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China yet to see domestic recovery

China’s exports saw a slight bounce in March but imports and domestic demand remain weak, according to a research note from Lombard Street Research.

Charles Dumas, the director and head of Lombard’s world service, says there is growing evidence that world trade has bottomed out but China’s figures suggest it is not yet seeing a domestic recovery.

Both import and export volumes were down more than 20% between January and February. Exports are 30% of the total supply and demand in the economy, measured as GDP plus imports. This fall of over 20% is equivalent to a 6% reduction in total demand, Dumas says.

“The rebound of exports in March is only modestly encouraging. One month’s figures are always liable to be suspect, and the rebound in March may have merely reflected the minor timing effects of shipments: the March number was still down from January even though the latter did have the New Year in it making the upward seasonal adjustment too weak. So the most one can say is that exports may have levelled off in February-March,” he says.

Despite the slight positive sign that the worst period of businesses’ heavy inventory liquidation seems to have passed, China still faces economic difficulties.

Dumas says: “With housing vulnerable, damaged consumer confidence among amongst actual and recently-fired export industry workers, and business cap-ex outside the state sector likely to be falling rapidly, real domestic demand can at best be static, more likely significantly down, in Q1 from Q4.”

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