China's exports gained speed in May, buoyed by strong demand for chips, autos and other high-tech goods fuelling the global artificial intelligence boom, giving policymakers some relief as energy price shocks from the Iran conflict weigh on broader demand.
A surge in global AI investment has helped the world's top manufacturer offset the export hit many had expected from the Middle East turmoil. But signs are emerging that stockpiling linked to higher energy costs is fading, with prices rising and overseas buyers starting to run down inventories as they wait for a cease-fire.
Exports expanded 19.4% from a year earlier in U.S. dollar value terms, customs data showed on Tuesday, outpacing the 14.1% gain in April and a 15% rise tipped by economists.
Imports notched another strong month, climbing 27.4% versus a rise of 25.3% a month prior. Economists had forecast growth of 25%.
"Chip price increases continue to support exports, with memory prices rising 20% month-on-month, pushing integrated circuit export growth to 111% for the month," said Xing Zhaopeng, ANZ's senior China strategist.
China's exports of automated data processing equipment soared 66.1% in value terms year-over-year, high-tech products rose 50.9%, and shipments of cars jumped 39%, the data showed.
"Looking ahead, the AI story is far from over – chips are rewriting China's trade landscape," Xing added.
The AI boom has driven strong demand for semiconductors powering data centers and advanced electronics, playing to China's manufacturing strengths. But early signs suggest that momentum may be starting to fade.
Separate factory activity data for May showed a steep drop in new export orders from April's two-year peak, when warehouse managers reported "booming" business amid a scramble by foreign factories to lock in supplies.
Strong exports powered China's $20 trillion economy past forecasts in the first quarter, but signs of cooling momentum have reinforced concerns that fragile domestic demand leaves it exposed to weaker global conditions and increases the likelihood of further policy support.
Beijing is under growing international pressure to strengthen domestic consumption, as critics warn its heavy reliance on imported inputs and re-exports is distorting trade and squeezing other emerging economies out of higher-value manufacturing.
The Organisation for Economic Co-operation and Development (OECD) amplified that concern last week, noting in a report that nearly 60% of Chinese firms' "market share gains can be explained by subsidies received."
A new U.S. Federal Reserve (Fed) paper found that China's trade surplus – measured against global gross domestic product (GDP) – has topped 1%, well above the peaks Japan and Germany hit in the late 20th century, and shows little sign of narrowing. That suggests persistent Chinese industrial overcapacity will reshape global manufacturing for years.
A closely watched meeting last month between U.S. President Donald Trump and Chinese President Xi Jinping helped cool tensions but produced no meaningful breakthroughs, whether on tariff disputes or cooperation over ending the Iran conflict.
China's trade surplus came in at $105.43 billion in May, up from $84.8 billion a month prior and from a forecast of $92.1 billion.