While the global economy continues to suffer the consequences of the covid pandemic, with much of Europe entering lockdown 2.0, China’s economy is plowing ahead as if nothing ever happened. While a big part of China’s economic strength can be attributed to the record surge of total credit injected in the system in 2020…

… strong trade has also played a major part in the economic rebound: Overnight China reported that exports accelerated to 11.4% Y/Y in October from 9.9% Y/Y in September, the highest print since March 2019, with sequential growth up to +3.3% month-on-month (sa non-annualized) in October vs. 1.1% expansion in September. At the same time, imports moderated in October and grew 4.7% yoy compared with the 13.2% yoy increase in September, as temporary factors behind the strong imports in September – such as Huawei’s front-loading of chip imports – unwound.

The surge in exports to a one-and-a-half-year high took place even as the yuan has strengthened for 6 consecutive months.

So who was so aggressively buying Chinese goods even as they became increasingly more expensive?

  • Exports to the US accelerated to +22.5% yoy in October (vs. +20.5% yoy in September).
  • Growth of exports to ASEAN decelerated to +7.3% yoy from +14.4% yoy in September.
  • Exports to Japan improved and expanded by 5.7% yoy, vs -2.7% yoy in September.
  • Exports to EU stayed weak: exports to EU contracted by 7.0% yoy, vs -7.8% yoy growth in September.

Broken down by category, exports of Covid-19 related products mostly slowed in October: exports of textile & fabric goods grew 14.8% yoy, vs 34.7% yoy in September; “working from home” related exports weakened as well – growth of exports in automatic data processing machines moderated to 26.7% yoy in October vs 45.3% yoy in September. Growth of exports in electronic integrated circuits decelerated to 13.9% yoy in October from 17.6% yoy in September. Exports of plastic articles remained strong however and grew 97.9% yoy in October vs 95.9% yoy in September. Housing related exports accelerated further – exports of furniture grew 32.3% yoy, vs 30.6% yoy in September. Exports of motor vehicles and parts strengthened in October. Exports of motor vehicles grew 15.1% yoy, vs 2.9% yoy in September, and exports of vehicle parts grew 31.3% yoy in October, vs 22.7% in September.

Looking at imports, a bigger decline of crude oil imports and slower growth of integrated circuit imports are the main drivers behind the lower headline year-over-year import growth in October. In value terms, crude oil imports contracted further on a year-over-year basis by 36.0%, in comparison with the 14.1% yoy decline in September. Imports of integrated circuits slowed from +28.2% yoy to +15.8% yoy in October, largely as Huawei stopped its front-loading of chip imports. In volume terms, crude oil imports fell by 6.5% yoy, vs an increase of 17.6% yoy in September.

In summary, while China’s export growth strengthened further in October on the back of stronger global growth and market share gains helped by stronger home related products, Import growth slowed in October on the unwinding of front-loaded chip imports by Huawei in September.

The question is what happens in the next few months, as China aggressively halts imports from Australia, and with Europe’s economy set to contract sharply as a result of a new round of covid shutdowns.