by Chinese exports declined in September, but strong construction activity means there is upside risk to our 6.5% growth forecast for 2016. Headline exports for China fell by 10% in September year-over-year (y-o-y), compared with a 2.8% drop in August. This significant downturn was partly due to a high base-year effect. The notable increase in Chinese exports in September 2015 (even after seasonal adjustments) makes the year-over-year comparison particularly unfavourable. In our view, the weakness in China’s exports also reflects weak global demand and the loss of competitiveness by Chinese exporters due to rising costs, as well as, arguably, a relatively strong currency. While China’s share of world exports continued to rise in 2015, the drop in China’s export growth in 2016 was much more significant than for many other major exporters.China’s import growth has held up better, although it still declined by 1.9% y-o-y in September, compared with 1.5% growth in August. Crude oil and iron ore imports, the top two items in China’s imports, continued to grow steadily in volume in September, likely reflecting the continued construction boom in China, led by residential property.
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Dong Chen considers the following as important: China Producer Price Index, Chinese construction, Chinese exports, Chinese imports, Macroview
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Chinese exports declined in September, but strong construction activity means there is upside risk to our 6.5% growth forecast for 2016.
Headline exports for China fell by 10% in September year-over-year (y-o-y), compared with a 2.8% drop in August. This significant downturn was partly due to a high base-year effect. The notable increase in Chinese exports in September 2015 (even after seasonal adjustments) makes the year-over-year comparison particularly unfavourable. In our view, the weakness in China’s exports also reflects weak global demand and the loss of competitiveness by Chinese exporters due to rising costs, as well as, arguably, a relatively strong currency. While China’s share of world exports continued to rise in 2015, the drop in China’s export growth in 2016 was much more significant than for many other major exporters.
China’s import growth has held up better, although it still declined by 1.9% y-o-y in September, compared with 1.5% growth in August. Crude oil and iron ore imports, the top two items in China’s imports, continued to grow steadily in volume in September, likely reflecting the continued construction boom in China, led by residential property. The relatively strong growth in China’s commodity imports is also consistent with the continued improvement in China’s Producer Price Index, which turned positive in September (y-o-y) for the first time in more than four years
As things stand, we expect net exports to be a drag on China’s headline GDP growth in 2016, perhaps lowering GDP growth by 0.5 to 1 percentage points, before we see some gradual improvement in 2017. But the domestic investment cycle is playing a greater role in China’s economic growth. Therefore, strong construction activity, led by the housing market, will likely ensure that growth in the second half of 2016 remains buoyant.
However, we don’t expect growth momentum to persist in the medium term. Policies have been re-introduced in some second-tier cities to curb the growing risk of a housing bubble. We therefore expect momentum in housing construction to last another one to two quarters before starting to fade again. With this in mind, we expect some potential upside risk to our 6.5% GDP forecast for China in 2016, but we are keeping our forecast of 6.2% growth for 2017.