China’s Trade Likely Shrank in January Ahead of Holiday Shutdown

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China’s foreign trade likely contracted in January from a strong rebound in December, reflecting the usual volatility around the nationwide shutdown for the Lunar New Year holiday.

China’s imports likely declined 3% and exports by 4% from a year earlier, according to a survey of economists ahead of the data, which is due on Friday morning in Beijing. The release will give a first glimpse of this year’s imports from the U.S., which will need to grow substantially if China is to meet the targets it agreed to under a preliminary trade deal with Washington.

China’s Trade Likely Shrank in January Ahead of Holiday Shutdown

Since the country went on holidays ahead of the Jan. 25 new year, the outbreak of the coronavirus has become increasingly serious, with numerous cities quarantined and the break extended for up to a week in other parts of the country. The disruptions from that will mostly be felt in data for February, which is when you would normally see a rise in output and exports as people and companies return to work.

“We expect February and Q1 trade data to be much weaker than usual due to reduced working days and delays in transport and production,“ according to Wang Tao, chief China economists at UBS Group AG, who revised down her forecast for full year growth in exports and imports. Assuming the outbreak is controlled by the end of March, there should be an economic rebound from April, she said.

China will need to substantially ramp up its imports from the U.S. following the phase one deal inked on Jan. 15, although that may be difficult, considering total imports from the world actually fell in 2019.

China’s Trade Likely Shrank in January Ahead of Holiday Shutdown

In the preliminary trade deal, China agreed to increase its U.S. imports, including agricultural products and services, from 2017 levels by no less than $200 billion over the next two years. However, authorities in Beijing are hoping the U.S. will agree to some flexibility on pledges in their phase-one trade deal, people close to the situation said earlier this week.

Chinese firms’ purchase of U.S. goods will be delayed in the first quarter due to the coronavirus outbreak, but they can increase buying later, according to a commentary in state media this week from Gao Lingyun, a researcher at the Chinese Academy of Social Sciences.

The trade surplus “will be more volatile from February, when Lunar New Year distortions fully take hold,” Freya Beamish, Chief Asia Economist at Pantheon Macroeconomics, said in a report to clients this week. “The adjusted surplus likely will remain stable, for now, despite China’s import pledges under Phase One.”

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