Despite trade tensions, China's exports in May increased at their highest rate in over a year, though imports did not meet analyst expectations, according to customs data released recently.
China's export sector experienced significant growth in May, achieving its fastest expansion in over a year despite ongoing trade tensions, according to customs data released on Friday.
Exports surged by 7.6% year-over-year in May, reaching $302.35 billion, marking the quickest growth since April 2023. On the other hand, imports increased by 1.8% to $219.73 billion, falling short of analysts' predictions of around 4% growth.
This notable rise in exports can be partly attributed to a lower base from the previous year, when exports had decreased by 7.5%. In comparison, April saw a 1.5% year-over-year growth in exports, while imports for that month rose by 8.4%.
The robust export performance widened China's trade surplus to $82.62 billion in May, up from $72.35 billion in April. This growth comes amidst escalating trade tensions with the U.S. and Europe. The U.S. has been increasing tariffs on Chinese-made electric vehicles, and Europe is considering similar measures.
"Foreign tariffs are unlikely to immediately threaten exports; if anything, they may boost exports at the margin as firms speed up shipments to front-run the duties," noted Zichun Huang of Capital Economics. Huang also mentioned that a weaker real effective exchange rate would support exports.
While import volumes remained relatively unchanged last month, Huang expects them to rise soon, driven by increased government spending on the import-intensive construction sector.
The ten nations of the Association of Southeast Asian Nations (ASEAN) continued to be the largest market for Chinese products, with exports to ASEAN growing by 9.7% year-over-year in May to $50.83 billion. Exports to the U.S. saw a modest increase of 0.2%, while shipments to the European Union declined by 3.9% year-over-year.
Key sectors driving the export growth included steel, automobiles, home appliances, and ships. The automobile sector, in particular, saw the fastest growth, with China exporting 569,000 cars in May, marking a 26.8% increase from the previous year.
China faces accusations from the U.S. and the European Union of overproducing and flooding global markets with inexpensive electric vehicles. Both regions are working to impose tariffs on these vehicles. China is also concerned that such duties might reduce its EV exports amid weakening domestic demand.
Lynn Song of ING Economics warned that aggressive tariffs on Chinese strategic exports and automobiles could lead to "potential for retaliation and escalation of trade friction." She added, "We remain cautious about the trade outlook for the second half of the year and expect its contribution to growth to decline."
Factory activity in China slowed more than anticipated in May, according to an official survey released last week. The manufacturing purchasing managers index (PMI) from the China Federation of Logistics and Purchasing fell to 49.5 in May from 50.4 in April, indicating a contraction in the sector.
For 2024, China has set an economic growth target of around 5%, a goal that economists believe will require additional policy support.
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