Core view
Poor expectation: in March, the export continued to be resilient, and the supply advantage was realized again. The direct pulling effect of export on steady growth was limited, but its indirect effect should be paid special attention to. On the one hand, behind the high growth of mechanical and electrical products, China's supply advantage in relevant industrial chains led to the export resilience formed by permanent substitution, which helped to stimulate manufacturing investment and help steady growth; On the other hand, it plays a prominent role in ensuring the stable employment of market subjects. The disturbance of the epidemic caused the short-term decline of import data in March. Under the trend of steady growth, the medium-term recovery of import is highly uncertain.
In response to changes, exports continued to grow at a high rate
In March, the growth rate of RMB denominated exports was 12.9%, up from 13.6%. In terms of trade objects, China's exports to developed economies maintained a high growth rate. In the first quarter, China's RMB denominated exports to the European Union, the United States, South Korea and Japan increased by 21%, 14.3%, 14.6% and 6.1% respectively, and 10% to ASEAN. Exports continued a positive growth trend.
In response to changes, China's supply advantage has laid the foundation for export resilience. Previously, the market was more worried about the impact of a series of risk events on exports in March, the repeated impact of China's epidemic on foreign trade freight, and the possible impact of sanctions related to Russia on the stability of orders. In March, we put forward that we should focus on China's supply advantage during the eventful spring of 2022 (epidemic disturbance, Russia Ukraine conflict, tightening expectations of overseas liquidity, global inflationary pressure, etc.), This is the decisive force to lay the foundation for China's export resilience. The continued high growth of export data in March confirms the previous view and reflects China's supply advantage of responding to changes with constancy. For example, the epidemic disturbs the foreign trade of ports such as Shanghai and Shenzhen. Relevant departments quickly implement a series of measures to stabilize foreign trade and allocate them to other ports for operation. At the same time, price factors also support export growth. The export price index is highly correlated with commodity prices. The high increase of CRB index in the first quarter led to a significant rise in the export price index. In February, the export price index increased by 14.1% year-on-year.
Looking forward to the follow-up, we are optimistic that China will respond to changes with the help of supply advantages. We believe that the key to grasp the export trend in 2022 is to study and judge the changes in the supply and demand pattern. On the demand side, according to the consensus expectation of Bloomberg market, the economic growth rhythm of major developed economies such as the United States, Europe, Japan and South Korea is high before and low after. The expectation of high inflation and tight liquidity has exacerbated the expectation of future recession to a certain extent. The short-term conflict between Russia and Ukraine has also disturbed the European economy, and the overseas demand is expected to weaken quarter by quarter. On the supply side, we believe that China's supply advantage is prominent. On the one hand, geopolitical risks, economic sanctions and other uncertain events have exacerbated the vulnerability of the global supply chain. China's supply advantage is prominent, and the risk aversion in the trade field is good for China's exports; On the other hand, the normalization of overseas labor market and enterprise balance sheet is facing challenges, which affects its supply repair. The former is affected by the economic recession and the decline of fiscal stimulus, and the latter is affected by the tightening of monetary policy flow. There are hidden worries about the capacity expansion and release of overseas supply side. To sum up, we maintain the judgment of RMB denominated export growth rate of 8.5% in 2022, which is high in the front and low in the back.
The indirect pulling effect of exports on stabilizing employment and growth deserves attention
Pay attention to the indirect pulling effect of exports. From the perspective of economic growth, exports directly affect the performance of economic growth through the scale of trade surplus; At the same time, export-oriented labor-intensive industries mapped by exports and high-tech enterprises participating in global competition mean that the export boom has an important indirect effect on employment and manufacturing. In the second half of 2021, the market is pessimistic about the export expectation in 2022, and believes that the decline of China's share of global exports will lead to the decline of exports and then drag down the economy. We think this view is more one-sided. Judging only from the perspective of the direct impact of exports, in 2022, we think we should focus on the indirect role of exports, which plays an important role in ensuring the stable employment of market subjects on the one hand, On the other hand, it has important support for driving the steady growth of manufacturing investment.
Export resilience helps ensure stable employment of market players. Thanks to export resilience, the number of foreign trade enterprises with import and export performance in China in the first quarter was 432000, a year-on-year increase of 5.7%. Among them, the import and export of private enterprises was 4.52 trillion yuan, an increase of 14.1%, accounting for 48%, an increase of 1.4 percentage points year-on-year, 3.4 percentage points higher than the overall growth rate of foreign trade, driving the growth of foreign trade by 6.6 percentage points. At present, China is faced with triple pressures of shrinking demand, supply shock and weakening expectation. The unemployment rate reached the threshold of 5.5% in February 2022. In March, the epidemic spread, and the secondary impact of the epidemic and its secondary injuries on the service industry and employment can not be ignored. Under this background, we can see that the number and operation of foreign trade enterprises benefit from export resilience, with the support of a series of stable foreign trade and fiscal and tax preferential policies, It is expected to provide positive support for market players and stable employment.
