A growth spurt

China’s imports grew at their fastest pace in 10 years in May, fuelled by surging commodity prices, while export growth missed expectations, likely weighed by disruptions caused by COVID-19 cases at major ports in the country’s south. Exports in dollar terms grew 27.9% in May from a year earlier, slower than the 32.3% growth reported in April and missing analysts’ forecast of 32.1%.

A warning

“Export surprised a bit on the downside, maybe due to the COVID cases in Guangdong province which slowed down the turnover in Shenzhen and Guangzhou ports,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management, adding that turnover at ports in Guangdong will likely remain slow in June. Major shipping companies have warned clients of worsening congestion at Shenzhen’s Yantian port in Guangdong province after the recent outbreak.

Rising cost

Zhang expects this shock to be transitory and the current outbreak in Guangdong to be brought under control in a few weeks. In the meantime, Chinese exporters are grappling with higher raw material and freight costs, logistics bottlenecks and a strengthening yuan, which diminishes trade competitiveness. However, a brisk recovery in developed market demand and disruptions caused by COVID-19 in other manufacturing nations are likely to bolster China’s exports in coming quarters, analysts say.

Semiconductors tale

Zhang Yi, chief economist at Zhonghai Shengrong Capital Management, said the recent pick-up in imports of semiconductors, which have been in short supply, suggests China’s exports of relevant products would likely stay high in the second half of the year. Imports increased 51.1% year-on-year last month, the fastest growth since January 2011 and picking up from a 43.1% rise in April, but slower than the 51.5% rise tipped by the Reuters poll.

Trade surplus

China posted a trade surplus of $45.53 billion for the month, wider than the $42.86 billion surplus in April but less than the $50.5 billion expected. Prices for commodities such as coal, steel, iron ore and copper have surged this year, driven by easing pandemic lockdowns in many countries and ample global liquidity. The currency extended its rally in recent weeks to near three-year highs against the dollar, which could further saddle U.S. consumers with higher prices.

Trade policy under review                

The Biden administration is conducting a review of U.S.-China trade policy, ahead of the expiry of the Trump-era “Phase 1” deal at the end of 2021, which called for China to increase purchases of U.S. agricultural goods, manufactured products. Since President Joe Biden took office in January, China has increased engagement with U.S. trade and economic chiefs. China’s Vice Premier Liu He spoke with U.S. Treasury Secretary Janet Yellen last week, just days after talks with U.S. Trade chief Katherine Tai.

Source: Economic Times