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China’s trade surplus narrowed significantly in March, as imports surged on the back of rising commodity prices. What’s more, Chinese policymakers have rolled out some measures so far, while the PBoC will also alleviate liquidity concerns. Yet, the negative dividend seasonality for the RMB cannot be ignored when the trade surplus has shrunk, in the view of economists at HSBC.

The PBoC will also help address seasonal liquidity concerns

“China’s March export data surprised on the downside while imports surprised on the upside. Accordingly, the trade surplus narrowed significantly to $13.8 B in March (Bloomberg, 13 April). This reflects weakening terms of trade, as commodity prices have risen rapidly over recent months.”

“Chinese Premier Li on 11 April suggested that China will strengthen controls on raw material markets to help limit costs for companies. China has so far implemented measures such as the release of strategic stockpiles for aluminium and wheat for animal feed (Bloomberg, 12 April). These measures may help to alleviate liquidity concerns.”

“Overnight (12 April), Sun Guofeng, head of the monetary policy department at the People’s Bank of China (PBOC) said that monetary policy will pay attention to April’s fiscal payment seasonality and accommodate government bond supply (Bloomberg, 12 April).”

“China is also about to enter the equity dividend payment season in May. The listed mainland Chinese stocks in Hong Kong are expected to pay total dividends of around USD60bn during May-August, with the majority coming from banks, state owned enterprises (SOE) and property developers. On a positive note, there are two key offsetting factors: 1) mainland investors’ participation in the Hong Kong equity market has risen and hence some dividends will be paid to onshore; and 2) some mainland Chinese banks can pay with their excess USD liquidity.”