6 per cent in 2024, with the gauge expected to fall back to minus 0.8 per cent year on year in January.

They expect PPI inflation to rise to minus 2.4 per cent in January due to rising crude oil prices.

“Chinese New Year effects mean that inflation will be volatile in the near-term. But over the course of this year, we think that food and energy price deflation will continue to ease, while the ongoing cyclical recovery in economic activity will underpin a slight rise in core inflation,” said analysts at Capital Economics.

“That said, weak global growth and continued overinvestment in China means that deflation risks will continue to hang over its economy for some time.”