Chinese exports rise sharply in September

China’s exports rose sharply in September, coming in much above the market projections. In U.S. dollar terms, Chinese exports grew 14.5 percent year-on-year in the month, while imports rose 14.3 percent. The surge in exports implies a solid front-loading impact ahead of the implementation of an additional USD 200 billion of tariffs. Exports of electrical machinery, which is the nation’s biggest export item to the U.S., rose 14 percent in the month, as compared with the 9.8 percent rise in August.

Of this sector, 35 percent was subject to an additional 10 percent tariffs from late September. Thus, Chinese exporters might have front-loaded their shipments earlier in the month, before the new tariffs took effect, noted ANZ in a research report. Chinese exports to the U.S. further rose 14 percent year-on-year in the month, taking its monthly trade balance with the U.S. to a historical high of USD 34 billion.

Above expected export growth is not expected to avert China’s third quarter current account balance from falling into negative territory. China might experience a quarterly current account deficit for the second time in 2018, because of a shrinking trade surplus. China’s trade surplus possibly fell to USD 94.1 billion in the third quarter in balance of payments terms, from USD 103.6 billion in the second quarter. This is not expected to be sufficiently big to counter the deficit in services and income accounts.

“We expect China’s current account balance to have become negative – -USD3.9bn in Q3 from USD5.3bn in Q2”, stated ANZ.

In spite of the dark clouds gathering over the export outlook, China might not prefer to use depreciation of CNY as a retaliator tool in the trade war. The renewed depression pressure on the CNY has triggered speculation on whether USD/CNY will rise further to breach the psychologically important 7 level.

“We reiterate our view that it is not the value of USD/CNY but rather the pace of CNY depreciation that will matter more from policy makers’ perspective”, added ANZ.

At 13:00 GMT the FxWirePro's Hourly Strength Index of Chinese Yuan was bearish at -96.9631, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -10.7269. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex