Last week trade data for December disappointed on the export side, with exports declining 6.1% y/y in USD terms. Imports were around expectations with a 3.1% rise. The fall in exports is to a large extent due to a high base effect from last year and was cushioned by a weaker yuan (exports were up 0.6% y/y in yuan terms) as appointed by Susan Joho, economist at Julius Baer.
Regionally, exports to the US grew, while they were weaker for the eurozone and Japan.
The rise in imports can be explained by the rise in commodity prices rather than volumes, which actually slowed slightly. Looking into the new year, we continue to expect a still difficult, but slightly improving environment for exports on the back of a weaker yuan and a global upturn in manufacturing activity.
Moreover, credit supply remains ample. December new loans and total social financing were much higher than expected, mainly due to higher medium-long term credits to corporates. This likely represents government support in the form of infrastructure and public projects. Mortgage lending, on the other hand, moderated due to recent restrictions to curb the property market. Bond lending even decreased as the People’s Bank of China tightened liquidity conditions by guiding interest rates higher.
Stability is paramount for China in the coming months. We expect credit growth to be maintained around current levels in order to support growth, which could soften somewhat due to a property market cooling following restrictions. A soft trade recovery, supported by a weaker renminbi, is also in the cards, at least for the next months, given the risk of trade frictions with the US. We also expect stability in the USD/RMB in the short term, but see further depreciation of the Chinese currency in the mid to longer run.