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China’s exports registered a ninth straight month of contraction in 2016. China’s exports in USD terms declined 6.1 percent y/y in December, as compared with the fall of 1.6 percent in November and market expectation of a fall of 4 percent. Meanwhile, imports in USD terms rose 3.1 percent, as compared with the rise of 4.7 percent and consensus projection of a rise of 3 percent.
China’s trade balance in USD terms came in at a surplus of USD 40.8 billion, contracting from a surplus of USD 44.2 billion. Consensus expectations were for a surplus of USD 47.6 billion. In CNY terms, the trade balance came in at a surplus of CNY 246.8 billion, a contraction from CNY 298.1 billion in November.
Looking into 2017, the combination of a weaker RMB and stronger US consumption should translate into a moderate rebound in China’s exports growth. But a looming threat of trade tensions with the US suggests risks are tilted to the downside. To gain support from blue-collar manufacturing workers, US president-elect Donald Trump has vowed to abrogate trade agreements and impose unilateral tariffs during the presidential election. Signs are growing that he will carry out his campaign pledge. Trump nominated Robert Lighthizer as the US trade representative (USTR), reported DBS Group Research.
As a former deputy USTR under President Ronald Reagan, Lighthizer is regarded as an experienced tactician with intimate knowledge of trade tools that were widely used before the creation of WTO. During his tenure, Reagan struck the 1985 Plaza Accord currency deal with Japan and Germany that brought down the dollar’s value. The president-elect also named a strident China critic, Peter Navarro, to lead a new White House office overseeing US trade and industrial policy, they added.
DBS in its research note suggested that, if a trade war does materialise, Beijing is expected to take a series of retaliatory measures to counter US trade sanctions. The spectre of deteriorating China-US trade and political ties will likely weigh on the confidence of exporters and investors going forward.
