The slump in Chinese foreign trade slowed in October, while making modest contributions to the growing roster of arguments about delayed global recession. Thus reinforcing expectations that safe heaven assets will be “out of favor” for some time.
However, even if China and the United States sign the “phase one” trade agreement, the immediate surge in foreign trade will not be so strong as to instantly reverse the trend. Therefore the Politburo will probably lean to more government spending to generate growth.
Exports in October fell by 0.9%, beating the -3.9% forecast, which is also less than the drop by 3.2% in September. Looking at the trend we can see that foreign demand for Chinese goods declined three months in a row:
In annual terms, US exports fell 16.2% in October, up from 21.9% in September. One factor contributing to export growth was the blacklisting of several Chinese technology firms, which encouraged importers in the United States to boost inventories before restrictions came into force.
If an interim deal can be concluded, the US administration will not only have to cancel tariffs due in December on consumer imports worth $156 billion, but also begin to abolish existing tariffs. Tariffs for $250 billion in Chinese goods, which were supposed to take effect on October 15, were canceled.
China’s imports declined year-on-year for 6 consecutive months, but a 6.4% decline was a less than expected drop by -8.9%. Last month, imports fell 8.5%. Despite signs of relief, some components of imports, such as iron ore and copper, accelerated the fall. This is consistent with the latest manufacturing activity data in China, including weak pressure in production prices.
The pace of expansion in China fell to the lowest level in 30 years, and to remain in the range of target growth set by the government, the Central Bank even had to lower its medium-term interest rate on Tuesday, for the first time since 2016. The PBOC is expected to continue its offensive strategy providing more cheap credit to the ailing economy.