According to China Customs release yesterday, Jul export/import in China +3.3%/-5.6% YoY, beating expectation. In this report, we documented several stylized trends regarding trade YTD. In light of protracted trade negotiations, global economic slowdown as well as weak domestic demand, we remain cautious regarding trade outlook in 2H19.
- Rising trade surplus when trade activities subdued. In the Jan-Jul period, export/import growth was +0.6%/-4.5% YoY, respectively. The fact that export growth outpaced import growth has boosted YTD trade balance to US$ 225.7bn, vs. US$ 162.8bn in the same period last year. It also explains a larger contribution from net export to China's GDP growth in 2H19 (~20%).
- Wider divergence between U.S. and other trade partners of China. Trade conflict around the globe is abruptly causing meaningful trade diversion and supply chain relocations toward a new steady state of balance. For China, YTD export to the U.S. declined 7.8% YoY, while export to EU and ASEAN increased +5.9%/+8.9% YoY. YTD import from the U.S. plunged 28.3% YoY, while import growth from EU/ASEAN/Japan was +2.3%/-0.1%/-7.4%. ASEAN has become China's second largest trading partner, surpassing the U.S.
- Trade conflict was not the mere explanation for trade weakness. According to our calculation, U.S. dragged overall export/import growth of China by 1.5ppt/2.3ppt YTD, respectively, whereas export/import growth rate stood at 0.6%/-4.5% YoY. That said, even without conflict with the U.S., China would report low-single-digit export growth YTD because of global economic slowdown and import growth would remain negative due to weak domestic demand and uncertainties regarding China's economic growth.
- Major categories of goods which dragged export include, mobile phones and parts (-15.8%), ships (-23.5%), automatic data processing equipment (-1.1%). Major products which dragged import growth include electronics and high-tech products plunged, including semi-conductors (-6.9%), auto and auto parts (-11.6%), LCD panel (-18.4%).
- Trade surplus enlarged with the US. In Jan-Jul, China's export to the U.S. declined 7.8% YoY while import from the U.S. plunged 28.3%. Trade surplus enlarged to US$ 168.3bn, up US$ 6.2bn from the same period last year. Vietnam emerged as one of the key beneficiaries of trade diversion, particularly regarding mobile phones and computers exports.
- Trends that echoed China's economic transition: 1) export growth of labor-intensive industries has been declining, 2) share of processing trade, of which value added is lower, has been shrinking.
