China’s exports experienced a significant surge in May, marking a 5-year high in growth rate, primarily driven by a robust demand for technology and AI-related products. Shipments to the U.S. saw a remarkable jump of nearly 35.4%, the highest since March 2021.
While the export sector shows strength, the overall Chinese economy displays signs of uneven growth, with persistent weakness in consumer spending and the property market. Analysts suggest that the export boom may temper the urgency for significant domestic stimulus measures.
China's Exports Surge to 5-Year High in May, Driven by Tech Boom and U.S. Demand
May trade data reveals a robust performance, with shipments to the U.S. experiencing their strongest growth in half a decade, fueled by increased demand for technology and AI-related products.
Key Points
- Overall exports in dollar value rose 19.4% year-on-year in May, accelerating from April's 14.1% growth.
- Imports grew by 27.4% in May, surpassing April's 25.3% expansion.
- Shipments to the U.S. saw a significant jump of nearly 35.4% in May.
- High-tech exports, including integrated circuits, experienced a 50% surge in value.
- Despite strong exports, signs of economic slowdown persist in other sectors like property and consumer spending.
China's trade performance in May defied expectations, with overall exports showing a significant uptick driven by soaring demand for artificial intelligence (AI) related goods and other high-tech products. This surge helped to cushion the economy, even amidst global disruptions like the ongoing conflict in Iran.
Customs data released on Tuesday revealed that total exports climbed 19.4% compared to the previous year in U.S. dollar terms, a notable acceleration from the 14.1% gain recorded in April. This figure surpassed the 15% growth anticipated by economists polled by Reuters.
"The war is boosting demand for green exports, such as electric vehicles, batteries, solar products, and AI-related technology goods," noted Sheana Yue, senior economist at Oxford Economics, predicting the strong performance in high-tech exports to continue.
Specifically, exports of integrated circuits saw a substantial 32% increase, reaching 39.7 billion units. High-tech exports, in terms of value, jumped an impressive 50% in May year-on-year, with imports in this sector also rising by 47%.
Shipments destined for the United States experienced a remarkable surge of nearly 35.4% in May compared to the previous year. This marks the strongest growth rate since March 2021, according to Wind Information, indicating a strong rebound after facing prolonged double-digit declines for much of the past year due to U.S. tariffs.
The competitive landscape for Chinese exporters has also improved, with the tariff disadvantage compared to Southeast Asian nations narrowing. Tianchen Xu, senior economist at the Economist Intelligence Unit, suggested that any new tariffs imposed on Chinese goods under President Trump's Section 301 review are likely to be less impactful than those affecting rival exporters, further bolstering China's competitive edge.
Imports continued their upward trajectory, expanding by 27.4% in May, an acceleration from the 25.3% growth seen in April. This figure exceeded economists' forecasts of 25% growth and contributed to a trade surplus of $105.4 billion for the month.
For the first five months of the year, China's import growth has been robust, rising 24.5% year-on-year, outpacing the 15.5% export growth over the same period. This has led to a narrowing of the trade surplus compared to the previous year.
However, economists at Bank of America Global Research pointed out that the import surge is largely driven by increased input costs and concentrated in specific categories like semiconductor chips and gold, suggesting it's "hardly a sign of rebalancing." They added that with weak overall demand and ongoing domestic substitution, genuine trade rebalancing remains a distant prospect. The strong export performance might also reduce Beijing's urgency for significant policy stimulus.
China's economy has exhibited mixed signals, showing signs of faltering after a strong first quarter. Growth across various sectors slowed in April, with industrial production and retail sales experiencing their weakest gains in years. The official gauge for manufacturing activity in May also dipped to 50, the threshold between expansion and contraction.
Stockpiling and AI Fuel the Boom
Chinese exporters have successfully navigated the initial impact of the Middle East conflict, with international buyers keen to secure supplies amid rising energy costs. However, economists caution that this supportive trend might be temporary. Once the initial stockpiling momentum wanes, sluggish domestic consumption may not be sufficient to fill the void.
"We expect the AI boom to support production and trade," stated Xiangrong Yu, chief China economist at Citi Bank, noting that higher prices for tech and semiconductor goods are boosting headline growth. "Domestic demand could show continued weakness," he added.
Yu anticipates that retail sales growth, a key indicator of consumption, could potentially fall to zero in May as the impact of trade-in subsidies fades, further decelerating from the three-year low of 0.2% growth recorded in April.
The persistent weakness in the job market further exacerbates pressure on consumer spending. "Despite soaring exports, the number of manufacturing jobs continues to contract," observed Frederic Neumann, chief Asia economist at HSBC Bank, attributing this to productivity gains from automation reducing the need for labor.
The sustained strength of the Chinese yuan this year has presented challenges for exporters, particularly those holding significant dollar reserves, as mounting foreign-exchange losses begin to impact profitability.
"China delivered strong export growth despite global economic uncertainty and appreciation of the renminbi this year," commented Zhiwei Zhang, president and chief economist at Pinpoint Asset Management. He believes the robust export performance might reinforce policymakers' reluctance to implement substantial stimulus measures until July.
The offshore yuan strengthened by 2.8% against the U.S. dollar year-to-date, closing at 6.7802, while the onshore yuan appreciated by 3% to 6.7787, according to LSEG data. Both currencies saw minimal movement following the trade data release. The CSI 300 index, a benchmark for Chinese A-shares, rose by 0.6%.
Uneven Growth Pattern
Economists describe China's economic development as a "K-speed" growth paradigm, characterized by booming manufacturing and export sectors juxtaposed against persistent weaknesses in the property market and consumer spending.
Exports remain a significant bright spot for the world's second-largest economy, propelled by strong global demand for AI technology and renewable energy products.
While overall demand remains subdued, rising commodity costs, influenced by disruptions to energy flows through the Strait of Hormuz, have helped mitigate deflationary pressures that have long troubled the Chinese economy.
Forecasters anticipate producer inflation in China, due Wednesday, to accelerate to 3.8% in May, reaching its highest level in nearly four years as manufacturers pass on higher input costs, according to a Reuters poll. Consumer inflation is expected to see a more modest increase of 1.3%.
Fitch Ratings estimates that China, which held approximately 15% of global oil stocks before the recent conflict, could deplete its oil reserves by late October if compelled to draw down inventories to cover supply shortfalls.
"Though China's stable power supply could provide a buffer, the supply shock as a result of the energy crisis will still inflict pain on China's economy via shortages and higher prices," warned Jing Wang, China Economist at Nomura.
