China trade data saw another negative month in August. Both imports and exports declined from the same time last year. Certainly weak demand from both China and the rest of the world contributed to the declines, but China's strong currency and commodity supply growth leading to price declines were also significant contributors.
Imports declined from August of last month by roughly 14%. But, much of this decline can be attributed to commodity price drops over the last year as producers - particularly crude oil and iron ore - have not let up on supply growth. The S&P World Commodity Index has dropped around 50% over the last year, leading to a dramatic decline in the value of China's commodity imports, the largest import category. Many key commodities have seen an increase in the volume of shipments to China (see the chart on the right). This can be confirmed by the latest Australian trade numbers, showing the volume of iron ore and coal shipped to China has increased over the summer. As of June, Australia iron ore shipments to China were up 12% by volume. Accounting for dramatic commodity price moves, China import volumes were roughly flat on the year.
CNY 1 Year % Change vs. Major Trading Partners
Export numbers declined just over 5% from last year. Exports have been weak all year, and will continue to be weak as the Chinese yuan has appreciated meaningfully vs. all other trading partners, with the exception of the US (see chart on the right). China's strong currency vs. major trading partners will continue to be a drag on the export numbers for some time.
China exports were strong in a few countries on the Asian supply chain. Imports have seen declines from both commodity and machinery exporting countries. This trend will continue as Beijing lowers the target growth rate in 2016 (see my posting 3 reasons why China could lower the 2016 growth target to 6.5% and what it means going forward), commodity producers continue to increase output, and the CNY remains strong vs. trade partners on a 1 year basis.