In an unforeseen turn of events, China's exports experienced a significant boost in March, driven by increased demand for electric vehicles. However, analysts warn that this growth may be temporary as suppliers fulfill outstanding orders disrupted by COVID-19 last year.
Contrary to economists' predictions of a 7.0% decline, exports in March soared 14.8% from a year ago, breaking a five-month streak of decreases. Analysts believe that the surge is primarily due to exporters hurrying to complete a backlog of orders disrupted by the pandemic, and they caution that the global demand outlook remains weak.
Zhiwei Zhang, chief economist at Pinpoint Asset Management, explained, "The wave of COVID outbreaks in December and January likely depleted factories' inventories. Now that factories are running at full capacity, they caught up on the cumulated orders from the past." He added, "The strong export growth is unlikely to sustain given the weak global macro outlook."
Conversely, imports fell less than expected, with economists citing increased purchases of agricultural products, particularly soybeans, as a contributing factor. Imports declined by a mere 1.4%, significantly less than the predicted 5.0% drop and the 10.2% contraction experienced in the previous two months. A reduction in copper imports was counterbalanced by increased imports of crude oil, iron ore, and soybeans.
Financial markets remained skeptical about the optimistic export data, although the Australian dollar, often considered an indicator of Chinese demand for commodities, experienced a slight uptick.
Lv Daliang, spokesperson for the General Administration of Customs, credited the unexpected rise in exports to robust demand for electric vehicles, solar products, and lithium batteries. Nevertheless, he cautioned that conditions could deteriorate in the future.
"The external environment is still severe and complicated at present," Lv said. "Sluggish external demand and geopolitical factors will bring greater challenges to China's trade development."
China's robust performance stands in contrast to other Asian exporters, such as South Korea and Vietnam, which have seen exports decline in early 2023, raising doubts about the sustainability of China's recent success.
Capital Economics analysts stated in a note, "We aren't convinced that this rebound will be sustained given the still gloomy outlook for foreign demand." They added, "We expect most developed economies to slip into recession this year and think that the downturn in Chinese exports still has some way to run before it reaches a bottom later this year."
In March, factory surveys revealed falling export orders, contrasting with more positive readings for the services sector, which has benefited from China's reopening. Recently appointed Premier Li Qiang has urged officials to explore every possible method to grow trade with developed economies and encourage companies to pursue emerging market economies, such as those in Southeast Asia.
Following stringent pandemic controls that severely impacted the economy, Beijing has set a growth target of around 5% for GDP this year. Last year's GDP growth was a mere 3%.
