China’s Exports Slump as Coronavirus Forces Shutdowns

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China’s exports fell more than expected in the first two months of this year as the coronavirus outbreak led to extended holidays, depressed factory output, and blocked transport and movement across the country. Imports also declined, although increases in commodities purchases offset some of that.

The drop in exports was a bigger-than-expected 17.2% in dollar terms, while imports declined 4%, according to a statement from Chinese customs Saturday. While the trade surplus with the U.S. shrank, it’s probably too early to see a strong effect from the deal with the Trump administration, which was signed in January but only went into effect in mid-February.

The first two months are normally volatile for China’s economic activity due to a week-long lunar new year holiday, and this year is more unusual due to the coronavirus epidemic. The holiday, as well as quarantine and containment measures, shut down much of the economy for weeks, disrupting travel, production and transport, and the economy is still struggling to return to pre-virus levels even as the government pushes companies to restart.

“It’s hard to forecast the trend based on January-February data because these two months are quite special, but given that the coronavirus is now spreading across the world, March data won’t look so good either,” according to Larry Hu, chief China economist at Macquarie Group Ltd in Hong Kong. “China’s economic growth mainly relies on exports, real estate and infrastructure. The outlook of exports and the property market this year isn’t so optimistic, so China will likely ramp up infrastructure investment.”

Trade Deficit

Imports of commodities rose, with purchase of soybeans up 14.2%, iron ore rising 1.5%, coal climbing 33.1% and liquefied natural gas increasing 2.8%. The overall trade balance fell to a deficit of $7.1 billion for the first two months.

What Bloomberg’s Economists Say...

The outlook for trade will hinge on China’s progress in getting its economy restarted and exports should rebound to growth in the coming months as exporters start delivering existing orders. However, a lot depends on what happens with external demand, and the impact of the virus on imports will become more evident in the coming months.

-- David Qu, Bloomberg Economics

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The disruptions from the virus may also jeopardize China’s ability to meet its commitments to the U.S under the terms of the trade deal, as it could affect Chinese demand for American goods. China agreed to increase its imports of U.S. goods and services by $76.7 billion over the level in 2017 in the first year of the deal, and then by $123.3 billion in the second year, increasing imports by a total $200 billion.

Exports to the U.S. fell almost 28% in the first two months of the year, while imports rose 2.5%. That meant the trade surplus narrowed about 40% to $25.4 billion. Data released Friday U.S. time showed that the U.S. trade deficit with China narrowed in January as imports dropped and exports rose slightly.

“The growth in imports from the U.S. is pushed by the phase-one deal,” according to Zhou Hao, an economist at Commerzbank AG in Singapore. “The reason that imports were better than exports overall is that the main problems for China are on the production side.”

It’s hard to forecast whether that will continue to be the case as external demand could also decline due to the spreading outbreak, even if China’s production ability recovers, according to Zhou.

The contraction in trade in the first two months was mainly due to the virus outbreak and the extended lunar new year holiday, and the impact on imports is not yet significant, according to a statement on the customs administration’s website.

Almost 81% of 2,552 companies involved in trade have resumed operations, according to a customs administration survey. There were no more details on that, but other reports have shown that even if companies have returned to work, their capacity hasn’t returned to the level it was before the extended holiday and disease outbreak.

This was the first time that customs has combined the data for the first two months of the year, and not released figures just for January.

--With assistance from Tomoko Sato.

To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net;Lin Zhu in Beijing at lzhu243@bloomberg.net

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, James Mayger, Stanley James

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With assistance from Bloomberg