China's exports are recovering rapidly. Is this sustainable?

Not enough shipping space, not enough containers... Many companies in China's export sector are scrambling for capacity to get Christmas goods out as quickly as possible. Recent export figures have been blistering, with growth exceeding analysts' expectations.

This year, China's exporters are riding a roller coaster. The first phase of a trade agreement between China and the United States was finally signed earlier this year. Although tariffs have been increased on most products, at least export prospects are clear and costs and tariffs can be quantified and controlled. An outbreak hit, packing the entire export market into a dramatic scenario. After the closure of the city during the Spring Festival, manufacturers scrambled to fill the backlog of orders, but faced traffic controls in Europe and the United States. In the face of huge uncertainty in the local market, customer orders have been slashed; Europe and the United States are blocking roads in Hong Kong, and the finished products cannot be delivered. By June, traffic controls had been gradually relaxed in Europe and The United States, and consumption had rebounded. But inventories were tight, so orders hit and prices suddenly rose. But the containers are still stranded on the other side of the ocean, and capacity is not fully restored as quickly.

It is true that China's exports are recovering rapidly, but is it sustainable?

Among China's exports, low-end products are the main ones, many of which are daily necessities. These products were the first to rebound after the flow control was relaxed. However, many countries that compete with Chinese products are still deeply affected by the epidemic. And laptops, and so on. The epidemic has triggered structurally rising demand. In the spring, many countries blocked roads, resulting in a lack of inventory of products, businesses need to fill inventory. These are the reasons for the summer surge in export orders, and the capacity imbalance is adding to the market's anxiety.

In addition, manufacturers of low-end alternative products such as India and Mexico are facing a huge epidemic, and retailers are also shifting some orders to China to ensure supplies are not impacted during the Christmas sales season. After a trade war with China, orders in many areas did not fall sharply, despite higher tariffs.

However, I think these are temporary.

As described above, this year's export supply chain appeared chain fracture, production, transportation and even orders are in extremely abnormal operation state. Supply chains began to normalise in June, and the disappearance of spring demand was reflected in summer orders. The boom seen so far, in my view, reflects the repair of the supply chain, but whether it can be sustained depends on final demand.

Economic data over the past three months have been pretty good. After the relaxation of traffic control, business activities have rebounded strongly from extremely low levels, and the extreme statistical base has brought about a strong data rebound. But the rally has run out of steam. The second outbreak of the epidemic in the US, Europe and Japan has not yet fully re-implemented crowd control, but the recovery of consumption will certainly be affected, and the recovery of investment will become more uncertain. America's second fiscal bail-out has stalled in Congress, even at a lower cost than its first.

What's more, consumer balance sheets are still deteriorating. Sixty percent of the service sector and 40 percent of the manufacturing sector in the United States are reported to have had their incomes adversely affected by the outbreak, and their balance sheets have deteriorated significantly, supported only by temporary measures. The epidemic has lasted long enough that some of the unemployment should become structural. Their cash outflows could lead to bad bank mortgages and credit CARDS, which in turn could dampen bank lending and economic recovery.

The export recovery seen so far is mainly coming from the repair of industrial chains, but the repair of balance sheets is believed to take several years. Some of the orders currently flowing to China will also disappear when the rivals' epidemic comes to an end. The author thinks to appear recently exit flourishing still need to keep cool head.