The fragility in the Chinese economy wasn’t to be found in the trade data for May – it was exuberantly strong with the second highest surplus on record as exports soared and imported edged up.
In truth the rise in prices for key commodities in May such as oil, coal and iron ore and a late rebound copper suggests that actual import volumes could have been stronger (except for copper which was positive).
The trade data shows there’s been no growth in import volumes (except for copper) in the first five months of the year which has also seen Chinese economic activity whacked hard by Covid and continue that way since mid-March.
And that weakness tells a lot about the health of the domestic economy which, even though the high (for China) levels of Covid infections eased in May, the Covid elimination policy of President Xi saw Shanghai and Beijing on new alerts on Thursday, heralding the return of partial lockdowns and more disruption.
Over the first five months of the year, the trade surplus was at totalled $US290.46 billion, with exports rising 13.5% while imports were up 6.6%
May saw exports surge 16.9% year on year to $US308.3 billion, up from April’s 3.7% growth. Imports rose gained 4.1% to $US229.5 billion, accelerating from April’s rise of just 0.7%.
But if you look at the data for the five months from January to May, the weaker health of the economy becomes a little clearer.
May was better than April, but higher commodity prices played a big part in limiting volumes. But the biggest influence was weak demand, courtesy of the Covid lockdowns which have improved from April’s severity.
While iron ore imports rose strongly in May to the second highest this year, tonnages are down 5.1% for the first five months of the year as the clamps on crude steel production continue.
Those clamps don’t look like they are being eased – even though there’s going to be stimulus provided for the purchase of new cars, especially so-called New Energy Vehicles which will help steel demand.
China’s coal imports fell in the first five months of 2022 to 95.96 million tonnes, down 13.6% on the year. Domestic production continues to run ahead of the weak first half of 2021 which in turn helped bring about the slump in power generation in August through October.
But with thermal coal prices well above 4US300 a tonne and official prices inside China heavily capped at much lower levels, power companies naturally are buying more local coal.
Crude oil imports for the first five months of the year are down 1.7% on the same period in 2021. That is a key fall as it indicates the sharp rise in oil prices this year and especially from late February, when Russia invaded Ukraine.
Analysts point out that May is the first month to start showing the impact of higher prices from the invasion which boosted crude prices to the highest in 14 years and saw Brent futures reach almost $US140 a barrel on March 7. They have eased back to under $US100 a barrel since then and then topped $US120 a barrel this week.
This means Chinese crude import costs are going to remain high – Chinese buyers (and the government) have always cut back purchases when prices are high (and splurged when prices fall sharply in mid 2020).
But as demand slowly improves as the Covid lockdowns ease and economic activity returns China will have to increase imports and pay higher prices.
Cheap Russian crude (being bought at deep discounts), will help lower the cost, but cheap as it is, China can’t fill its import needs from Russia alone – there just aren’t enough barrels or ships available.
Natural gas import volumes via both pipelines and as liquefied natural gas (LNG) rose in May from April (but were down on the year before), but they fell 9.3% from a year ago in the first five months of 2022.
While that’s a sign weather has been kind to China (in late winter and early summer, unlike the nasty, long hot period in India and Pakistan) it also reflects the slower demand in march through May thanks to the Covid lockdowns which shut industry across swathes of the country and saw millions of businesses forced to shut as well and people confined to their homes.
Copper imports were roughly steady in May from May a year ago and up from April, but the 1.7% rise in the five months to May was the only rise for a major commodity import.