Caixin
Jan 13, 2017 07:49 PM
ECONOMY

China Trade Surplus Posts First Reduction in Five Years

(Beijing) — China saw its trade surplus fall for the first time in five years in 2016 as exports logged their sharpest decrease since the global financial crisis, customs data showed Friday.

The protectionist rhetoric of U.S. President-elect Donald Trump, who will be sworn in on Jan. 20, and China’s waning competitiveness due to rising costs are weighing on trade prospects this year, the government and analysts said.

Overseas shipments declined for the second consecutive year in 2016 by 7.7% to $2.10 trillion, according to the General Administration of Customs.

It also marked the largest fall since a 16% drop in 2009 in the depths of the global financial crisis, official data showed.

Imports dropped 5.5% to $1.59 trillion last year, improving from a 14.2% decrease in 2015.

That left the 2016 trade surplus dropping around 14% to $510.0 billion, the first decline since 2011.

In December, exports were down 6.1% year-on-year to $209.4 billion, while imports gained 3.1% to $168.6 billion, according to customs.

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The performance was better in the second half of last year than in the first six months, customs data showed.

The momentum may extend into 2017 on the back of improving global demand; a weakening yuan, which depreciated more than 6% against the dollar in 2016; and low comparison figures in previous years, analysts said.

“Our current expectation is for both exports and imports to enjoy a single digit rebound in 2017 due to a more-competitive exchange rate for exporters, which simultaneously increases the cost of imports as well as low base effects after two years of contraction,” Brian Jackson, an analyst with research firm IHS Markit, told Caixin.

The overseas market is “recovering slowly” as reflected by expanding manufacturing activity in both developed and developing economies such as the U.S. and India. A survey by customs authorities among exporters also showed a new-orders index has continued to improve since June, Huang Songping, spokesman of the General Administration of Customs, told reporters at a news conference.

However, potential trade frictions with major partners due to political reshuffling may add uncertainties to exports, analysts said.

Trump promised during his campaign to name China a currency manipulator on his first day in office and threatened to slap a 45% tariff on imports from the country.

Louis Kuijs, a Hong Kong-based analyst with research firm Oxford Economics, said that although high across-the-board tariffs were unlikely, Trump’s protectionist stance does “cast a shadow” over the outlook for Chinese shipments.

“It is clear that the incoming administration will mean a significantly more unfavorable climate for China’s exports to the U.S.,” he said.

Trade partners launched 119 investigations into Chinese exports worth $14.34 billion last year, Huang said. The number of cases was up 36.8% from a year ago, but the value of disputed deals shot up by 76%.

“The global political landscape is bracing itself for upheavals. Brexit, elections in major European countries, the coming into power of the new U.S. president and the South Korean presidential election will all bring changes to policies, which may intensify trade protectionism around the world,” he said.

The EU was China’s top trading partner last year, with two-way trade down 3.1% to $546.9 billion. It was followed by the U.S., the 10-member Association of Southeast Asian Nations, Hong Kong, Japan and South Korea, customs figures showed.

Huang added that China’s competitiveness has continued to be undermined by rising costs, and it has been further eroded by developed countries’ attempts to attract manufacturing back home.

The market share of labor-intensive Chinese products slid 1.8 percentage points in the EU, 1.2 percentage points in the U.S. and 2.1 percentage points in Japan in the first 10 months of last year from a year ago, while that of Southeast Asian countries grew in all these regions, he said.

China’s imports of iron ore, copper, coal, crude and natural gas all increased in volume last year from 2015, suggesting stronger domestic demand. But experts were unconvinced about the pickup’s sustainability.

“We expect China’s imports to be under pressure this year from the ongoing housing market correction and lower credit growth,” Kuijs said.

Contact reporter Fran Wang (fangwang@caixin.com)

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