In the latest confirmation that global trade war and shifting supply chains are taking their toll on China, resulting in growing economic turmoil, overnight Beijing reported that growth in China’s exports decelerated meaningfully to 5.4% yoy in November, the lowest print since April 2018, half the consensus estimate of 9.9% and far below October's 15.6% print; at the same time import growth tumbled to just 3.0% yoy, a huge miss to the 14% Wall Street estimate and an even bigger drop from October's 20.8% print.

In sequential terms, exports contracted 2.8% M/M and imports declined 6.1% M/M, reversing October's strong 2.9% gain; as a result of the disproportional drop in imports, China’s trade surplus widened to $44.7 billion from $34 billion. That was the highest this year. The notable deceleration in headline trade growth was primarily due to a very high base (i.e. exports up 6% M/M and imports up 7% in November last year). Notwithstanding, sequential momentum was pretty weak.

In terms of exports to major destinations, growth decelerated broadly, with exports to the EU slowing the most to +6.0% yoy in November (from +14.6% yoy in October), while exports to the US slowed to +9.8% yoy in November (from +13.2% yoy in October), supported by continued front-loading ahead of potential tariff increases. Exports to Japan increased +4.8% yoy in November, down from +7.9% yoy in October. For major EMs, exports to ASEAN slowed meaningfully to +5.1% yoy in November following several months of double-digit growth.

Commenting on the geographic breakdown, Goldman analyst Zhennan Li said that "the notable contraction in imports was broadly consistent with weakening exports in November from Korea and Taiwan to China. Weaker-than-expected exports in November could reflect the faster than expected fading impact from front-loading ahead of tariffs levied on $200bn Chinese goods starting in late September (likely to be increased to 25% next year). With the waning of this tailwind, we expect exports to resume modest momentum in the coming months, which would weigh on overall growth."

But the most notable, and politically-relevant observation by far, was the sharp plunge in Chinese imports from the US, which tumbled 25% in November from a year earlier: this was the single biggest monthly decline since January 2016 when China's economy and capital markets were reelilng in the aftermath of the Yuan devaluation and Shanghai Composite bubble bursting.

As a result of this plunge in imports from the US, the trade surplus with the U.S. was almost $35.6 billion, facilitated by the 9.8% rise in exports. China's data also confirmed the trade story as seen from the US perspective: as we reported on Thursday, the US reported that the goods trade deficit with China widened to $43.1 billion in October, an all time high.



While China's burgeoning trade surplus with the US will be welcomed in Beijing - if cause for further fury in the White House - the broader slow down in China's trade is unmistakable, and could be observed in the imports of major commodities, where growth decelerated notably in both value and volume terms. In value terms:

Iron ore imports slowed to +3.3% yoy in November (vs. +11.7% yoy in October);

Crude oil imports grew by +57.6% yoy in November (vs. +89.0% yoy in October);

Steel products imports decreased by 3.7% yoy in November (vs. +19.0% yoy in October).

And in volume terms:

iron ore imports declined by 8.8% yoy in November (vs. +11.2% yoy in October);

crude oil imports grew +15.7% yoy in November (vs. +31.5% yoy in October);

steel products imports contracted 7.3% yoy in November (vs. +20.0% yoy in October.)

Analysts were quick to highlight China's sharp slowdown in trade: "Major economies excluding the U.S. have all shown slowing growth momentum, dragging on overall global demand. Meanwhile imports remain weak on sluggish domestic demand," said Xia Le, Hong Kong-based chief Asia economist at BBVA.

"The weaker-than-expected trade growth is due to a high base, lower oil prices and the fading of front-loading ahead of tariff hikes," said Larry Hu, a Hong Kong-based economist at Macquarie referring to exporters shipping goods faster to get them into the U.S. ahead of possible tariff hikes. As a result, the "slower exports and property investment will lead to a further slowdown in China’s economy," Hu said adding that "export growth will decline significantly to low single-digits next year as front-loading ends."

That said, that front-loading was likely still happening in November as the U.S. tariff hike threatened for Jan. 1, 2019 was still on the table before presidents Donald Trump and Xi Jinping met during the Group of 20 summit. That tariff hike, which has helped spur export growth since August, was delayed for at least 90 days after the high-stakes meeting last week. However, by now it is unlikely that much trade remains for frontloading.

Additionally, "the truce may buy time for manufacturers to lengthen the inventory cycle, but it is unlikely to boost the capex outlook meaningfully, unless uncertainty is eliminated completely," Angela Hsieh, Barclays' EM Asia economist wrote last week.

The latest data is just a continuation of even more pain for China: the official factory gauge and other early indicators have pointed to slowing domestic growth as GDP continues to drift lower, while aggregate credit growth recently collapsed to a record low print...

... as government support measures have yet to boost business sentiment and offset the effects of waning domestic and global demand.

As such, expect the trade war with the US to continue as it presents a convenient scapegoat for both sides: for Beijing, it serves to distract from the economy far broader troubles and allow Xi Jinping to blame Trump for everything that is wrong, while for Trump it serves to distract from his own domestic political scandals which, with the publication of Mueller's report imminent, are only set to grow.