Exports and imports
According to the General Administration of Customs, China’s exports (in US dollar terms) fell 1.8% YoY (year-over-year) in April after rising 11.5% in March. The decline in exports was mainly due weak global demand. The slowdown in exports is the latest sign of weakness in the Chinese economy. Meanwhile, imports tumbled 10.8% YoY in April after falling more than 7.6% in March. Imports fell for the 18th consecutive month due to weak domestic demand despite government efforts to boost infrastructure spending.
China’s stock Market fell after the release of weak foreign trade data. The iShares China Large-Cap ETF (FXI) fell 1.7% from May 5 to May 12, and the iShares MSCI China ETF (MCHI) fell 2.0% for the same period.
Although exports fell, a decline in imports resulted in a rise in China’s trade surplus. China’s trade surplus came in at $45.6 billion in April, up from $29.9 billion in March.
According to customs data, China’s exports to the United States—the country’s biggest market—fell 9.3% YoY in April, while shipments to the European Union—the second biggest market—rose 3.2% YoY.
Government efforts to boost exports
On May 9, China unveiled new measures to boost exports and reduce tension with its Western trading partners, who are of the opinion that China is flooding their markets with low-priced steel and other goods at very low prices.
The State Council announced an increase in lending by banks to support small-scale and profitable exporters, expand rebates of value-added taxes, and reduce short-term rates for export credit insurance, which protects exporters against nonpayment by foreign customers.
Impact on mutual funds and ETFs
The slowdown in exports and imports directly impacts the revenues and margins of Chinese ADRs (American depository receipts) such as China Mobile (CHL), CNOOC (CEO), PetroChina (PTR), and China Petroleum & Chemical Corporation (SNP).
Investors can gain exposure to Chinese equity markets through China-focused mutual funds or ETFs.
Mutual funds such as the Clough China Fund Class A (CHNAX), the Guinness Atkinson China and Hong Kong Fund (ICHKX), and the Eaton Vance Greater China Growth Fund Class A (EVCGX) and ETFs such as the iShares China Large-Cap ETF (FXI) invest in the above-mentioned Chinese companies. Thus, their performance is adversely affected by lower revenues from these companies.
In the next article in this series, we’ll look at China’s consumer price index and producer price index for April.