China’s export and import growth surpassed expectations in September, with exports rising 8.3% year-on-year and imports increasing by 7.4%. In local currency terms, exports and imports grew 8.4% and 7.5% respectively. Consequently, China’s trade surplus narrowed to USD 90.45 billion from USD 102.33 billion in August.

Exports to the US continued to decline for the sixth consecutive month, reducing by 27% compared to the previous year’s figures. However, strong demand from non-US markets contributed to overall export performance, with substantial growth in markets like South Africa, India, EU, and ASEAN countries. Key product exports such as ships, semiconductors, and motor vehicles saw double-digit growth.

Changes In Export Categories

Conversely, products like consumer goods and commodities, including refined petroleum and steel/iron products, experienced contractions. Rare earth exports also decreased, with shipments falling by 30.9% in volume to 4,000 tons in September. These shifts suggest a change in global market demands and ongoing tensions with the US affecting these export categories.

The surprisingly strong export and import data for September suggests China’s economy has more momentum than we initially priced in. Given that exports to non-US markets are driving this strength, we should anticipate continued resilience in the Chinese yuan against a basket of currencies, though less so against the dollar. This makes call options on CNH against the euro or yen an interesting short-term play for the coming weeks.

China’s sharp jump in imports points to robust domestic demand, which is a bullish signal for industrial commodities. We should consider long positions on copper and iron ore futures, as this data contradicts the recent narrative of a slowing industrial sector. This view is supported by recent satellite data showing manufacturing activity at a six-month high and the fact that copper inventories on the LME fell to a new low for the year just last week.

Divergence In Export Sector Performance

The data shows a clear split between booming high-tech exports and slumping low-end consumer goods. This divergence reinforces the trend we have seen since China became the world’s top auto exporter back in 2023, driven by electric vehicles. We should look at derivative strategies that favor Chinese automotive and semiconductor stocks over traditional manufacturers of items like garments and toys.

While overall exports are strong, the persistent decline in shipments to the US highlights the ongoing impact of supply chain shifts. The slowdown in the rate of decline might be positive, but the underlying trend of de-risking remains a key factor for long-term positions. This structural shift, which has been accelerating since 2024, means we should remain cautious about any company heavily reliant on US consumer demand.

The significant drop in rare earth exports is a political signal that we cannot ignore, likely creating short-term volatility. This could be a precursor to further export controls, impacting global tech and defense supply chains. We should consider buying volatility through options on ETFs that track semiconductor and green energy sectors, which are heavily dependent on these materials.

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