Gavekal Capital: What is the Signal in the Chinese Trade Data?

Wednesday, March 12, 2014

What is the Signal in the Chinese Trade Data?

The Chinese trade data from last weekend has gotten a fair amount of play in the media over the last few days. On one hand we have imports surging 10% YoY and on the other we have exports plunging by 18% YoY. Strong imports signal a healthy domestic economy in China (a positive for foreigners who export to China) while weak exports signal less demand for Chinese products from abroad. Throw into the mix the fact that the Chinese New Year distorts massively the statistics in January and February and one is left with more questions than answers.


We don't think it has to be that complicated, however. One quick way to adjust for the erratic data each January and February is to simply take a two month moving sum of the data and then calculate the YoY % change. This method smooths out the noise so we can more easily determine the signal. What we find is that import growth is still robust and that the decline in exports is much less than the February data suggests. So doing away with hyperbole, it seems that Chinese demand on the surface seems ok (and maybe the Chinese economy is actually rebalancing a bit), but that exports, in showing their first YoY decline since 2009, are painting a darker picture of global demand. A more cynical take on the strong imports would assume the data simply means foreign subsidiaries of Chinese companies are over-invoicing the parent company as a means to get capital out of China. Perhaps this is happening on the margin, but for now we'll go with the optimistic story and believe that China is, finally, starting to rebalance.