North Asia: 4 takeaways from the post-LNY trade data
- Export recovery is confined in China, reflecting the restoration of Chinese supply chain after Covid
- Positive impact of China reopening on regional trade is not obvious
- Automobile sector benefits from EV demand and supply chain improvement
- Tech sector is seriously dragged down by inventory destocking
- China is on track to achieve 5% growth; South Korea and Taiwan face technical recession risks
As of this week, the majority of North Asian economies have reported the trade data for the post-LNY (Lunar New Year) period in February. Combining Jan-Feb and looking closer at the data, 4 main findings stand out:
1) Export recovery is confined in China. In the USD terms, China’s exports fell -6.8% YoY on average in the Jan-Feb period, a notably smaller decline compared to -10.1% in Dec22. Export orders under the NBS manufacturing PMI also picked up significantly to 52.4 in February from 46.1 in January. In contrast, South Korea’s exports contracted -12.1% YoY in the first two months of this year, a deeper decline compared to -9.7% in Dec22. Taiwan’s exports fell -19.2%, also worse than the -12.1% in Dec22. Manufacturing PMIs in Japan, South Korea and Taiwan remained subpar at 47-49 in February.
The divergence in trade performance suggests that China’s recovery is owing to the country-specific factors. The restoration of the Chinese supply chain after Covid may have provided a temporary lift to China’s exports, especially exports to the emerging markets like ASEAN where the end-demand remains resilient. This strong, supply-driven recovery may not sustain for long. The high-frequency indicators for railway, expressway and port freight traffic have showed some signs of stabilisation in the first week of March, following the V-shaped rebound in February.
2) The positive impact of China reopening on regional trade is not obvious. China’s imports fell -10.2% in Jan-Feb, a bigger decline compared to the -7.5% in Dec22. South Korea and Taiwan’s exports to China also fell sharply by -27.9% and -32.4% respectively in Jan-Feb, similar or even worse compared to the -27% and -16.6% in Dec22. Among Taiwan’s exports to China, the products associated with China’s domestic demand continued to show sharp declines, such as plastics, rubber, wood, textiles, metals, machinery, and other non-tech goods.
At the current stage, it appears that China’s reopening demand after Covid is driven by non-tradable services to a large extent (e.g., entertainment, recreation, food catering). To see notable boosting impacts on Asia’s exports, a broader recovery in China’s domestic demand will be needed in the months/quarters ahead.
3) Automobile exports are faring relatively well. China’s automobile exports recorded a strong 65.2% growth in the first two months of this year, albeit more moderate than the 90.7% in Dec22. South Korea’s automobile exports also grew strongly by 34%, a steady pace compared to the 28.3% in Dec22.
The outperformance of automobile exports could be explained by the combination of demand and supply factors. These include the rise in global demand for electric vehicles amid the net-zero carbon transition, as well as the easing of automotive chip shortage and general supply chain pressures. According to Counterpoint Research, China’s BYD has emerged as the world’s largest EV supplier over the past one year, making up a market share of 20% in 3Q22, surpassing Tesla’s 13%.
4) The tech sector is still facing serious pressure of destocking. China’s computer exports fell sharply by -32.2% in Jan-Feb, while shipments of integrated circuits also declined -25.8%. South Korea’s semiconductor exports plunged by -43.5% in Jan-Feb, worse than the -29.1% in Dec22. Taiwan’s exports of electronic components slumped -18.9%, also far worse than the -1.3% in Dec22.
Global demand for electronics products remains sluggish as high inflation and high interest rates restrict consumers’ discretionary spending. Meanwhile, the escalation of the US-China tech tensions constrains China’s capabilities of importing and exporting some of the critical products, which also indirectly affects the Japanese, Korean and Taiwanese firms supplying semiconductor equipment and advanced chips to China.
Notably, the inventory-to-shipment ratio in Taiwan’s electronic component sector has spiked to 2.3, similar as the historical peak levels recorded during the 2001 tech bubble burst and the 2008 global financial crisis. There is a high chance that the current destocking process will take longer than the typical two-quarter period. We reckon that a cyclical rebound will only emerge in the latter part of this year, in end-3Q at the soonest.
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