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Chinese exports contract at slowest pace in 8 months on lighter deflation


By Brian Jackson, China Economist, IHS Global Insight

Key Points:

  • Chinese exports contracted less rapidly in August, by 2.8%. The rate of contraction was the slowest so far in 2016, spurred by slower contractions to the US and ASEAN, a return to growth to Europe, and in spite of faster contractions to Hong Kong. By product, the improvement was due almost exclusively to slower contractions in mechanical and electrical product exports, which decelerated 2.5 percentage points to a 4.2% contraction.
  • Imports grew by 1.5%, the first expansion in 22-months. Imports grew faster or contracted less rapidly from all major partners, with double-digit improvements for the European Union, ASEAN and Japan. By product, the improvement was due almost entirely to faster growth of mechanical and high-tech imports, where growth accelerated by 16.2 and 13.4 percentage points to 5.3% and 2.8% expansions, respectively.
  • Easing deflation was the main reason for the improvement in nominal growth. Deflation on data processing units fell from 7% to 0.9% (year-on-year), while the price of exported steel rose 2.4% compared to a 5.5% decline in July.
  • Based on a limited selection of products with volume and value data available today, IHS Markit estimates the majority of the nominal exports improvement was due to price rather than volume changes.


China’s trade balance rose sequentially in August, but more important for GDP, it also rose marginally year-on-year during the first two months of the third quarter. This compares to modest year-on-year declines in the first half, suggesting that net merchandise exports will play a marginally improved role in growth in the third quarter.

Trade price estimates suggest that producer price contractions will continue to lighten (yet remain in contraction) in August. This is naturally more applicable to the light manufacturing portion of Chinese industry, given its higher representation in trade. China will publish August price data on 9 September.

Initial data indicate much of the August improvement is due to prices rather than volume changes, and comes as welcome news. Improved volume data would provide a clearer positive signal for industrial value added growth, due out on 12 September. Lacking that, the relative improvement in the price environment should nonetheless help with industrial financial data and perhaps investment activity. Investment data is expected on 12 September, and industrial financial data on 27 September.

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Source: The Insiderstories
Chinese exports contract at slowest pace in 8 months on lighter deflation

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