Although China’s exports still maintain a relatively strong momentum at present, in the face of the impact of China’s epidemic, the decline of new export orders and geopolitical uncertainty, subsequent exports show a certain downward risk.
Considering the impact of the epidemic, there are signs of fermentation in the supply chain pressure caused by enterprise shutdown and land and port logistics, and the possibility of pressure on subsequent export delivery cannot be ruled out. Considering the export proportion of Shanghai, Yangtze River Delta and other regions affected by the epidemic in China, the industrial chain related to foreign trade and their important position in logistics, the relevant pressure may not be small.
Considering the decline of new orders, the proportion of China’s exports in overseas markets has fallen. If China’s production continues to be limited and the advantages of China’s industrial chain relative to overseas are weakened, it may not rule out the possibility that subsequent export orders will continue to fall.
As for geopolitics, in addition to tariffs, the United States is restricting economic and trade activities between China and the United States by strengthening intellectual property law enforcement, financial sanctions and strictly investigating the sources of funds for overseas listing, which may restrict China’s exports. Therefore, the risk still exists.
Looking back on 2021, the main reason for China’s strong export is that foreign demand has maintained a strong trend, especially the result of the demand expansion of developed economies in the United States and Europe.
Looking forward to 2022, the momentum that used to drive China’s exports began to weaken. Whether from the perspective of commodities or subregions, with the gradual contraction of overseas demand, China’s export growth rate will continue to fall this year.
We expect China’s annual export growth rate to be about 1%, and the overall month on month probability of subsequent exports is weaker than that of seasonality. The rhythm is higher than that of the previous year and lower than that of the previous year. The decline rate of exports may be faster, and exports may fall into a negative range from the second half of the year.
Is it possible to devalue the RMB exchange rate at this time?
Devaluation is certainly not a bad thing for China’s exports. However, unless the RMB exchange rate depreciates significantly (for example, compared with the changes after the 811 foreign exchange reform in 2015), it may be very difficult to support China’s exports.
Moreover, the constraints on monetary policy itself and geopolitical issues need to be considered. The stability of balance of payments and exchange rate is the premise of the independence of monetary policy. Therefore, in the context of the strengthening of the US dollar and the intensification of geopolitical friction at this stage, the central bank may follow the trend and moderate depreciation may be the most likely direction.
For the bond market, we need to consider: on the one hand, export is the largest growth force of China’s economy after the epidemic; On the other hand, it is also the material basis for maintaining the balance of payments. Under the background of increasing downward pressure on exports this year, on the one hand, the pressure on China’s economic growth has further increased, which brings the need for greater policy hedging; On the other hand, we need to consider the possible impact of external balance and observe how the central bank takes into account internal and external balance.
The final summary still lies in the selection of specific policy combinations and tools. At present, we maintain the possibility of interest rate reduction after the RRR reduction. When it is implemented in the bond market, there is room for interest rates, and the rhythm needs to be paid attention to.
Risk tips: the economic growth outside China exceeded expectations, the inflation outside China exceeded expectations, the macro policy adjustment outside China exceeded expectations, the development of China US relations exceeded expectations, and the epidemic development outside China exceeded expectations.
