China’s strong trade growth continues, driven by tech demand
The desk interprets China's robust trade growth, primarily fueled by technology demand, as a positive signal for stability in the yuan. Per the full note from ING, August's export growth surged to 25.0% year-on-year, reinforced by strong performance in semiconductors and automatic data processing machinery exports. While the US remains a crucial market, China's export recovery is broadening, with significant growth observed in emerging markets. This reinforces the outlook for a steady yuan, even amidst uneven domestic demand.
What the desk is arguing
The desk maintains that China's strong trade performance in August, especially in tech goods, bodes well for the yuan's stability. The latest data reflects a year-on-year export growth rate of 25.0%, surpassing July's 23.9% growth, and is in line with market expectations as noted in ING’s commentary.
The increasing export figures, particularly from the semiconductor sector, where exports grew by a staggering 129.8% YoY, illustrate a strong external demand that should translate into positive sentiment for the yuan. Furthermore, exports to the US have increased for five consecutive months, now up 6.1% YoY, allowing China to rebalance its trade dynamics across various markets.
Where it sits in our coverage
The style of analysis here underscores a bullish sentiment for the yuan, though, per consensus, the current target stands at 1.075, with a range of 1.04 to 1.12. Aligned firms include: - jpmorgan: 1.10, Mar26 - bofa: 1.04, Mar26
This outlook on the yuan is generally aligned with jpmorgan's stance but contrasts with bofa, suggesting a divergence in views among key market players.
How other firms see it
Several firms echo the optimistic sentiment surrounding the yuan due to bolstered demand for tech exports, particularly jpmorgan and others indicating growth potential. Conversely, bofa comes in as a dissenting voice, projecting a lower target for the yuan.
Currency pairs such as AUD/CNY and USD/CNY may reflect these dynamics directly, especially in light of the tech export boom influencing overall sentiment.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01China's export growth rose to 25.0% YoY in August, bolstered by tech demand.
- 02Exports to the US have seen consistent growth, recovering 6.1% YoY.
- 03Strong technology exports, especially semiconductors, are driving external demand.
- 04Despite robust trade performance, domestic demand remains uneven.
Market implications
Market watchers should monitor the USD/CNY pair as the Chinese trade data evolves. Given the current bullish trend, any dips towards 1.05 could attract buying interest, while levels around 1.10 could signal caution.
Risks to this view
A reversal could occur if domestic demand deteriorates significantly or if trade tensions with the US escalate, potentially leading to tariff increases. Additionally, the sustainability of the tech investment cycle, which has underpinned recent export performance, remains a critical angle to watch.
Older quick take Quick take Published 05:07 China’s strong trade growth continues, driven by tech demand China posted faster export and import growth in August, powered by tech goods. While the product breakdown looks ever more lopsided, the geographic picture is smoothing out as the US slump recedes and demand across other markets remains firm Source: Shutterstock Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download Lynn Song Chief Economist, Greater China 25.0% YoY China's August export growth As expected Tech continues to power impressive export strength China's exports grew by 25.0% year-on-year in August, up from 23.9% in July and broadly in line with market expectations (market: 25.9%, ING: 24.1%). Year-to-date, exports are now up 19.3% YoY to $2.92tn.
The data shows that external demand remains strong, especially in China's key export growth areas. By destination, exports to the US continued to recover YoY. Year-to-date, exports to the US have picked up for 5 consecutive months and are now up 6.1% YoY ytd, nearing the export growth China has with other economies.
The main year-to-date outperformers are Korea (35.3%), Taiwan (33.2%), and Russia (30.7%), with ASEAN (25.8%) and Africa (25.8%) not far behind. Along with the US, exports to Japan (8.1%) and Canada (10.2%) lagged. By export product, most of China's key export categories continued to grow strongly.
Semiconductor and automatic data processing machine exports rose 129.8% YoY and 76.5% in August. However, year-on-year growth in autos and ships both slowed in August, falling to 43.0% YoY and 21.0% YoY, respectively. In recent months, we’ve talked about a growing K-shaped divergence in China, with external demand significantly outpacing domestic demand.
While efforts have been made to shore up the latter, this divergence appears to have continued into August. Tariff risks and the durability of the tech investment cycle are the key factors to watch to see how long this strength will persist. Export growth to the US starting to bridge the gap Imports come in a little softer than expected Import growth also picked up slightly in August to 28.2% YoY from a revised 27.6% in July.
This came in somewhat softer than expectations (market: 31.0%, ING: 32.4%), but nonetheless remained strong. The main areas of import growth still look tied to tech products, showing China continues to spend in the ongoing tech race. August saw the fastest import growth of any month so far this year in various tech-related categories.
Hi-tech product imports rose 68.7% YoY in August, the highest of any month so far this year. This brings year-to-date growth to 46.0% YoY. Automatic data processing machine imports surged 209% YoY in August, double the year-to-date pace of 105%.
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