PEKING (Reuters) – Growth in Chinese exports fell unexpectedly in March. This is the first drop since February of last year that raises questions about the health of one of the most important growth drivers in the economy, while the trade tensions with the United States are escalating rapidly.
However, March's import growth exceeded expectations, suggesting that domestic demand is still sound enough to cushion the impact of trade shocks. This has left China with a rare trade deficit for the month, including its first decline since last February.
Recent readings on the health status of China's commerce sector are followed by weeks of threatening letters from Washington and Beijing, fueled by US frustration with China's massive bilateral trade surplus and intellectual property policies fueling fears of global warming.
China's March exports plunged 2.7 percent year-over-year, slipping 10.0 percent down on analysts' forecasts, compared with an unexpectedly strong 44.5 percent rise in February, according to analysts Economists were heavily distorted seasonally.
For the entire first quarter, exports nevertheless grew by 14.1 percent.
Some analysts had expected exports to decline in March following an unusually strong start to the year as companies increased their deliveries before the long New Year holidays in mid-February. This scenario did not change their view that global demand remains robust.
But a stronger currency could also undermine the competitiveness of Chinese exporters. The yuan CNY = CFXS rose 3.7 percent against the US dollar in the first quarter of this year, up 6.6 percent last year.
Both Washington and Beijing have not established a tough timetable for the effective imposition of tariffs, leaving the door open for negotiations and a possible compromise that could limit the damage to both sides and other trade-dependent economies.
However, analysts believe that trading dangers may have an impact on exporters' activities.
Faced with the threat of tariffs burdening nearly a third of Chinese exports to the United States, Nomura economists say their businesses may be equipped with front-loading earlier this year before any action is taken.
China's US exports rose 14.8 percent year-on-year in the first quarter, while imports rose 8.9 percent.
The US quarterly US trade surplus rose 19.4 percent to $ 58.25 billion, though the March value of $ 20.96 billion in February fell to $ 15.43 billion.
China's aluminum exports rose to its highest level since June in March, just as the United States imposed tariffs on metal and steel imports on March 23.
"We believe that export growth will slow due to the appreciation and rise of the yuan's trade tensions, but solid global growth prospects could be a buffer, and we believe China's import could be more resilient than export growth as China pledges to do so has to increase imports, "said Lisheng Wang, economist at Nomura in Hong Kong.
IMPORTS BEAT PROGASTS
Chinese imports in March rose 14.4 percent year-on-year, beating analyst forecasts for growth of 10.0 percent, compared to 6.3 percent in February.
This resulted in a $ 4.98 billion trade deficit for the month, but such deficits are not uncommon for China earlier this year, probably due to seasonal factors.
For January-March, imports increased by a strong 18.9 percent over the previous year.
Analysts expect China to trade $ 27.21 billion last month, out of the $ 33.75 billion surplus last February.
In March, imports of goods continued, with deliveries of copper, crude oil, iron ore and soybeans up on the previous month.
China's exports experienced a global trade boom last year, expanding at the fastest pace since 2013 and serving as one of the main drivers of the projected expansion of the economy.
But the surge in trade tensions with the United States is tarnishing the prospects for the "old economy" of heavy industry in China and for the "new economy" technology companies.
Washington says China's $ 375 billion trade surplus with the United States is unacceptable, prompting Beijing to reduce it by $ 100 billion immediately.
In an attempt to reduce China's US trade bills, Trump introduced around 50 billion US dollars in technology, transportation, and medical tariffs earlier this month and immediately threatened reprisals from Beijing.
China's technology sector, which is a key element of Beijing's longer-term "Made in China 2025" strategy to move from cheap goods to higher-value manufacturing operations, could be particularly vulnerable.
Hi-Tech products are among the fastest growing export segments. China exported $ 137.8 billion of high-tech products in the first quarter, an increase of 20.5 percent over the previous year.
coverage by Elias Glenn, Lusha Zhang, and Stella Qiu; Arrangement by Kim Coghill