China's exports were shockingly weak in March. By region, demand from the US and the EU, which account for one-third of China's total exports, actually accelerated to 6.8% yoy from 6.1% yoy; demand from emerging Asia (excluding HK), a quarter of total exports, grew 15.3% yoy, compared with 17.6% yoy; and shipments to other emerging economies, another quarter of total exports, showed a similar trend, rising 7% yoy, after expanding 8.3% yoy.
Notable deceleration occurred only in demand from Japan and Hong Kong. Exports to Japan contracted 11.8% yoy in Q1, deteriorating further from a 7% yoy drop previously. This downtrend has actually lasted for four quarters.
There were several factors unrelated to the actual strength of China's external demand that distorted March data. With further improvement of developed economies, China's export growth is likely to normalise meaningfully in the coming months.
According to Societe Generale - "The data on mainland exports to Hong Kong still seemed distorted by capital flows and currency expectations. Hence, we think China's export sector is not nearly as weak as the March data suggested, so we still expect Chinese policymakers to continue avoiding the currency war."
