Chinese exports shrink rapidly in February, but economists optimistic

China's trade surplus shrank far more quickly in February than markets had anticipated, but some economists cautioned the data was still subject to distortions linked to the Chinese New Year, even as they pointed out signs of underlying strength.

The country's trade surplus fell from $63.3bn in January to $32.6bn, as exports measured in US dollar terms registered a decline of 25.4% year-on-year, in comparison to the prior month's reading of -11.2% and forecasts for a fall of 14.5%.

However, Julian Evans-Pritchard at Capital Economics pointed out how in 2015 the New Year holidays had fallen unusually late in the year, hence provoking distortions in this year's data due to what analysts term 'negative base effects'.

"The trade data are highly volatile during the first couple of months of the year. And other indicators, including
the export orders components of both manufacturing PMIs, don't point to a sharp drop-off in foreign demand last month," Julian Evans Pritchard said in a research note sent to clients.

Import growth, on the other hand, shrank at a 13.8% year-on-year clip in February after a drop of 18.8% in the month before and came closer to meeting market projections for a decline of 12.0%.

Capital Economics thought it likely that a continued surge of invoicing from Hong Kong was still slightly inflating the import data.

Nonetheless, stripping out that effect a recovery was still evident in demand for imports, and hence in internal Chinese demand, Evans Pricthard explained.

A jump in the rate of growth of imports for domestic use was almost entirely the result of increased imports of commodities.

"These are still down year-on-year in value terms but appear relatively strong in volume terms," he said.

Capital Economics's expectation was for Chinese trade to pick up over the coming quarters, as global demand conditions improved slightly in 2016, while imports should benefit from the recovery in commodity prices and Beijing's looser fiscal stance.

Analysts at Danske Bank were of a similar view, telling clients that: "with the March number we expect a rebound in the y/y rate as exports declined more than 33% m/m in March 2015. It means that if the level of exports is unchanged from February to March this year the y/y rate will jump sharply to around +10%, which would be the highest number since February last year."