Core view
Recently, the market has paid more attention to exports, focusing on two major issues: the exchange rate and the epidemic. 1) The depreciation of exchange rate helps to enhance the exchange gains and losses of some enterprises and thicken the profits of the current period, mainly those enterprises that hold more US dollars or US dollar accounts receivable and rely on foreign financing. 2) The market is worried that the epidemic will lead to poor external supply and directly drag down exports. At present, this bad news is limited. We believe that the significant drag on exports in the short term may be due to the fact that the epidemic worsened beyond expectations, impacted China's supply chain, reduced China's supply advantage and overseas order carrying capacity, and then formed a double drag on exports, including loss of orders and poor supply chain.
What impact will exchange rate depreciation have? Short term favorable corporate exchange earnings
Exchange rate depreciation is good for the short-term income of foreign exchange settlement, and is conducive to improving the cost advantage in the medium and long term. Since April 18, the US dollar has depreciated rapidly against the offshore RMB from 6.38 to nearly 6.6. The sharp depreciation of the exchange rate has become the focus of the market, especially how will the depreciation of the exchange rate affect? We think it can be seen from two aspects: 1) the fundamentals are good for export-oriented companies in the medium and long term. The depreciation of exchange rate is conducive to the export sector to reduce costs, improve competitiveness and promote exports, but it will also raise import costs. Therefore, for export-oriented companies, the depreciation of exchange rate is helpful to improve their competitiveness, but the effect is long-term. Academia often uses the J curve to characterize the mechanism of exchange rate depreciation and promote exports. 2) Short term exchange rate depreciation helps to enhance exchange gains. In the process of foreign trade, export-oriented companies will increase foreign currencies or accounts receivable (more than 95% of international trade is settled in US dollars). The depreciation range can increase exchange gains and increase profits during foreign exchange settlement; In addition, some companies involved in overseas investment and financing activities can also increase exchange gains when the exchange rate depreciates as long as their comprehensive foreign currency liabilities are higher than their comprehensive foreign currency assets.
We believe that after the epidemic, China has accumulated a large trade surplus relying on supply advantages. The trade surplus of goods and services in 2020 and 2021 reached US $435.5 billion and US $401.2 billion respectively, significantly higher than the US $240.9 billion level in 2019. However, with the RMB appreciation process in the past two years (may 2020 to March 2022), the high surplus did not bring high revenue. Some enterprises delayed collection due to exports Foreign exchange settlement of overseas income is not carried out due to overseas deposit and other reasons, which can also be confirmed by small changes in foreign exchange reserves and foreign exchange shares, and the limited liquidity of US dollars carried between banks. We believe that the current sharp depreciation of the US dollar against the RMB exchange rate, some enterprises with large US dollars or accounts receivable, or enterprises with high dependence on external financing will benefit from the depreciation of the exchange rate and increase exchange gains and losses in the short term, which will help to thicken their current profits.
Epidemic impact on exports: short-term poor supply chain is a hidden worry
The market has paid more attention to the impact of the epidemic on exports. After the aggravation of the disturbance of China's epidemic in March, superimposed on the previous geopolitical factors and changes in overseas economic growth, the market paid more attention to exports. It was mainly worried that China's epidemic would lead to the pressure on ports, logistics and other fields to go to sea, resulting in the decline of exports. In particular, Guangdong, Shanghai and other regions had the characteristics of port congestion and reduced traffic efficiency to a certain extent. We believe that the direct impact on exports by disturbing the port logistics efficiency is relatively limited. From the port side data, the year-on-year foreign trade throughput data of the eight major ports began to turn positive since late March, and the export data in March remained at a high level. The swallowing volume of other ports not affected by the epidemic increased to supplement some ports disturbed by the epidemic. We believe that the impact of poor ports in the early stage on exports is limited.
However, we mainly suggest that the impact of secondary damage from the short-term epidemic on China's supply chain may drag down exports. The current round of epidemic has a greater impact on China's supply chain. From early March to mid April, the throughput scissors difference between China's foreign trade and domestic trade ports was 10.7, 23.2, 17.4, 16.6 and 5.8 percentage points respectively. Domestic trade is significantly lower than foreign trade. The sluggish supply chain in China may lead to insufficient procurement and supply of raw materials, the decline of enterprise production and manufacturing intensity and the significant decline of production factor circulation efficiency, The negative supply side and its spillover impact may impact China's supply advantage, reduce the order carrying capacity, and then drag down exports. The recent sudden shutdown of Shanghai's automobile, semiconductor and other industries has had a significant spillover impact on the relevant industrial chains across the country, which is also reflected in the new orders of PMI exports of small and medium-sized enterprises and the hope of Shanghai's foreign-funded enterprises in China for the government to implement rescue support.
On the whole, we believe that the poor external supply in the early stage has a limited impact on exports, but the impact of short-term epidemic factors on China's supply chain may reduce China's supply advantage and overseas order carrying capacity, and then form a double drag on exports, including loss of orders and poor supply chain.
Risk tip: the game between China and the United States worsened beyond expectations, the epidemic hit beyond expectations, and overseas macro policies tightened beyond expectations
