China’s strong export growth in March unlikely to sustain

China’ trade numbers came in positive for March. Exports for the month, in dollar terms, rose 11.5% y/y, as compared with consensus forecast of 10%. Meanwhile, imports declined 7.6%, below expectations. Trade balance dropped moderately from February’s USD 32.6bn to USD 29.9bn in March.

Even though this is a positive surprise and has added to the fact that the Chinese economy is stabilizing, a more cautious view is taken, noted Nordea Bank. It is uncertain whether the season factors are taken away or how solid the export growth is. Usually, exports grow strongly in March after declining in February, which is the Chinese New Year month.

Therefore, the strength in export growth seen in March is unlikely to sustain, according to Nordea Bank. External demand continues to be lower than pre-crisis levels in short term and will keep clouding the export outlook, added Nordea Bank. Even if the CNY has declined on trade-weighted terms, the depreciation pace has been slower than several of its peers. Hence, currency is unlikely to help much, added Nordea Bank.

China’s exports will face increasing competition in labor-intensive industries in the long run, according to Nordea Bank. Meanwhile, manufacturing sector of Vietnam and Thailand, which are low-labor cost producers, are being enhanced at a quicker pace.

Mid-tiered markets, such as electronics, which are dominated by China, might be soon lost to these nations. The exports’ trend growth of China will majorly rely on the government’s ability to push through reforms that will permit China to change to a high-end manufacturer, noted Nordea Bank.