China’s export and import data
According to China’s General Administration of Customs, Chinese exports (in US dollars) fell 1.4% year-over-year (or YoY) in December 2015, compared to a fall of 6.8% in November. Its imports fell 7.6% YoY compared to a fall of 8.7% in November.
This indicates that China’s foreign trade is shrinking. China’s trade balance stood at $60.1 billion in December, up from $51.4 billion in November.
The reforms introduced by Chinese authorities helped to boost Chinese exports, so the fall in exports was less than expected. However, better-than-expected data may raise doubt about the credibility of data when the Chinese economy is struggling in all areas.
Meanwhile, imports have taken a hit due to low domestic demand on account of the slowing economy. Further, China is a major importer of crude oil, copper, and iron ore, and the prices of these commodities have fallen sharply. Most factories are already sitting on large stocks of commodities, leading to lower demand for these commodities. Hence, imports of crude oil, copper, iron ore, and other commodities have fallen sharply.
The People’s Bank of China (or PBoC) devalued the yuan to prop up exports in August 2015. Similarly, the PBoC again surprised the market on January 7 by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), at 6.6 per dollar, the lowest since March 2011. It’s also slashed rates six times since November 2014.
Meanwhile, market participants expect that China’s central bank will need to resort to further monetary stimulus in the form of more rate cuts to support the slowing economy as well as to lessen the capital outflow from the country.
Impact on mutual funds
Tencent Holdings (TCEHY) is included in the top ten holdings lists of the Clough China Fund Class A (CHNAX), the Guinness Atkinson China & Hong Kong Fund (ICHKX), the Eaton Vance Greater China Growth Fund Class A (EVCGX), and the John Hancock Greater China Opportunities Fund Class A (JCOAX). It has large export exposure, so the slowing of exports directly impacts its revenues and margins.
In the next article, we’ll look at China’s consumer price index and producer price index.