China exports dive as trade dispute with US remains unresolved

China on Friday reported its steepest year-on-year decline in exports in three years, with no clear end in sight to Beijing’s trade dispute with the US that has been hurting the world’s second-largest economy.

Hopes that the trade dispute would soon be resolved have cooled. A summit between US president Donald Trump and Chinese president Xi Jinping has been pushed back from the end of March, as both sides try to pin down details and avoid an embarrassing failure.

While the dates were not yet finalised, a meeting at Mar-a-Lago in Florida had been pencilled in for March 27 or March 28, immediately following Mr Xi’s planned trip to Europe. That is now unlikely. US ambassador to China Terry Branstad told the Wall Street Journal on Friday that no date had been set as the two sides were still negotiating.

Clete Willems, the deputy director of Mr Trump’s National Economic Council, told a conference at Georgetown Law School on Friday that there was “more work left to be done” before an agreement could be reached. “We aren’t exactly where we need to be,” he said. Mr Willems also stressed that Mr Trump was willing to “walk away” from a “bad deal” and concerns among China hawks that he would settle for a weak agreement were misplaced. 

State councillor Wang Yi, China’s top diplomat, said on Friday that negotiations to end the trade war with the US had made substantive progress. But he warned against Washington’s attempts to separate the two intertwined economies. “Some individuals vow to decouple our economies — this is just their wishful thinking,” Mr Wang said on Friday. “Decoupling from China would mean decoupling from opportunities, from the future and in a sense even from the world.”

China’s exports sank 20.7 per cent last month compared with February 2018 in US dollar terms, the biggest monthly fall since February 2016 and four times steeper than the 4.8 per cent decline forecast in a Reuters poll of economists. Imports fell 5.2 per cent, resulting in the smallest trade surplus for China in 11 months. 

Major Chinese stocks recorded their biggest intraday dip since October with the CSI 300 index of Shanghai and Shenzhen-listed stocks ending down nearly 4 per cent. 

Mr Trump last month extended talks on the issue past a March 1 deadline for imposing higher tariffs on $200bn of Chinese imports. But while both sides say they want a deal, specifics and enforcement mechanisms are still not in place.

Mr Trump’s decision to walk out on North Korean leader Kim Jong Un without an agreement at last month’s summit in Vietnam “just totally spooked” the Chinese side, said Jake Parker, of the US-China Business Council in Beijing. “They want a signing ceremony, they don’t want a negotiation.”

The trade data will heighten concern about both a Chinese and global economic slowdown. Premier Li Keqiang on Tuesday announced China would target growth of 6 to 6.5 per cent in 2019, below last year’s figure of 6.6 per cent — already a 28-year low.

The weak Chinese export data follow similar trends in other Asian markets. South Korea has seen exports drop for three straight months, while Japanese outbound trade fell by the most in two years in January. 

Chinese exports had returned to growth in January, although analysts were unconvinced that the jump pointed to a robust recovery. They suggested instead that the data had been distorted by the lunar new year holiday falling earlier this year compared to 2018.

Taking January and February together, which removes lunar new year-related distortions, exports fell 4.6 per cent from a year earlier, while imports dropped 3.1 per cent. 

Weak Chinese imports are the latest sign of a slowdown in the domestic economy, which analysts have also cited as a key reason for slowing Japanese and South Korean exports. Chinese exports to the US fell disproportionately, down 14.6 per cent in the first two months of the year, while imports from the US fell 35 per cent.  

Exports to south-east Asia were strong in February, in another indication of the trade war’s impact. “The increase in China’s exports to Asean economies seems to indicate a structural shift in regional supply chains southwards,” Raymond Yeung, chief Greater China economist at Australia and New Zealand Bank in Hong Kong, wrote in a note on Friday. 

“We understand that one major mobile phone maker has started to produce its goods in Vietnam. We believe the ongoing trade tensions between the US and China have already prompted some corporates to hedge against such risks,” he added.

Additional reporting by Edward White and Hudson Lockett

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