A Transformed Export Structure

CHINA - Report 01 Nov 2016 by FAN Gang and Chunyang Wang

Growth seems very stable, if low, with GDP up 6.7% y/y in Q3, the same rate as in Q1 and Q2. Industrial output was up 6.1% y/y, likewise flat on Q2, and up 0.2 pps from Q3 2015. Fixed asset investment excluding agriculture rose 7% y/y, down 1.2 pps from Q2.Retail sales of social consumption goods were up 10.5% y/y in Q3 in nominal terms, and up 9.8% y/y in real terms, though flat on Q2. Total imports fell -4.7% y/y, up 2.1 pps from Q2, and up 8.8 pps from Q1. Imports rose1.4% y/y in August and September, and fell -1.9% y/y, showing a possibility for future growth. Exports, conversely, fell -6.3% y/y, down 1.8 pps from Q2.CPI was up 1.9% y/y in September, a 0.6 pps rise from August. The ex-factory price index of industrial products has shown an important turning point, and rose 0.1% y/y, ending its 4.5-year negative growth trend. We expect appreciation to increase. PPI fell -0.6% y/y. But we expect PPI to turn positive in the next two months. The producer price increase has led to increased profit: industrial firms’ profits rose 19.4% y/y in August, up 14.2 pps from Q2.M1 money supply was up 24.7% y/y at the end of September, down 0.6 pps from August, and so stabilizing at a high level. M2, the broad money supply, rose 11.5% y/y, flat on August, but still down over the long term​.

China’s export structure has change dramatically during this decade. Exports to the developed world rose, and imports from big commodity exporters fell. Developed countries are still China’s major export destination. The category structure in exports is close to stable, and one notable feature is the steady increase of high-tech products, where unmanned aerial vehicle exports have risen significantly. In the current policy environment of cutting overcapacity, excessive steel products are finding buyers overseas, which have led these exports to rally. Developed countries are also the major source of Chinese imports, with South Korea surpassing Japan as China’s biggest import source. The United States and European Union have also increased their shares of exports to China. Among imported goods, consumption goods imports have risen markedly​.

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