China exports shocks analysts with 9.9% rise

This surprising growth was a big leap compared to the 2.7% data in August.

According to Barclays Research, China’s export growth posted an upside surprise, rising to 9.9% in September, compared with 2.7% in August and 1% in July. Imports rose to 2.4% y/y from -2.6% in August, evidencing still soft but likely recovering domestic demand.

Here's more from Barclays Research:

The jump in exports was better than the stabilisation we expected. The improving global PMIs in recent months likely have contributed (US ISM index rose above 50 to 51.5 for the first time in four months).

The latest Fed and ECB actions have helped to support market sentiment. New export orders in China’s manufacturing PMI have been edging higher in the past 4 months to 48.8 in September. Looking ahead, the Autumn Canton trade fair from 15 October-4 November will be important to watch for in terms of assessing whether such improvement can be sustained into Q4.

In the first three quarters of the year, exports grew by 7.4%y/y and imports by 4.8%, short of the 10% target but comparable with our full-year forecasts of 5.7% and 5.4%, respectively.

The September details show that with the exception of shipments to the EU, broad-based improvement by country was observed. Exports to the US rose to 5.5%y/y from 3% in August and 0.6% in July, exports to Japan picked up to 2.2%y/y from -6.7% in August as well, and exports to ASEAN countries rose to 25.5%y/y from 10.3% in August.

Commodity exporters also gained in the month: exports to Brazil rose to 13.7%y/y from -14% in August; exports to Australia rose by 15%y/y vs -0.6% last month, and exports to South Africa rose by 20.5%y/y from -2.6%.

As we have argued previously, external weakness remains the biggest downside risk to China’s growth. The sharp export growth slowdown in July-August has dragged down growth and complicated policy deliberation.

The lack of interest rate and RRR cuts in August-September suggest that monetary easing has been constrained by concerns about a rebound in property prices and medium-term inflation risks. The lack of big fiscal stimulus points to concerns about rising government debt and banks' NPLs as well as inefficient investment.

Hence, better-than-expected export growth is likely to help support employment and reduce pressure for more policy easing ahead of the leadership transition.