FACTORS:
* Jan seasonally-adjusted exports +9.4% y/y vs +3.3% Dec
* Jan seasonally-adjusted imports +9.3% y/y vs +4.3% Dec
* Jan seasonally-adjusted exports -3.0% m/m vs +2.2% Dec
* Jan seasonally-adjusted imports -4.5% m/m vs +4.3% Dec
TAKEAWAY:
The trade surplus jumped to the biggest monthly gap since October 2012 as exports sailed past the relatively low consensus expectation. Imports also beat expectations, despite concerns that overinvoicing at the start of last year plus the timing of the Chinese New Year holiday may depress growth numbers.
January’s is the fourth big monthly trade surplus in a row (they’ve averaged $30.6 billion over the past four months), suggesting that the current account is again being used to bring speculative funds onshore to benefit from China’s relatively higher interest rates and rising asset prices.
The first quarter last year was marked by signs of massive inflows of speculative capital via China’s trade account, something achieved by companies inflating their invoices to sneak funds around China’s capital controls. Official data shows exports rose an average 18.9% y/y during each of the months of the first quarter last year, until the government began a crackdown starting in April, resulting in a dramatic erosion in China’s trade performance.
There was a notable turnaround in China’s trade performance starting in October last year, just after the Federal Reserve’s decision to delay tapering. The authorities warned companies again at the end of last year about fiddling their trade receipts, though that warning and the start of Fed tapering don’t appear to have had much impact on flows.
Signs of overinvoicing at the start of last year and this year, plus new year distortions, mean that first quarter trade data will be a troublesome guide to the health of China’s export-import economy in 2014.
COMMENT:
“January trade was unbelievably strong. I had expected very modest or even negative growth. The Baltic Dry Index has dropped quite a lot recently. This must be hot money hiding among trade,” said Guosen Securities analyst Dong Dezhi.