China's Export Growth Surges with Robust Demand from India, Russia, and Emerging Markets

China saw an unexpected increase in foreign trade at the beginning of the year, thanks to robust demand from countries like Russia, India, and emerging markets in Africa and Latin America.

Exports from the world's second largest economy surged by 7.1% in the January-to-February period, surpassing the 1.9% growth predicted by economists in a Reuters poll. This growth is also much higher compared to the 2.3% increase seen in December.

China usually combines economic data for the first two months of the year to prevent any disruptions from the Lunar New Year holiday.

Imports exceeded predictions, increasing by 3.5% compared to a year ago. The trade surplus also grew to $125.2 billion, a 7% increase from the previous year.

China’s economy is facing challenges such as low consumer and investor confidence, high youth unemployment, and a prolonged real estate crisis. However, there is a positive development in the area of trade, which had been declining a year ago.

One reason for the uptick in trade is the strong demand from emerging markets. At the beginning of the year, China saw a surge in exports to Africa, Latin America, and India, with increases of 21%, 20.6%, and 12.8% respectively. This boost, along with other factors like the weak base effect, contributed to the growth in China’s trade sector.

Nomura analysts mentioned on Thursday that the increase in exports to India may be a result of its thriving domestic economy. This growth in exports to Africa and LatAm also suggests a strengthening trade relationship between China and these emerging economies amidst a global geopolitical shift.

India, known as the world's fastest growing major economy, is projected by its government to grow by 7.6% this year.

China's exports to Russia increased by 12.5%, showing a slower growth compared to last year. In 2023, Moscow became China's 10th largest trading partner, with a record $240 billion worth of goods exchanged between the two countries. However, by the beginning of 2024, it slipped to the 11th spot.

According to Nomura analysts, it is unlikely that China's exports to Russia will experience a significant surge in the near future, especially to the levels seen in 2023. This is mainly due to a high base and limited opportunities for Chinese exporters to further expand their market shares in Russia.

China saw a 5% increase in shipments to the United States compared to the previous year. However, exports to other usual trading partners like the European Union, Japan, and Australia declined.

Analysts are being careful when looking at the future of the trade industry.

HSBC analysts mentioned on Thursday that it may be premature to expect a recovery in China's trade sector at this point.

They believe that trade uncertainty is expected to continue due to the possibility of global growth remaining weak, especially with high interest rates.

Lynn Song, chief economist for Greater China at ING, mentioned that trade restrictions against China could potentially hinder growth later this year.

In October, the European Commission initiated an anti-subsidy investigation into Chinese electric vehicle imports to the bloc. According to the Wall Street Journal in December, the Biden administration has been in talks about increasing tariffs on certain Chinese products, such as EVs, as reported by anonymous sources.

At a press conference on Wednesday, Wang Wentao, the country's commerce minister, mentioned that foreign trade could be challenging this year due to low international demand and trade protectionist actions worldwide.

Editor's P/S:

The unexpected surge in China's trade at the start of 2023 is a welcome development amid the challenges facing its economy. The robust demand from emerging markets, particularly in Africa, Latin America, and India, has played a significant role in this growth. It suggests a strengthening trade relationship between China and these regions, potentially aligning with geopolitical shifts. However, analysts caution that the trade sector's future is uncertain due to global economic headwinds and potential trade restrictions against China.

It is noteworthy that China's exports to Russia, while increasing, have slowed compared to last year. This may be due to a high base effect and limited opportunities for further market expansion. Additionally, the decline in exports to traditional trading partners like the EU, Japan, and Australia highlights the challenges faced by China in maintaining trade growth in the face of global economic uncertainty and protectionist measures.