The Chinese yuan strengthened against its US counterpart to close out the trading week after trade data came in slightly better than expected. Still, the latest numbers suggest that there is big trouble brewing in China’s economy. But now that Beijing has reduced the COVID-Zero strategy, economists will be watching out for any improvements in economic conditions over the coming months.
According to the National Bureau of Statistics (NBS), Chinese exports plummeted 9.9% year-over-year in December, totaling $306.08 billion. This was down from 8.9% in November, below the market estimate of -10%, and the sharpest drop since January-February 2020. Shipments were up for refined products, steel products, and rare earth minerals.
Imports to China plunged 7.5% from the same time a year ago to $228.07 billion. Coal, copper, natural gas, and steel purchases were down, but imports for crude oil, refined products, soybeans, copper ores, and iron ore were up.
Overall, China’s trade surplus increased by $78 billion to $877.6 billion.
“China’s foreign trade and exports showed strong resilience in the face of many difficulties and challenges,” said a customs agency spokesperson, Lu Daliang, at a news conference.
But economists warn that China’s exports to the rest of the world will continue contracting until the middle of 2023.
In other economic data, vehicle sales tumbled at an annualized rate of 8.4% in December, down from the 7.9% decline in November. Inflation was mixed: the annual inflation rate rose to 1.8%, the month-over-month inflation rate was flat at 0%, and the year-over-year producer price index (PPI) rose to -0.7%.
Credit conditions were also mixed as new yuan loans and outstanding loan growth rose, but total social financing and the M2 money supply growth fell.
The Chinese yuan has enjoyed a solid start for the year, gaining nearly 3% against its US counterpart in the first couple of weeks of the trading year.
The USD/CNY currency pair dropped 0.41% to 6.7108, from an opening of 6.7387, at 14:43 GMT on Friday. The EUR/CNY slumped 0.67% to 7.2634, from an opening of 7.3125.