China trade surplus swells as exports rise in December

Exports climbed 2.3% in yuan terms from a year earlier, the customs administration said Wednesday, compared with a 3.7% drop in November

China's trade surplus widened and exports recovered last month, offering support to a weakening currency that has roiled global markets this year.

The nation's trade balance widened to $60 billion, taking the full-year tally to $594.5 billion, helping offset capital outflows that have pressured the yuan. Exports slid 1.4 per cent in US dollar terms in December from a year earlier, and rose when counted in the local currency.

Asian equities and the Australian dollar climbed. China's tumbling shares, which fell again Wednesday, and its weakening currency have shaken global markets in 2016, eroding confidence in an economy that's struggling to stabilise after it likely grew last year at the slowest pace in a quarter of a century.

"The Chinese economy is stabilising rather than collapsing," said Shane Oliver, head of investment strategy and chief economist at AMP Capital Investors Ltd in Sydney, adding that the trade surplus weakens the case for a substantial yuan depreciation. "Last week's renewed share market turmoil in China owed more to regulatory issues around the share market than telling us much about the state of the Chinese economy."

Exports climbed 2.3 per cent in yuan terms from a year earlier, the customs administration said Wednesday, compared with a 3.7 per cent drop in November. Imports extended a stretch of declines to 14 months, falling 4 per cent in yuan terms, compared with a 5.6 per cent drop a month earlier.

In US dollar terms, imports fell 7.6 per cent from a year earlier, less than the 11 per cent drop forecast by economists. In volume terms, the import data looks better, Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a note.

"China's purchases of major commodities remain on trend, and even accelerated slightly in December," they wrote. "Commodities markets might be concerned about China's growth outlook, but based on current purchases there's little cause for alarm."

China imported a record amount of crude last year as oil's lowest annual average price in more than a decade spurred stockpiling and boosted demand from independent refiners. Iron ore imports jumped to a record last month, while steel exports climbed as the nation sells its glut overseas.

Raising question marks over the sustainability of any export recovery, shipments to Hong Kong led the advance last month. Economists said the surprise gains may harken back to past instances of phony invoicing and other rules skirted to escape currency restrictions.

The MSCI Asia-Pacific Index jumped by the most in four weeks, led by gains in Japan and Hong Kong, and the Stoxx Europe 600 Index climbed for a second day. US stock futures rallied after the Standard & Poor's 500 Index rose. Copper gained for the first time in more than a week and South Africa's rand strengthened.

A sustained pick up in exports may relieve some of the pressure on the yuan to weaken, countering capital outflows and concern over the economy's slowdown.

Recovery Signs

"This could be the beginning of an improvement in China's trade data," said Ding Shuang, chief China economist at Standard Chartered Plc in Hong Kong. "When the exchange rate starts to move it usually takes about three to six months for trade data to respond. Last August was the beginning, so it makes sense for the trade data to respond after three to four months. "

Going forward, Ding expects a "very stable" effective exchange rate against a basket of currencies. "That will help China to regain competitiveness," he said.

Seasonal Jump

The increase in exports last month may prove to be a temporary one due to a seasonal jump at the end of the year and it doesn't represent a trend, a spokesman for the customs office said after a briefing in Beijing.

"There will be some front-loading of shipments before the Chinese New Year, but that boost could fizzle again quickly thereafter," said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong. "Exports are unlikely to deliver a growth impulse this year to China and the rest of Asia. It's all about domestic demand. Don't look to the external side to pull Asia out of its growth malaise."