Export LED manufacturing investment contributed to steady growth. In the first quarter of 2022, China's exports of mechanical and electrical products reached 3.05 trillion yuan, an increase of 9.8%, accounting for 58.4% of the total export value. Among them, the exports of Cecep Solar Energy Co.Ltd(000591) batteries, lithium batteries and automobiles increased by 100.8%, 53.7% and 83.4% respectively. With regard to the high growth rate of mechanical and electrical products, some market voices believe that the demand for mechanical and electrical products mainly depends on the consumer demand for durable goods in the United States, the European Union and other overseas developed economies. With the decline of consumer demand for durable goods, they believe that the growth rate of mechanical and electrical products in China will also decline. We believe that the rapid growth of batteries such as Cecep Solar Energy Co.Ltd(000591) batteries, lithium batteries and automobiles is essentially due to the fact that new energy vehicles are less disturbed by chips than traditional vehicles under the background of the global energy and scientific and technological revolution. China's advantages in the new energy vehicle industry have laid the foundation for the export sustainability of relevant categories.
From this point of view, under the background that the consumer demand for durable goods in overseas developed economies has gradually peaked and fallen, we believe that China occupies a dominant position in the relevant industrial chain behind mechanical and electrical products, which helps to maintain the export toughness of mechanical and electrical products. Behind this logic is the supply advantage laid by the continuous transformation and upgrading of manufacturing enterprises and the expansion of investment in the process of China's transformation from a large manufacturing country to a powerful manufacturing country, which is mainly reflected in the two aspects of "making up for the shortcomings of the supply side of the manufacturing industry" and "rebuilding the industrial foundation in the process of economic structure transformation". The former corresponds to the strong chain, while the latter focuses on the transformation of industrial new energy and industrial intelligence, We believe that the manufacturing investment driven by these two points is expected to become the most important variable for steady growth in 2022. For details, please refer to our recent series of reports on steady growth of new manufacturing.
The epidemic situation was disturbed in March, the price support fell, and the import turned negative in March
In March, RMB denominated imports were - 1.7% year-on-year, with the previous value of 12.9%. In terms of trade objects, the growth rate of China's dollar denominated imports from the United States, the European Union, ASEAN and Japan in March was - 11.9%, - 3.7%, 2.7% and - 9.8% respectively. Among the main imports, the import volume of crude oil, iron ore, soybeans and integrated circuits increased by - 14%, - 14.5%, - 18.2% and - 17.9% respectively. Due to the disturbance of epidemic factors, the price support fell, and the import turned negative in March. The negative import data in March was mainly due to two factors, one is the disturbance of the epidemic situation, and the other is the decline of price support.
First of all, the Omicron epidemic spread rapidly in China in March, and more than 100 new cases were diagnosed in Jilin and Shanghai in a single day, which brought about the impact of active and passive demand and disturbed imports; On the one hand, considering the strong infectivity of Omicron, the impact of the epidemic disturbs the fields of transportation, logistics and production, resulting in the passive contraction of some demand. In the first, middle and last ten days of March, the growth rate of domestic trade of the eight major ports decreased by 10.7, 23.2 and 17.4 percentage points respectively compared with that of foreign trade. The significant decline of domestic trade data is caused by the disturbance of the epidemic. On the other hand, the epidemic has impacted the service and industrial sectors, superimposing the uncertainty of the epidemic, resulting in enterprises taking the initiative to reduce some demand.
Secondly, geopolitical uncertainty decreased, the base effect fell, and import price support fell month on month. There is a high correlation between the import price index and the CRB index. The prices of CRB energy, industrial raw materials and metals fell month on month in March, which is due to the decline of geopolitical uncertainty on the one hand and the increase of the base in 2021 on the other hand. Overall, the growth rate of import prices may fall back to single digit growth from the average of 23% in the second half of 2021.
Looking forward to the follow-up, domestic demand is still the key variable to explain imports, and imports are not weak under the background of steady growth. We believe that the disturbance of the epidemic is only a short-term disturbance with limited sustainability. The impact on logistics, production and other links has improved since late March. Active epidemic prevention drills in all localities are also conducive to future response. We maintain the early view that domestic demand is still the core variable determining imports. We expect the annual economic growth to be 5.6%, and the four quarters to be 5.4%, 4.8%, 5.7% and 6.2% respectively. Imports are not weak under the background of steady growth, High frequency can pay attention to the recovery of Keqiang index. In addition, we expect that commodity prices will remain high. Considering the high base of prices last year, the support of price factors for imports will gradually decline. On the whole, maintain the view that the import growth rate is probably high before and low after.
The Q1 trade surplus continued to grow at a high rate, or pulled the nominal growth by 1.3 percentage points
Q1 the trade surplus continued to grow at a high level, driving the growth of nominal GDP. In the first quarter of 2022, the trade surplus reached 103938 billion yuan ($163.34 billion), breaking the trillion mark again and continuing the high growth level. Among them, the trade surplus in March reached US $47.38 billion, and China's trade surplus with the United States, the European Union, ASEAN, Japan and South Korea reached US $32.09 billion, US $20.07 billion, US $76.6 billion and US $8.23 billion respectively. On the whole, the trade surplus exceeding expectations will bring toughness to China's economic growth. We expect that the trade surplus of Q1 exceeding trillion yuan will pull 1.3 percentage points to the nominal GDP.
Risk tip: Sino US trade frictions worsened more than expected, the epidemic situation changed more than expected, impacted the global economy, and the global fiscal and monetary policies tightened more than expected
