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Coronavirus: China’s medical supply boom, lockdown backlog sparked surprise April exports rise
A surprise jump in Chinese exports in April will be short-lived, analysts said, with the world’s second largest economy unable to stay sheltered from the demand shock to come from the global economic downturn.
A 3.5 per cent rise in shipments last month caught economists by surprise and left them scrambling for explanations as the consensus forecast was for an 11 per cent contraction.
The rise was, in part, due to factories coming back online in China in March and April to fulfil orders that had been made in the first two months of 2020, when much of the economy was under lockdown.
The rise, therefore, is not indicative of underlying strength, economists said, with May’s shipments set to drop amid widespread lockdowns across many of China’s major export markets.
China’s external demand is suffering from the impact of lockdowns and social distancing in the rest of the world
Louis Kuijs
“China’s external demand is suffering from the impact of lockdowns and social distancing in the rest of the world,” said Louis Kuijs, a China analyst at Oxford Economics. “But April shipments may have been boosted by exporters making up for shortfalls in the first quarter due to supply constraints then.”
One clear area of growth was China’s burgeoning production of medical supplies for the rest of the world, with shipments of personal protective equipment, including masks, tests, gloves, and gowns surging in Chinese yuan terms over the course of March and April.
Medical equipment exports rose by 11 per cent in the January-April period compared to a year earlier after contracting 3.4 per cent in the first quarter.
“The daily average export value of antivirus medical supplies jumped from about 1 billion yuan (US$141 million) from April 1 to [April] 10 to more than 3 billion yuan in late-April. From March 1 to 30 April, China’s exports of medical supplies reached about 71.2 billion yuan (US$10 billion), accounting for 2.6 per cent of total exports in March and April, including 27.8 billion face masks and 130 million protective suits, among others,” Nomura analysts wrote in a note.
Nomura’s analysts estimated that without the surge in medical supplies exports, China’s April shipments would have dropped by 1.5 per cent from a year earlier.
But the return to growth after the sharp contraction in exports in the first quarter will not last, with much of the world entering or already in a severe economic depression. This is predicted to shave double-digit percentage points off the value of Chinese exports over the course of the next few months.
“Exporters are unlikely to be immune from the sharp slowdown in global activity for long. [South] Korean exports, a timely proxy of global demand that usually follows a similar trajectory to Chinese exports, plunged 24 per cent in April, the sharpest contraction in 11 years,” said Julian Evans-Pritchard, Capital Economics’ China analyst.
In sharp contrast, Chinese imports fell 14.2 per cent in April, a much worse reading than anticipated, suggesting that pinning hopes of long-term recovery on domestic consumption – some 60 per cent of the total economy – may be premature.
Oil prices, which have fallen sharply in recent months after coronavirus containment efforts resulted in less demand for fuel around the world, will have been a contributing factor, given China imports most of its energy and these purchases will have been much cheaper compared to last year.
“Worse-than-expected imports data in April reflect the fact that Chinese domestic demand remains weak. The Caixin services purchasing managers’ index released [on Thursday] as well suggested that consumption may be under increased pressure, due to slower wage growth and higher unemployment,” said Euler Hermes economist Francoise Huang.
The Caixin/Markit services purchasing managers’ index rose slightly from March, but still showed sector activity contracted in April as it only improved to 44.4 from 43.0.
With exports rising and imports declining, China’s trade balance expanded to US$45.34 billion in April, up from US$19.9 billion in March.
The worst is still to come for Chinese trade. The sharp deterioration in activity among China’s key trade partners last month will probably feed through to much weaker exports in May
Julian Evans-Pritchard
A surprise jump in Chinese exports in April will be short-lived, analysts said, with the world’s second largest economy unable to stay sheltered from the demand shock to come from the global economic downturn.
A 3.5 per cent rise in shipments last month caught economists by surprise and left them scrambling for explanations as the consensus forecast was for an 11 per cent contraction.
The rise was, in part, due to factories coming back online in China in March and April to fulfil orders that had been made in the first two months of 2020, when much of the economy was under lockdown.
The rise, therefore, is not indicative of underlying strength, economists said, with May’s shipments set to drop amid widespread lockdowns across many of China’s major export markets.
China’s external demand is suffering from the impact of lockdowns and social distancing in the rest of the world
Louis Kuijs
“China’s external demand is suffering from the impact of lockdowns and social distancing in the rest of the world,” said Louis Kuijs, a China analyst at Oxford Economics. “But April shipments may have been boosted by exporters making up for shortfalls in the first quarter due to supply constraints then.”
One clear area of growth was China’s burgeoning production of medical supplies for the rest of the world, with shipments of personal protective equipment, including masks, tests, gloves, and gowns surging in Chinese yuan terms over the course of March and April.
Medical equipment exports rose by 11 per cent in the January-April period compared to a year earlier after contracting 3.4 per cent in the first quarter.
“The daily average export value of antivirus medical supplies jumped from about 1 billion yuan (US$141 million) from April 1 to [April] 10 to more than 3 billion yuan in late-April. From March 1 to 30 April, China’s exports of medical supplies reached about 71.2 billion yuan (US$10 billion), accounting for 2.6 per cent of total exports in March and April, including 27.8 billion face masks and 130 million protective suits, among others,” Nomura analysts wrote in a note.
Nomura’s analysts estimated that without the surge in medical supplies exports, China’s April shipments would have dropped by 1.5 per cent from a year earlier.
But the return to growth after the sharp contraction in exports in the first quarter will not last, with much of the world entering or already in a severe economic depression. This is predicted to shave double-digit percentage points off the value of Chinese exports over the course of the next few months.
“Exporters are unlikely to be immune from the sharp slowdown in global activity for long. [South] Korean exports, a timely proxy of global demand that usually follows a similar trajectory to Chinese exports, plunged 24 per cent in April, the sharpest contraction in 11 years,” said Julian Evans-Pritchard, Capital Economics’ China analyst.
In sharp contrast, Chinese imports fell 14.2 per cent in April, a much worse reading than anticipated, suggesting that pinning hopes of long-term recovery on domestic consumption – some 60 per cent of the total economy – may be premature.
Oil prices, which have fallen sharply in recent months after coronavirus containment efforts resulted in less demand for fuel around the world, will have been a contributing factor, given China imports most of its energy and these purchases will have been much cheaper compared to last year.
“Worse-than-expected imports data in April reflect the fact that Chinese domestic demand remains weak. The Caixin services purchasing managers’ index released [on Thursday] as well suggested that consumption may be under increased pressure, due to slower wage growth and higher unemployment,” said Euler Hermes economist Francoise Huang.
The Caixin/Markit services purchasing managers’ index rose slightly from March, but still showed sector activity contracted in April as it only improved to 44.4 from 43.0.
With exports rising and imports declining, China’s trade balance expanded to US$45.34 billion in April, up from US$19.9 billion in March.
The worst is still to come for Chinese trade. The sharp deterioration in activity among China’s key trade partners last month will probably feed through to much weaker exports in May
Julian Evans-Pritchard
