Low base effects likely pushed up Chinese exports and imports

But pickup will reverse by February.

Here's the full January economic data forecast from UBS:

Because of the shifting dates of the Chinese New Year, the statistics bureau publishes January-February activity data together in March. Only price, monetary and trade data are reported for January. We expect these data to show that January lending has been strong, exports grew rapidly, and CPI inflation moderated y/y, all of which may buoy market sentiment further. However, we think the timing of the Chinese New Year (CNY) and last year’s base affects all of the readings and the underlying momentum is likely much less strong.

We expect the low base of last year have pushed up both export and import growth in January. Although m/m export momentum has likely moderated from the surprisingly rapid pace in December, the low base depressed by last year’s CNY has likely pushed up the y/y growth to almost 20% in January (which is expected to reverse in February). Similarly, we expect import growth to have picked up to 12% y/y. As a result, we expect January trade surplus to surge to over $40 billion, which will likely turn into a deficit in February.

We think bank new lending has likely exceeded RMB 1 trillion in January. In January 2012, the weak corporate credit demand and the CNY both depressed credit expansion, which should be the opposite this year. Meanwhile, the recent tightening of rules on banks’ wealth management products and local governments’ borrowing activities may have slowed the expansion of total social financing. Also, the CNY effect has likely pushed up M1 growth to above 10%.

CPI inflation has likely moderated to 2% y/y. In recent weeks, food prices have been rising at a similar m/m pace as in December, led by higher vegetable and meat prices due to cold weather and seasonal demand. We expect nonfood prices to have risen as well. Nevertheless, the high base of last year due to the CNY means that the y/y CPI growth is likely no more than 2% in January. Producer prices are affected less by the timing of the CNY, and we expect the m/m increase in raw material prices have helped to narrow the y/y decline to about 1.6% in January.