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USD/CNY Flat As Investors Brace for 2020 GDP After Exports Soar

January 15, 2021 at 13:11 by Andrew Moran

Various yuan banknotesThe Chinese yuan is trading relatively flat against its US peer to close out the trading week. China cheered the news that exports popped in December, but all eyes will be on Monday’s gross domestic product (GDP) data for the fourth quarter. Beijing is expected to be one of the few major economies to report growth in 2020, despite being ground zero for the coronavirus pandemic.

According to the General Administration of Customs, Chinese exports soared at an annualized rate of 18.1% in December to $281.9 billion. Although it eased from the 21.1% spike in November, exports beat the median estimate of 15%.

Total exports climbed 3.6% for the full year, with shipments to the US increasing 7.9% from the previous year.

Imports to China rose by 6.5% year-over-year in December to an all-time high of $203.7 billion. This is up from the 4.5% jump in November and above the market forecast of 5%. The strong numbers were supported by more significant imports of coal (1,619.85%) and natural gas (18.06%). However, China bought fewer amounts of crude oil, copper, steel, rubber, and soybeans last month. Imports dropped 1.1% in 2020, but shipments from the US came in 9.8% higher.

Overall, Beijing’s trade surplus rose to a record high of $78.17 billion, and China’s trade surplus with the US totaled $316.9 billion.

In other data, the National Bureau of Statistics (NBS) reported that the house price index gained 3.8% year-over-year in December.

On Monday, the NBS will be releasing crucial data, including industrial production, retail sales, unemployment rate, and the Q4 GDP growth rate. Economists are projecting a reading of 6.1%, up from 4.9% in the third quarter. On an annual basis, China’s GDP is expected to grow 2.1%, making it the only Group of 20 nation to post positive economic growth.

China’s economy has recovered since cratering nearly 7% in the first quarter.

Ting Lu, the chief China economist at Japanese bank Nomura, wrote in a research note:

The resurgence of Covid-19 cases outside of China has been further bolstering China’s exports, especially of personal protective equipment (PPE) and work-from-home (WFH) electronics products, but this may also slightly delay the full recovery of the domestic services sector. By contrast, mass vaccinations could lead to the final suppression of Covid-19 worldwide, which would be positive for the services sector but negative for China’s PPE and WFH product exports.

recent Bloomberg survey of economists predicted that China’s economy would topple the US on the other side of the coronavirus pandemic, anticipating 8.2% growth in 2021.

Chang Shu, the chief Asia economist, said in the report:

Not only China’s growth, but also the pattern of its growth matters for the global economy. China continues to strive to move towards greater reliance on consumption for growth. For the rest of the world, China will increasingly become a consumer in addition to the producer role it has long played.

In recent weeks, all eyes have been focused on the People’s Bank of China (PBoC), with conflicting reports about the state of monetary policy in 2021. Central bank head Yi Gang stated that the PBoC would tighten policy this year due to the economy performing better than expected. However, PBoC deputy governor Chen Yulu told a news conference that the institution would support the continued economic recovery in 2021, adding that measures would “be more flexible, targeted, and appropriate.”

The consensus is that policymakers are still concerned about derailing the recovery should it tighten monetary policy sooner than expected.

The USD/CNY currency pair was unchanged at 6.4749 at 11:57 GMT on Friday. The EUR/CNY tumbled 0.28% to 7.8492, from an opening of 7.8708.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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