Chinese trade data ring a bell

Chart of Chinese exports in 2018
There are plenty of benign explanations for China’s recent export slump, but misplaced investments and slowing productivity could also play a role (source: macpixxel for GIS)
  • Importers’ reactions to trade tensions may explain a late downtick in Chinese exports
  • However, the data may also be an early warning of bigger, structural issues
  • Misplaced investment has stalled productivity gains, driving up Chinese labor costs

A few weeks ago, the foreign trade statistics for China delivered unexpected news: after having risen for the entire year, in December 2018 exports fell 4.4 percent from a year earlier. Imports also declined significantly (-7.6 percent). Most commentators argued that the slump in these key indicators was a consequence of prior frontloading. Throughout 2018, as importers grew increasingly fearful that commercial tensions between the United States and China could escalate into a trade war, they made sure to place orders before the higher tariffs (or more restrictive quotas) took effect.

The result was record growth (almost 10 percent) for Chinese exports in 2018, and an even faster acceleration of imports (almost 16 percent higher on the year). In this context, December’s figures simply mark the end of the front-loading period; trade flows that normally would have been registered in December had already been logged in previous months. Extending this logic, one should expect the trade data in the early months of 2019 will still suffer from the previous year’s front-loading operations. However, as the situation normalizes in the second half, the long-term upward trend in trade volumes should resume.

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