China's exports rise amid lingering deflationary pressures

China's exports: China's December export growth of 2.3 per cent year-on-year brought a glimmer of optimism, outperforming expectations and signaling a potential turning point in global trade dynamics. However, persistent deflationary pressures and challenges within the domestic economy keep expectations alive for further policy easing measures.

The data showed positive momentum in China's export sector, with semiconductors and electronics driving the growth. Xu Tianchen, Senior Economist at the Economist Intelligence Unit, noted that the recovery stemmed from a cyclical rebound in overseas consumer demand. However, analysts acknowledged the impact of a low statistical base due to disruptions in exports the previous December.

The improvement in export data aligns with positive trends observed in South Korea, Germany, and Taiwan, indicating a gradual resurgence in global trade. Last year, China faced its first decline in exports since 2016, and the United Nations warned of a potential $2 trillion contraction in goods trade or 8% in 2023.

While global interest rates are expected to drop, stimulating demand for imported goods, China grapples with domestic deflationary challenges. December data from the National Bureau of Statistics revealed a third consecutive monthly fall in consumer prices, stressing on the ongoing deflationary forces in the Chinese economy.

Consumer prices rose by a mere 0.2% in 2023, marking the slowest pace since 2009, while the full-year producer price index experienced a 3.0% decline, the sharpest downturn since 2015. Zhiwei Zhang, Chief Economist at Pinpoint Asset Management, highlighted the impact of weak domestic demand and the lingering influence of the property sector on the overall economy.

Despite optimism surrounding the uptick in exports, analysts emphasize the need for additional policy support measures to stimulate demand and alleviate deflationary pressures. UBS analysts noted, "Consumption will likely pick up into the Lunar New Year, but more stimulus is needed to boost household spending."

China's policymakers face the challenge of navigating both domestic and global economic headwinds, with concerns about geopolitical challenges, cautious consumers, and a prolonged property crisis. Market reactions were largely muted, with China's blue-chip CSI300 stock index showing a slight decline, Hong Kong's Hang Seng Index remaining steady, and the yuan maintaining stability against the dollar.

The overall economic outlook remains uncertain, with fragile demand prospects and potential risks of deflation continuing to impact China's economic trajectory. Analysts emphasize the importance of sustained policy support to navigate the complexities and uncertainties in the coming months.

(With Reuters inputs)