December trade data released this morning shows that:
· Export growth continued to hold up well, rising 13.4% y/y, down from the 13.8% gain in November, but in line with expectations. While exports to the US moderated, shipments to Japan and the emerging economies remained reasonably steady.
· Import growth slowed somewhat to 11.8% y/y in December, 10.3ppt lower than the previous month. Notably, imports of iron ore and soy beans continued at a high level.
· Trade surplus widened to $16.5bn, from $14.5bn in November.
ANZ Assessment
China’s trade sector has held up well due to eased monetary conditions and improving external demand, especially in the emerging economies. Together with December’s rebounding PMI, we think that the economy has started to stabilise, and is likely to find a soft landing in Q1 2012. Looking ahead, given that the Chinese central bank is expected to adopt a more flexible monetary policy stance (we see three RRR cuts in H1), the economy will likely regain momentum from Q2 this year. As such, we remain cautiously optimistic on China’s growth potential, and forecast growth of 9% in 2012.
In 2011 China registered a trade surplus of around $160bn (2.3% of GDP), down from $185bn previously, due to import growth outpacing export growth. Given that China continues to run a sizable trade surplus, and generate massive interest and dividends from overseas assets, such as US treasuries, we think the CNY will continue to be under pressure to appreciate over the medium term.
Over the short term, the recent sell-off of CNY in the onshore market has reversed as the PBoC has maintained a strong CNY fixing rate in the past weeks, and the CNY/CNH spreads largely closed due to cross-border arbitrage activities.
We forecast that the CNY spot rate will likely remain generally stable in Q1, but the CNY before and during Vice President Xi’s visit to the US in February could accelerate. We believe the CNY will start to strengthen again from Q2, consistent with a rebounding growth momentum. We maintain our forecast that the CNY will appreciate by 3% against USD in 2012. Contributors: Li-Gang Liu, Hao Zhou
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