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China exports rise at fastest pace in a year in March

Containers are stacked at a port on March 1, 2016 in Lianyungang, Jiangsu Province of China
China Foto Press | Getty Images
Containers are stacked at a port on March 1, 2016 in Lianyungang, Jiangsu Province of China

The trade picture in the world's second-largest economy staged a turnaround in March, with exports rising at the fastest clip since February 2015, official data revealed on Wednesday.

Dollar-denominated exports rose 11.5 percent on-year, recovering from a 25.4 percent slump hit in February that marked a seven-year trough. Imports meanwhile fell an annual 7.6 percent, unchanged from February, Reuters reported.

That left Beijing with a surplus of $29.86 billion for the month, compared with February's $32.59 billion surplus.

The data sent both the Shanghai Composite and Hang Seng Index nearly 2 percent higher. The Australian dollar, a key proxy for mainland sentiment, ticked up 0.3 percent.

A Reuters poll of economists had expected a 2.5 percent annual rise for exports and a 10.2 percent decline for imports, predicting a trade surplus of $30.85 billion.

March's strong export performance is partly due to a low comparison base last year and Beijing's supportive policies, a customs spokesman told Reuters.

"In a way, it [the data] isn't surprising given the base effect. But also, the authorities have been stimulating the economy quite significantly—all the interest rate and reserve ratio requirement (RRR) cuts—so we are seeing improvement and some stabilization," said Jonathan Pain, author of investment newsletter The Pain Report.

Separately, yuan-denominated exports climbed 18.7 percent on-year, from a 20.6 percent drop in February. Yuan-denominated imports fell an annual 1.7 percent, slower than the previous month's 8 percent decline.

Wednesday's data follow other indicators that suggest the world's second-largest economy may be on the mend after recent concerns surrounding capital outflows and a volatile yuan, or renminbi.

Beijing's foreign exchange reserves have fallen by $800 billion since 2014, according to CLSA data. March indicated a brighter outlook however, with reserves posting their first monthly increase since November. Meanwhile, the yuan has continued to weaken in recent sessions.

March's official manufacturing Purchasing Managers' Index (PMI) returned to growth for the first time since July with a reading of 50.2, a survey showed last week. Meanwhile, mainland exporters expect trade performance to improve in 2016 from last year despite an unstable exchange rate and rising costs, the commerce ministry said last week, citing a survey, according to Reuters.

However, a sustained trade recovery depends on the global outlook.

A persistent weakness in external demand increases China's downside risks, according to HSBC. Still, the People's Bank of China (PBOC) has plenty of liquidity tools available in its war chest to stem any sharp crashes, including cuts to its benchmark interest rate and reserve requirement ratio as well as open market operations, the bank explained in a recent report.

But more than monetary policy, economists widely agree that supply-side reforms will be key to reinvigorating an economy growing at its slowest pace in 25 years.

"Appropriate demand expansion should be complemented by trimming overcapacity, inventory destocking, deleveraging, cost reduction and improving weak links in the economy," Chris Leung, an economist at DBS, said in a note.

"In the field of production, there is a need to enhance high-quality supply, increase effective supply, improve the adaptability and flexibility of the supply structure, and increase total factor productivity to make the supply-side more adaptable to changes in the evolving structure of the economy."

Clarification: This article has been updated since first published to show that exports increased at the highest rate since February 2015

Correction: Reuters subsequently corrected China's dollar-denominated import figure from 13.8 percent to 7.6 percent.

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