China’s exports rose 4.7% in November from a year earlier, much slower than an 11.6% rise in October and below expectations for an 8.2% increase in a Reuters poll.
The country’s imports fell 6.7% in November, well below October’s 4.6% rise, and below expectations for a 3.9% increase. That left the country with a trade surplus of US$54.5 billion for the month, above expectations of US$43.5 billion.
The latest foreign trade numbers reflect weak demand for commodities from China. In addition to November’s purchasing managers’ index (PMI), it points to a sluggish domestic demand and a weaker than expected economy, says a research report by the Australia and New Zealand Banking Group Limited (ANZ).
But the impact of pricing effects, as global commodity prices dropped sharply in the past two months, should not be discounted. Nonetheless, as commodity inventories remained elevated amid price collapses, the de-stocking process will take a long time to complete.
Moreover, the huge trade surplus suggests that financial arbitrage activities via trade channel remain elevated. The large trade surplus should also add pressures on RMB exchange rate to appreciate, the recent strong U.S. dollar purchase flows in the onshore market indicate a risk of weakening going forward.
On the monetary policy front, ANZ believes that the RMB exchange rate will likely become more volatile given the global fluctuation of U.S. dollars. A more flexible RMB exchange rate will help China’s balance of payment position more balanced and therefore increase the independence of monetary policy, says ANZ.