China has replaced Japan as the world's second largest economy. At the same time, the nation has also emerged as a major powerhouse in global trade.

Uncertainties over economic recovery in both the US and Europe have produced serious doubts about trade prospects this year but the latest figures released from the State Administration of Customs (SAC) do not show any signs of weakening.

According to the SAC, the country's exports grew 37.7 percent year-on-year (YoY) in January (all figures on a YoY basis unless otherwise specified), up from the increases of 17.9 percent in December and 34.9 percent in November. Import growth also saw a significant pick-up from 25.6 percent in December to 51 percent in January.

The growth of exports and imports was much higher than the market consensus of around 20-25 percent. Due to the much faster growth of imports than exports, the trade surplus declined to $6.5 billion in January from $13.1 billion in December 2010.

Although the January trade figures easily outperformed market expectation, the actual export and import growth would not have been as high as they appeared if we deducted the seasonal factor. Historical data show that the growth of exports and imports usually see marked fluctuations in January and February every year.

One reason is the delay in statistics from December, and another is the advanced delivery of exports and imports due to the lunar new year holiday. From this perspective, export and import growth should see a significant slowdown in February as the lunar new year break fell in early February this year.

During the month, exports to the European Union and the US saw significant pick-ups from 18.3 percent and 18 percent last December to 24.9 percent and 34.7 percent, respectively, in January.

Export growth to the Association of Southeast Asian Nations, Hong Kong and South Korea saw the fastest acceleration, up from 4.7 percent, 23.6 percent and 10.7 percent in December to 26.6 percent, 60 percent and 53.4 percent, respectively, in January. Meanwhile, exports to Japan rose 34.5 percent and those to Taiwan grew 38.4 percent in January, up from increases of 14 percent and 26.6 percent in December.

In January, exports of most products saw significant growth pick-ups, partially due to seasonal factors. Exports of garments and clothing grew 33.9 percent while those of footwear rose 39.6 percent, up from 18.7 percent and 21.5 percent in December. Exports of toys jumped 38.7 percent, and those of textiles, yarn, fabrics & make-up articles increased 47.7 percent in January.

However, export growth for automatic data-processing machines and units dropped to 10.3 percent in January from 20.2 percent in December. Export growth for steel products continued to rise in January, up 43.9 percent compared with 14.9 percent in December.

On the other hand, imports of most commodities showed higher-than-expected growth amid strong volume growth and a significant increase in prices. The import value of iron ore soared 149.2 percent in January with the volume and price up 47.9 percent and 68.4 percent respectively. As for crude oil, the import volume jumped 27.4 percent after dropping 1.9 percent the month before, while the import value rose 50.8 percent versus an increase of 7.4 percent in December.

Previous statistical data show that the country's exports have actually stabilized at above the normal level last seen in 2007 and 2008. Exports are expected to maintain relatively fast growth of more than 10 percent this year along with the on-going recovery of the global economy.

However, the growth rate of exports is likely to see some mitigation due to the higher comparison base and rising production costs for exporters. Full-year export growth is expected to fall below 20 percent in 2011, compared with a robust increase of 31.3 percent in 2010.

For imports, relatively stronger domestic demand compared with overseas demand and the likely further strengthening of global commodity prices means that import growth will probably still exceed export growth this year. Based on our forecast, imports should grow 18 percent this year with the trade surplus at about $170 billion, down from $184.5 billion in 2010.

The author is executive director of BOCI Research Ltd. The opinions expressed here are entirely his own and do not represent BOCI or any other affiliated companies within the group. Nothing in this article constitutes an investment recommendation.

(HK Edition 02/23/2011 page2)