China's Exports Bounce Back in Sign of Tariff Resilience — Update

China's exports rose more than expected last month, bouncing back even as shipments to the U.S. continued to fall.

Outbound shipments rose 5.9% on the year in November, reversing October's 1.1% drop, government data showed Monday.

That roundly beat the 3.4% growth forecast in a Wall Street Journal poll, as demand for China's exports in key markets like the EU offset a deterioration in their performance in the U.S.

The trade truce struck between Washington and Beijing didn't help improve the performance of China's U.S.-bound exports in November, which fell 28.6% year-on-year, worsening from October's 25.2% drop.

Zichun Huang, an economist at Capital Economics, attributed that to reduced front-loading after the detente reached at the end of October lowered the risk of another jump in tariff rates.

China's shipments to the European Union, its second-largest trading partner, rose 14.8% on year in November, surging from the less than 1% increase recorded in October. Exports growth to the Association of Southeast Asian Nations slowed from October's 11.0% gain, but stayed relatively solid at 8.2%.

"The role of trade rerouting in offsetting the drag from U.S. tariffs still appears to be increasing," said Huang.

November's trade data backs economists' view that China's exports will continue to show resilience in the year ahead.

Despite trade tensions and increased protectionism, economists at Morgan Stanley expect China to widen its lead in manufacturing exports. They predict that the country's share of global goods exports will reach about 16.5% by 2030 from around 15% now.

Economies are trying to diversify away from China, but MS thinks it will hold its edge in advanced manufacturing. That's because of "its ability to anticipate shifting global demand trends and its willingness to mobilize resources to build capacity to meet demand, even if ahead of time," the investment bank said in a note on Sunday.

Thanks to the robustness of exports, China's trade surplus has already surpassed last year's level and is expected to widen further next year, said Huang at Capital Economics.

According to China's customs bureau, imports rose 1.9% from a year earlier in November, compared with October's 1.0% increase. That resulted in a trade surplus of $111.68 billion, up from $90.07 billion the prior month, and higher than the $102.5 billion expected in the WSJ poll.

Trade strength bodes well for the broader economy, which seems to be on track to hit the official 5% growth target for this year, said Zhiwei Zhang, chief economist at Pinpoint Asset Management.

While economic momentum has slowed in the final quarter, weighed down by the continued slump in the property market, the exports rebound should help mitigate weak domestic demand, he said in a note.

Upbeat trade data could take some pressure off policymakers to deliver stimulus.

Later this month, Chinese leaders will gather to set the economic priorities for next year.

Economists at Goldman Sachs expect policymakers to express greater concern about growth challenges, especially from the real-estate sector, "and to emphasize easing measures aimed at boosting domestic demand and stabilizing growth."

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