China’s exports up 4.8% in May as shipments to the US fall nearly 10%

China's exports increased 4.8% year-over-year in May, slightly below expectations, while imports declined 3.4%, resulting in a $103.2 billion trade surplus; exports to the U.S. fell nearly 10%. Despite robust growth in exports to Southeast Asia and the EU, overall trade growth slowed from April, and analysts anticipate further deceleration by year-end due to persistent tariffs and constraints on Chinese manufacturers. The data comes ahead of further trade talks between the U.S. and China.

Analysis

China's export growth moderated to 4.8% year-over-year in May, falling short of expectations and decelerating from April's 8.1% surge, while imports contracted by 3.4%, resulting in a trade surplus of $103.2 billion. A key factor in this slowdown was a nearly 10% decline in shipments to the United States, with U.S. imports from China totaling $28.8 billion against China's imports from the U.S. of $10.8 billion (a 7.4% decrease). Despite this, export resilience was observed in trade with Southeast Asia and the European Union, which grew 14.8% and 12% year-on-year, respectively, partially offsetting the impact of U.S. trade tensions. Analysts, such as Lynne Song from ING Economics, note this diversification has kept overall exports relatively buoyant. However, the outlook remains cautious; Zichun Huang of Capital Economics anticipates further deceleration in export growth by year-end due to sustained tariffs and broader constraints on Chinese manufacturers, even with a temporary 90-day tariff suspension. These trade figures are released amid ongoing U.S.-China trade friction, with new negotiations scheduled and persistent disputes over technology and market access. Domestically, China faces mounting economic pressure, evidenced by a 0.1% fall in consumer prices and a significant 3.3% contraction in producer prices in May, signaling sluggish demand and deepening deflationary concerns.

Key Decisions for Investors

• Investors should closely monitor the upcoming U.S.-China trade negotiations as their outcome will significantly influence Chinese export performance and global trade sentiment.
• Consider diversifying exposure by identifying firms or sectors benefiting from China's robust export growth to Southeast Asia and the European Union, which are currently mitigating U.S.-specific trade headwinds.
• Exercise caution regarding investments sensitive to Chinese domestic demand, given the reported deflationary pressures and weakening consumer and producer price indices, which suggest underlying economic softness.
• Anticipate continued volatility in China-exposed assets and prepare for potential further slowdown in Chinese export growth towards year-end if trade tensions remain unresolved and manufacturing constraints persist.