Facts belie the numbers

Seasonal factors to blame for lower trade data in January

Figures sometimes do not reflect the real picture, and China's trade data for January is an ideal example of such a case. Exports fell 0.5 percent year-on-year to $149.9 billion, while imports fell 15.3 percent to $122.7 billion.

Though the figures paint a bleak picture, in reality it was the first monthly fall in exports for more than two years since the 2008 global financial crisis. In fact, the sluggish data for last month was mainly due to seasonal and cyclical factors.

Spring Festival, undoubtedly the most important Chinese festival, is the first to be blamed for the declines. Most economic activities, including production and logistics, come to a standstill during the seven-day holiday, as people, especially migrant workers, return home for family reunions.

Although major Customs points in China process export orders during Spring Festival, most traders tend to avoid working during the holidays.

This year's Lunar New Year fell in January, but last year it was in February. That means last month's figures, subject to the festival effect, was compared with a much larger base a year ago. So there is a statistical distortion.

The holiday effect may also have taken a heavier toll on imports, as major Customs points spend fewer hours a day, or even close the import counters, during the holiday. That also explains why imports declined more than exports in January. If the seasonal factor is excluded, both exports and imports should have registered growth.

Another factor that can account for the decline in the trade figures is that Chinese traders were in the midst of a cyclical low last month. Traders traditionally clear their inventories by the end of the year, and replenish their stocks after the new year and a second time after the Spring Festival.

Since this year's Spring Festival fell on Jan 23, and its relative closeness to the new year, traders only slightly, or even did not, replenish their inventories after the new year. Instead they chose to boost their stocks on a bigger scale after Spring Festival holidays. In a survey of about 50 manufacturers and traders in East China's Jiangsu and Zhejiang provinces early this year, nearly 40 said they did not plan to restock supplies till the end of January. Since traders were slow to boost inventories last month, they bought and sold fewer goods. It also explains why imports and exports fell in January.

Another index also reflected the cyclical change. China's purchasing managers' index (PMI) showed that the country's manufacturing activities shrank in December, but expanded in January.

The manufacturing sector is strongly linked to the trade sector, as the index provides an indication of trade activities in a month. The slowdown of the manufacturing sector in December translated into the decrease of trade in January. Accordingly, a rebound of PMI last month augurs well for trade performance this month. It is almost sure February exports and imports will both rebound greatly. That it is not to say China's trade is free of risks.

A sluggish European market still seems to be the biggest challenge. Last month China's exports to the European Union, the largest export destination, fell 3.2 percent year-on-year. China's exports could fall to a single digit sometime this year, if other export markets cannot offset this deficit.

The author is an independent financial analyst in Shanghai.