China Posts Trade Blip, Soft Credit as Upbeat GDP Report Awaited

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(Bloomberg) -- China’s overseas shipments posted a decline on seasonal effects around the Lunar New Year holiday, and credit growth slowed -- two final data points for a first quarter that’s expected to show a pace of expansion matching that at the end of 2017.

  • Exports fell 2.7% in March from a year earlier after soaring in February 
  • The trade balance showed first deficit since Feb. 2017, of $4.98 billion
  • New yuan loans and aggregate financing came in below estimates
  • Broad M2 money supply growth slowed to 8.2 percent in March

Trade disputes have been escalating as President Donald Trump threatened tariffs on some $150 billion of imports from China, and Beijing announced potential retaliation, though those tensions haven’t been decisive for businesses yet. And even as a push to curb excess credit digs in, economists estimate that the economy expanded at 6.8 percent in the first quarter.

Gross domestic product data is due for official release at 10 a.m. Tuesday in Beijing, along with retail sales, industrial production and fixed-asset investment.

Economists said that the fall in exports was due to seasonal effects because the week-long holiday fell in mid-February, weighing on March exports, while the year-earlier comparison was elevated because the week-long break began in January the prior year.

What Our Economists Say:

The export drop reflects “seasonal effects and payback for February’s outsize growth, not the impact of simmering trade tensions,” Bloomberg economists Tom Orlik and Fielding Chen wrote in a note. “Looking at exports for the first quarter as a whole, the pace of increase remains remarkably robust, with strong global demand the main factor. Tweeted tariff threats are still some way from real-world policy impact.”

The trade surplus with the U.S. widened to $15.4 billion, the most in more than a year, Bloomberg calculations show. Deficits with Taiwan, South Korea and Germany all widened.

“The trade deficit is only a temporary phenomenon, and not a new normal at all, as it was mainly driven by imports of energy products, which are volatile import items,” said Iris Pang, an economist at ING Groep NV in Hong Kong. “The drop in raw materials exports was due to late resumption of work at factories.”

The credit data show that the crackdown on shadow banking is weighing on credit growth. That adds to uncertainties facing the economy and suggests that efforts to rein in debt and ensure stability are taking effect as President Xi Jinping prepares the economy for a broader financial opening-up to the world.

The total amount of shadow banking credit in the economy saw a net decline in the first quarter. The main reason for that was a drop in entrusted loans, which are organized by a bank between borrowers and lenders.

Read More: Credit Growth Trails Estimates Amid Debt Cleanup

While the expansion and global growth both remain robust, Friday’s trade data suggest that both have probably peaked, according to Macquarie Group Ltd.

“The Chinese economy should be at a late-cycle stage and we expect import growth to soften in the coming months,” economists Larry Hu and Irene Wu wrote in a note, citing strong yuan appreciation over the past year, the country’s slowest producer-price inflation since late 2016, and weaker March manufacturing readings for Europe, Japan and the U.S.

Soybean Volume

Import volumes for soybeans increased just 0.2 percent in the first quarter, compared with a 20 percent rise a year earlier. China is the biggest buyer of American soybeans, picking up about one-third of the entire U.S. crop, which it uses largely to feed 400 million or so pigs.

“We hope both China and the U.S. can solve the disputes with wisdom and respect, in a constructive way,” Huang Songping, a spokesman for the customs administration, said Friday at a briefing in Beijing. “We hope trade relations can return to the track of healthy and stable development.”

First quarter data were affected by currency effects as well as the later holiday. The yuan increased 3.7 percent in the first three months for the biggest gain in a decade.

“What’s most important is demand conditions,” Grace Ng, a China economist at JPMorgan Chase & Co. in Hong Kong, said Friday in a Bloomberg Television interview. “What we’ve seen since the second half of last year from a global perspective is pretty strong demand generally on consumers and capex so that’s rather supportive for China’s exports.”

©2018 Bloomberg L.P.

With assistance from Xiaoqing Pi, Miao Han, Yinan Zhao

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