China's exports surge in May, but coming import tariffs cloud outlook

China's exports surge in May, but coming import tariffs cloud outlook

China’s exports beat expectations in May, but looming import tariffs from the United States and European Union are set to weigh on the outlook. Shipments having accelerated in May for a second consecutive month – partly due to a surge in demand from Southeast Asia. Exports beat expectations and rose by 7.6% from a year earlier to USD302.4 billion in May, the highest monthly export value since September, according to Customs data. The year-on-year figure was also better than the increase of 1.5% in April. The quick uptick in growth was partly due to a lower base in the same month last year, when China reported a steep export decline of 7.5% year-on-year, but exports to the Association of Southeast Asian Nations (ASEAN) also rose by 22.5% in May, hitting the highest monthly growth since March 2023. Tan Junyu, Regional Economist for North Asia with credit insurance company Coface, said China’s exports in May expanded due to a lower base from the previous year, while shipments of cars, ships and electronics “remained solid”.

“This month’s export data show strong performance, continuing the robust export trend seen over the past four months, and China’s economy is primarily driven by exports,” said Gary Ng, Senior Economist at Natixis Corporate and Investment Bank. “The rapid growth in exports to ASEAN is mainly benefiting from the shift in the industrial chain, with most of these products ultimately destined for the United States.” The value of car shipments rose in May by 16.63% year-on-year, with the volume also growing by 29.9%, while the value of ship exports surged by 57.1%. Exports of integrated circuits also rose by 28.47% by value last month compared with a year earlier, while the value of shipments of hi-tech products rose by 8.1%. But headwinds are looming for China’s exports, which Beijing is eager to strengthen amid sluggish domestic demand, after the U.S. last month proposed import-tariff increases on Chinese goods, including semiconductors, electric vehicles, steel and batteries, with some set to take effect from August. The European Union is also set to release the result of its investigation into China’s electric vehicle subsidies on June 10, which could result in tariffs being imposed. “Exports have become a rare cyclical driver, stabilizing China’s economic growth in 2024 supported by strong global demand in electronics and green tech. Such a rebound will remain apparent in the coming months, bringing export growth to 6% or above,” Ng added. “However, there is also growing concern about overcapacity and geopolitics, which may bring further headwinds in 2025 and beyond.”

Ding Shuang, Chief Greater China Economist at Standard Chartered Bank, pointed to the export-orders component of May’s manufacturing purchasing managers’ index (PMI), which indicated that shipments were “already beginning to weaken, suggesting that China’s exports are under increasing pressure. However, China’s products remain highly competitive, whether in hi-tech or labor-intensive sectors. China needs to enhance its industrial chain layout in more emerging markets and even consider relocating parts of the industrial chain to the U.S. or Europe,” he said, adding that “China’s cross-border e-commerce is also performing well; these are typically small trades that generally do not incur additional tariffs. However, it remains to be seen whether the EU and the U.S. will impose tariffs on them in the future”.

”Shipments to the U.S. saw their first year-on-year rise since March, having increased by 3.6% in May. Exports to the EU, meanwhile, fell by 1% in May compared with a year earlier. Imports, meanwhile, rose by 1.8% from a year earlier, compared with an 8.4% increase in April. “China’s trade data reflects the cyclical recovery in exports and the still challenging domestic-demand situation,” added Ng at Natixis Corporate and Investment Bank. “China’s lingering real estate problem and weak consumer confidence will continue to weigh on import growth.” China’s trade surplus stood at USD82.6 billion in May, compared with USD72.4 billion in April, the South China Morning Post reports.

The China Daily adds that in the January-May period, China’s foreign trade expanded 2.8% to USD2.46 trillion, while its exports rose 2.7% to USD1.4 trillion. The Global Times gives the figures in yuan. Exports in the first five months of 2024 recorded an annual increase of 6.1% to CNY9.95 trillion, while imports amounted to CNY7.55 trillion, up 6.4% yearly. Exports in May stood at CNY2.15 trillion, surging 11.2% year-on-year, while the imports grew by 5.2% to CNY1.56 trillion.

Zhou Maohua, Researcher at China Everbright Bank, said that China’s export growth beat expectations due to the continued recovery of overseas demand, optimization of China’s foreign trade structure, increased support for policies promoting domestic demand and stabilizing foreign trade, and rapid growth in exports of new energy and high-tech equipment. Zhou’s views were echoed by Robin Xing, Chief China Economist at Morgan Stanley, who said that resilient exports and manufacturing are likely to be the key growth drivers this year, backed by a global trade recovery and a policy push to upgrade supply chains. Xing said that China’s export growth is likely to stay robust at 8% year-on-year in 2024, benefiting from global trade recovery.