China’s trade balance for May exceeded expectations, reaching $103.2 billion compared to the anticipated $101.3 billion. The previous trade balance was $96.1 billion.

Exports denominated in USD grew by 4.8% year-on-year, slightly below the expected 5.0% increase. In contrast, USD-denominated imports decreased by 3.4% year-on-year, more than the forecasted 0.9% drop.

Trade Measurements and Trends

When measured in yuan, exports increased by 6.3% while imports decreased by 2.1%. The trade surplus with the United States was $18.01 billion, down from $20.46 billion in April.

Exports to the US saw a sharp decline of 34.5% year-on-year in May, following a 21% decrease in April. The trade war has reduced imports, though the changes are not drastically altering global trade dynamics.

Exports continue to show a degree of resilience, managing to stay in positive territory despite missing forecasts. The difference between expectations and outcomes in year-on-year growth—4.8% realised against 5.0% expected—is modest, yet it gives us something to consider closely. Imports, however, tell a different story. The 3.4% fall, well beyond the forecasted 0.9% dip, suggests weaker internal demand or inventory adjustment trends, possibly both.

Converted into local currency terms, the contrast becomes even more noticeable. Export growth looks slightly firmer in yuan, at 6.3%, yet the decline in imports is softer, down just 2.1%. Currency movements must have contributed. This suggests that renminbi valuation changes continue to cushion some pressure on export competitiveness, while weighing differently on import costs.

Attention turns particularly to the shifting bilateral flows with the United States. The narrowing of the trade surplus to $18.01 billion from April’s $20.46 billion appears connected to a sharp weakening in outbound shipments. A second consecutive double-digit drop—exports to the US collapsed by 34.5% this time, after a 21% plunge a month earlier—presents a clear and measurable trend. The longer this persists, the tougher it becomes to argue for a short-term reversal in this trade relationship.

Market Implications And Strategies

What does this amount to, practically speaking? We notice that China’s export growth still manages to support its overall trade balance through sheer scale, yet much of this support is coming from other partners or less transparency in destination data. When a major market sees exports slashed by over a third, attention naturally falls on alternative buyers or state-influenced trade flows.

From where we stand, this mix—exports slightly below forecast, imports unexpectedly weaker—is one that stresses caution. It reflects a global environment still finding its footing, with China in particular showing some signs of internal cooling despite external performance holding up above trend. We’re not seeing broad-based, inflation-led demand in Chinese import figures, and that leaves little room for bets on input-led production boosts.

For those who rely on short-term volatility, especially in FX and commodity-adjacent pairs, the widening gap between external performance and domestic softness could offer an entry point. It also sharpens focus around fiscal or stimulus chatter, where any large change in policy direction could provoke knee-jerk price action.

If we think about positioning, this data doesn’t warn us off risk, exactly—it just narrows the lanes in which it can be taken. Yuan-denominated trade flows remain mildly stronger than their USD counterparts, which might encourage directional trades in currency futures. But the larger point remains that fading US demand is now a quantifiable trend rather than a fleeting tick. We expect repricing of expectations in equity-linked contracts as analysts rework profit guidance related to exporters.

The weeks ahead may bring more moves around forward rates and relative yields. Remember, the difference between real demand and nominal exports hasn’t been this wide in recent cycles. For anyone sat in front of a trading screen, the right side of the curve just got more active, and less forgiving. Keep your eyes not just on volumes, but also on margins and forward delivery times. Any tightening there, or delay, could worsen the imbalance just registered.

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