Why are China's imports and exports so bright in September? Can it last?

Imports and exports both grew faster than expected in September. Dollar-denominated exports rose 9.9 per cent from a year earlier, against market expectations of 9 per cent growth. Imports surged 13.2 per cent year on year, against market expectations of just 0.1 per cent.

The recovery of external demand supports China's export growth for six consecutive months

By the end of the third quarter, China's export has achieved positive growth for six months in a row. In September, the export growth rate was again 0.4% faster than the previous month, indicating a clear trend of export recovery.

According to the analysis of Huatai Securities, the number of new coVID-19 cases in Europe and the United States fell in the third quarter as a whole, and the external demand showed a positive expectation. On the other hand, domestic enterprise production and social life have basically returned to the normal level in the past year, and production capacity of some industries even showed a compensation-type recovery, showing strong production and supply capacity. This is the core factor that makes the export data exceed expectations.

Chuancai Securities analysts believe that the epidemic under the "substitution effect" is also an important reason for China's better export performance in the third quarter. In the first three quarters of this year, China's export growth rate of mechanical and electrical products increased by 5.5 percentage points from the previous quarter. The year-on-year growth rate of the export of notebook computers, household appliances and other products exceeded 17%. The export of auto parts and chemicals also improved.

Due to the absence of domestic production capacity in Europe and North America during the epidemic, the "export substitution" effect of domestic related products appeared.

Exports to developed and emerging economies, on the other hand, continued to pick up, supporting the high growth in exports in September.

Imports exceeded expectations mainly driven by infrastructure driven steel

China's imports of energy and raw materials increased significantly in the first three quarters, which was the main reason for imports to exceed expectations in September, according to Chuancai Securities.

Imports of steel, copper and crude oil rose 72.2%, 41.2% and 12.7% respectively, mainly due to the obvious boost from traditional infrastructure construction to the upstream industry. In terms of new infrastructure, in the first three quarters, the growth rate of China's integrated circuit import volume was 23.0%, 0.5 percentage points faster than the previous quarter. New and old infrastructure construction was the main driving force for the expansion of domestic demand in the first three quarters.

According to Zheshang Securities, since Q3, domestic demand has picked up rapidly, and economic data such as real estate investment, industrial growth and consumption have shown strong performance, which proves that demand has been actively repaired, PPI has bottomed out and rebounded, corporate profits are about to turn positive, and some industries have also shown some signs of replenishment.

Entering Q4, the economy will return to the pre-epidemic growth level and be catalyzed by National Day, singles' day, 12-12 and other holidays and shopping festivals. It is precisely the future recovery in demand and optimistic expectations that prompt enterprises to stock up in advance, driving up imports in the short term.

Future exports have three logic support, import high probability is limited

According to Zheshang Securities, the current export has been growing for 6 consecutive months, and there are still three logical supports for the continued strength of subsequent exports:

1. Overseas supply repair is weaker than and slower than the demand side, resulting in supply and demand dislocation. Chinese exports can fill the gap.

2. The impact of the overseas epidemic is still brewing, and it is difficult to eliminate the epidemic completely in a short term by means of vaccines or antibodies. At present, both the substitution of overseas supply and the transfer of overseas orders to China have supported the export.

3. Even if overseas economies promote the resumption of work and production and gradually drive supply repair, China is at the hub of the global industrial chain. According to historical experience, China's major trade objects such as the United States, the European Union, ASEAN and Latin America enter the replenishment stage, which will drive China's export performance.

According to the above logic of short-term import surge, the core view of Zhesang Securities is that the import surplus is due to enterprises' stocking up in advance rather than overseas supply repair, and the low base in 2019 also contributes to some extent.

In general, it is difficult to continue the import surge driven by the preparation of goods in advance. Until the overseas supply is significantly improved, the probability of continuous high increase of import data is limited.