China's export boom in times of trade dispute

China's export boom in times of trade dispute

China's exports gained momentum in December, while imports also showed a recovery. The strong end to the year was helped in part by factories shipping inventory abroad to prepare for increased trade risks under Donald Trump's presidency.

Importance of exports for the Chinese economy

Exports are a key driver of China's $18 trillion economic growth, which continues to suffer from a prolonged housing crisis and wavering consumer confidence. While policymakers can take comfort from recent measures that keep the economy on track for a growth target of "around 5%," challenges such as possible U.S. tariff increases cloud the outlook for 2025.

Trade negotiations and political challenges

New US President Donald Trump, who returns to the White House next week, has proposed high tariffs on Chinese goods, sparking fears of a renewed trade war between the two superpowers. Unresolved disputes with the European Union over tariffs of up to 45.3% on Chinese electric vehicles could hamper China's ambitions to expand its auto exports while increasing deflationary overcapacity concerns.

Impulse at the end of the year

"The lead-in trade became more visible in December due to the effects of Chinese New Year and Trump's inauguration," said Xu Tianchen, senior economist at the Economist Intelligence Unit. China's largest festival takes place from January 28th to February 4th. "Import growth could be supported by hoarding of raw materials such as copper and iron ore as part of China's 'buy fair' strategy," he added.

Exports and imports in December

Export figures for December rose 10.7% from a year earlier, according to customs data, beating a 7.3% forecast in a Reuters poll of economists. This is an improvement compared to a 6.7% increase in November. Imports surprised with an increase of 1.0%, the strongest figure since July 2024, while experts had expected a decline of 1.5%.

Trade balance and yuan development

China's trade surplus grew to $104.8 billion last month, up from $97.4 billion in November. The trade surplus with the US expanded from $29.81 billion to $33.5 billion over the same period. A Chinese customs spokesman told reporters that there was still "tremendous" opportunity for growth in China's imports this year.

Outlook for 2025

Analysts noted that a weaker yuan in 2024 saw Chinese manufacturers find buyers abroad to offset weak domestic demand through continued price cuts. As a result, China's exports rose 5.9% last year, while imports grew just 1.1% over the same period. Barclays analysts said in a note: "The double-digit increase in exports in December, led by the US and ASEAN, as well as the increase in new export orders, support our earlier view that the threat of tariffs could impact export patterns in the coming quarters, with a potential increase in shipments ahead of the imposition of new tariffs, followed by a decline."

Market reaction and economic stability

The market reaction to the trading data was muted. The yuan settled near 16-month lows against the dollar while major stock indexes fell. However, signs of stabilization have become apparent following China's latest economic stimulus program. Industrial production remained in moderate expansion for the third straight month, while services and construction also recovered in December, an official survey showed.

Development of import figures

South Korea, a key indicator of China's imports, reported an 8.6% increase in shipments to China in December, indicating robust demand for technology products. China's iron ore imports rose to a new high for a second straight year in 2024 as lower prices spurred buying and demand despite the ongoing housing crisis weighing on steel demand. As the world's largest agricultural importer, China bought a record amount of soybeans last year as buyers concerned about U.S.-China trade tensions rushed to secure American soybeans ahead of Trump's inauguration.

Oil imports and economic recovery

Crude oil imports fell last year, marking the first annual decline in the past two decades outside of pandemic-related declines, as moderate economic growth and peaking fuel consumption dampened buying. China's top leaders have assured they will ease monetary policy and pursue proactive fiscal policy in 2025 to offset external pressures and revitalize domestic demand. The government's ambition is for economic growth of around 5% for the year, a target that proved challenging in 2024.