Picture: 123RF/SEAN PAVONE
Picture: 123RF/SEAN PAVONE

Beijing — China’s exports unexpectedly surged at the fastest pace in three years in February, suggesting both its economy and global growth remain resilient even as trade relations with the US rapidly deteriorate.

Trade tensions have jumped to the top of the list of risks facing China this year, with planned US tariffs on steel and aluminium signaling more measures may be on the way, Zhou Hao, senior emerging-markets economist at Commerzbank, told the Reuters Global Markets Forum this week.

China’s February exports rose 44.5% from a year earlier, far more than analysts’ median forecast for a 13.6% increase and January’s 11.1% gain, official data showed on Thursday. Imports grew 6.3%, missing forecasts for 9.7% growth and down from a sharper-than-expected 36.9% jump in January.

Analysts caution that Chinese data early in the year can be heavily distorted by the timing of the Lunar New Year holiday, which fell in February this year but in January in 2017. However, combined January and February data also showed a dramatic acceleration in export growth — good news for Beijing as it tries to crack down on risks in the financial system without sharply braking economic activity.

Exports rose 24.4% in January to February on-year, eclipsing 10.8% in December and up from single-digit growth in the same period last year. The gains came despite a much stronger yuan currency which is worrying the country’s exporters.

"The broad-based recovery in China’s major export markets could explain part of the reason why exports were still quite strong," said Betty Wang, senior China economist at ANZ in Hong Kong. But tension with the US "is definitely a near-term concern and a near-term downside risk to China’s trade outlook".

Any additional punitive US measures and retaliations by China or its other major trading partners would reduce global trade flows, disrupt international supply chains and drag on global growth

China’s goods surplus with the US, a sore spot in relations between the two countries, narrowed slightly last month but is higher so far this year than at the same point last year. China’s trade surplus with the US was $20.96bn in February compared with $21.895bn in January.

Boosted by a global trade boom, China’s exports last year grew the fastest since 2013 and served as one of the key drivers behind the economy’s forecast-beating 6.9% expansion. But tough US trade talk last year is now turning into action, clouding the outlook for a repeat performance.

US President Donald Trump is expected to sign a proclamation on Thursday or Friday to establish the steel and aluminium tariffs, to counter cheap imports, especially from China, though close US allies may get exemptions.

The measures are expected to go into effect in about two weeks, but economists see little immediate impact on China. China has already reduced steel exports to the US to a trickle in response to strong demand at home and US anti-dumping duties, and while aluminium shipments account for about 10% of its global exports of the metal, the number is still small compared with China’s total exports, according to ING economist Iris Pang, who said in a note published on Thursday, "All in all, the direct impact on China is minimal."

While China’s global steel exports have dropped by almost a third this year, tariffs on aluminium may be an easier sell for Trump, as China’s shipments increased more than 35% in the first two months of the year. Over time, however, any additional punitive US measures and retaliations by China or its other major trading partners would reduce global trade flows, disrupt international supply chains and drag on global growth.

China may be far more vulnerable to US plans to combat intellectual property theft, which could hit its sales of hi-tech, high-value products. China’s global tech exports saw strong double-digit gains in the first two months of this year.

China’s foreign minister Wang Yi said on Thursday that China would make a necessary response in the event of a trade war with the US but said such a war would only harm all sides.

"On paper, China has more to lose from a trade war — it exports far more to the US than it imports," Capital Economics said. "But [for the US] there are few alternative sources for the main products that it buys from China," such as mobile phones, tablets and network equipment, it added.

Import growth solid

At home, China’s domestic demand also appears solid, despite a cooling property market and rising borrowing costs that are expected to eventually rob the economy of some momentum.

While February import growth softened, it climbed 21.7% in the first two months of the year, compared with 4.5% in December. Imports of commodities again led the way, with steel mills replenishing inventories of iron ore ahead of the seasonal construction pick-up in spring.

China’s trade surplus widened to $33.74bn for February, outperforming forecasts for $600m and January’s $20.35bn. For January and February combined, the surplus rose 43.6% from the same period a year earlier to $54.32bn.

The strong trade performance suggests a possible upside surprise in China’s industrial output data next week and in economic growth for the first quarter as a whole. Analysts polled by Reuters earlier this year expected momentum to ease slightly to 6.6% this quarter from 6.8% late last year.

Premier Li Keqiang said on Monday that China aims to expand its economy by about 6.5% in 2018, the same target that it beat handily in 2017.