China’s economy has been slowing the past several months due to continued COVID lockdowns. It’s hit their housing and manufacturing sectors, which has slowed their GDP. However, since the Chinese election, stories have been flip flopping on a possible change in policy. Reports circulated last week China was possibly easing it’s zero-tolerance policy on COVID and markets such as cotton, soybeans and energies rallied on the news. This comes at the same time China’s import data for October shows lockdowns are taking their toll on demand for ag goods.
As of Tuesday, Chinese officials say they will make no change until 70% of the population is vaccinated. Over the weekend, they reiterated they will persevere with a “dynamic-clearing” approach to Covid-19 cases as soon as they emerge. This refutes last week’s comments that Beijing was making “substantial” policy changes in the coming months.
Shawn Hackett, Hackett Financial Advisors, says the trade is looking for market signals to determine what is really happening with the Chinese currency.
“I think if this is a real story the capital flows will start going back into China, back into the country, thinking things are going to get better economically, he says. “I’d be looking at that 14 area on the Chinese currency.”
October import data for China shows a decline of 0.7% versus a year ago, the first drop since August 2020 as domestic demand slumped amid strict Covid restrictions. China’s exports fell 0.3% leaving a trade surplus of $85 billion, shy of an expected increase of $96 billion. Hackett says this should be no surprise.
“You lock people in their rooms, they’re not allowed out, and you hand them food twice a day. No matter how you want to slice and dice, it that hurts demand without question,” Hackett says.
China imported just 4 million metric tons of soybeans in October, plunging 46% from September and the lowest for any month since October 2014. For the first 10 months of 2022, China soybean imports are down 7.4% versus last year. China’s October meat imports are also down 5% from last year, mostly due to a drop in pork. Through the first 10 months of the year, meat imports are down 25% verses 2021. Hackett says these could rebound quickly if China reopens its economy.
