International demand improves marginally in May 2017

China’s (FXI) economy is showing signs of an economic slowdown and saw its weakest performance yet in the manufacturing sector in 2Q17. The domestic demand conditions remained subdued, as the recent clampdown on increasing debt has affected credit levels. The international demand also remained flat. However, it marginally improved in May 2017. The below chart shows exports in China over the last year.

Will China Regain Lost Ground with Slight Improvement in Exports?

Exports in May 2017

Exports from China stood at $191.0 billion in May 2017, a moderate increase of about 8.7% as compared to the corresponding period the previous year. However, exports in May 2017 grew at ~6%, lower than the prior month’s increase of ~8%.

Despite the marginal increase in exports, the manufacturing sector, which is highly reliant on exports, posted three consecutive months of decline as of May 2017. The manufacturing index in May 2017 dropped below the critical 50 mark, indicating contraction in the sector.

China’s reliance on exports

Over the years, China’s economy has been supported by phenomenal growth in exports due to its economic expansion. However, the financial crisis of 2008 led to a decline in international trade, which affected markets globally (ACWI) (VT). As a result, China has seen a structural shift from a manufacturing-driven economy to a more consumption-based economy. While China is focusing on consumption, exports continued to contribute significantly to its economic activity in 2017. The top destinations for Chinese exports in May 2017 were India (INDA), Japan (EWJ), South Korea (EWY), and ASEAN (ASEA) countries.

Chinese exports as of May 2017 have seen an 8.2% increase. Recently, China increased its total number of permits under the refined fuel export quotas to 24.8 million tons in 2017. The beneficiaries of these quotas, which are valid for 2017, include companies like Sinopec, China National Petroleum (CNPC), and China National Offshore Oil (CNOOC), according to data from Reuters.

Let’s look at the trade balance in China in May in our next article.

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