April exports plummeted after a strong March, but the volatility is less meaningful than it appears
By guest author Nathaniel Taplin from Wall Street Journal
Just a month ago, many investors were convinced China’s economy was on the mend. What a difference a few weeks make.
Not only have trade tensions with the U.S. unexpectedly ramped up again, but April data has come in broadly weak: first the purchasing managers index, and now exports. Up 14% from a year earlier in March, exports crashed in April, down 2.7 % from a year earlier.
But, the numbers do not yet add up to a double-dip slowdown. Several one-off factors made data for the first quarter, particularly March, look better than it really was. April PMI and export figures, by contrast, are less worrying than they appear. China is still enjoying a recovery, albeit relatively weak and early-stage.
What made first-quarter 2019 look so good? For one thing, first-quarter 2018, when China ran its first quarterly trade deficit since 2014 due to the shifting dates of the Lunar New Year holiday and high prices for oil and other imports. That meant impressive net-export growth was already baked into the cake for first quarter 2019, flattering headline economic growth. A big cut in the value-added tax that took effect April 1 probably also caused exporters to rush shipments to retain a higher export-tax rebate, siphoning off some exports from April.
Looking forward, there are a few reasons for optimism. Following a full-court press from regulators, banks are lending to small businesses again. New export orders have rebounded. And imports also ticked up in April, although the VAT cut may have distorted that too—importers may have delayed purchases to secure the lower rate.
There are also good reasons to worry. Renewed trade concerns are punishing Chinese stocks, and a loss of confidence could derail the nascent rebound in borrowing. If new export orders or credit growth starts flagging again, be prepared this summer for poor growth numbers—and firmer Chinese policy support.