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Summary of UBS China Economic Comment: China Trade and 2025 Outlook

• Export Growth in December 2024: Export growth surged to 10.7% year-on-year (yoy), exceeding the prior monthly rate of 6.7% and the Bloomberg consensus of 7.5%. Sequential monthly growth reached 3.1%, indicating strengthened momentum. This acceleration may reflect export front-loadings in anticipation of potential US tariffs.

• Trade with Key Economies: Export growth to the US accelerated significantly to 15.7% yoy from 9.7%, while European Union (EU) shipments rose to 9.5% yoy from 7.9%. Emerging market destinations showed robust gains, with ASEAN exports up 19.6% yoy and Africa recording the fastest pace at 25.2% yoy.

• Product Categories: Shipments of consumer goods and autos showed strong support. Autos and parts growth jumped to 13.6% yoy, reversing a prior contraction, due to both a lower base and actual expansion in value and volume. However, the IT goods basket decelerated, with mobile phone exports contracting sharply to -15.3% yoy due to declining unit prices and softer demand.

• Import Trends: Imports rebounded with a 1% yoy growth in December, exceeding market expectations. Specific commodities showed mixed results, with crude oil imports sliding further and iron ore imports showing narrower contraction after seasonal adjustments. IT component imports and AI-related imports indicated resilience despite higher bases.

• 2025 Outlook: UBS anticipates slower export growth in 2025, potentially moderating to 0%, following the front-loading effect in 2024. Additional US tariffs phased in from Q3 2025 could lead to export contraction, while imports may decline 2.5% amid weakening external demand. The trade cycle is expected to enter a weaker phase.

• CNY Depreciation and Policy: The Chinese Yuan depreciated against the US Dollar (+1%) at year-end, though it appreciated against the CFETs basket. The People's Bank of China (PBC) adjusted macroprudential parameters to manage exchange rate risks and prevent overshooting, amid heightened US Dollar strength.

• Risks: Key risks include a hard landing in China's property market, slow progress in economic reforms, and external shocks like US tariffs. Policy interventions could bring both upside and downside risks, with vulnerabilities in commodity imports and potential policy missteps noted.

Key Trends

• Trade Cycle Dynamics: China's trade balance was supported by the tech cycle in 2024 but faces moderation in 2025 due to global demand weakening and tariff uncertainty.
• EMU Vulnerabilities: Export front-loadings may amplify monthly trade data variances, making it crucial to monitor the payback effects in coming months.
• Structural Issues: Despite export strength, internal risks like property sector risks and slow structural reforms could constrain long-term trade performance.

This summary highlights China's trade resilience in late 2024 with risks and uncertainties frontier for 2025.