China January trade data may overstate recovery momentum

BEIJING Mon Feb 4, 2013 11:24pm EST

BEIJING (Reuters) - China's January export growth was likely its strongest in 11 months, though a 17 percent year-on-year surge forecast in a Reuters poll may owe as much to trade cycles and Lunar New Year holiday base effects as a recovery in foreign demand.

The median forecast of 16 economists polled by Reuters would put export growth at its highest since February 2012 and be in sharp contrast to January 2012's 0.5 percent annual fall in exports that signaled the start of China's most volatile year for trade since the global financial crisis.

A similar effect is anticipated in import data when trade figures are released - scheduled for February 8 - undermining confidence that a 23.3 percent median forecast for the year-on-year pick-up in goods ordered by China is indicative of either a sustainable jump domestic demand or a restocking of inventories.

"We estimate that export and import growth may have jumped to 17.3 percent and 22.8 percent in January due to a low base in 2012. As a result, we may see a trade surplus of $25.3 billion. Year-on-year trade growth may stagnate or even turn negative in February with a sizeable deficit," analysts at Citi said in a note to clients.

The view from Citi highlights the volatility inherent in the data at this time of year, when Lunar New Year holidays in either January or February badly skew reported numbers. Many factories shut for at least a week during the holidays and often longer.

Analysts at UBS have an above consensus forecast for January trade growth of 19 percent and a trade surplus call of $40.8 billion - the highest among 15 responses to the trade balance question that delivered a median expectation of $22.0 billion.

But UBS believes the strength of the January numbers likely overstates the strength of the recovery in China, which suffered its slowest full year of growth in 2012 for 13 years at 7.8 percent.

"We think the timing of the Chinese New Year and last year's base affects all of the readings and the underlying momentum is likely much less strong," UBS said in a client note.

A Reuters poll last month showed that China's economic growth is likely to edge up to 8.1 percent in 2013.

The latest surveys of purchasing managers in China's manufacturing and services sectors both indicate that the world's second-largest economy is on a modest recovery track.

The trade sector is a key component of the Chinese growth engine, with export-oriented factories, foreign funded firms and joint ventures supporting an estimated 200 million jobs.

(Reporting by China Economics Team; Writing by Nick Edwards; Editing by Kim Coghill)

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