The December trade data was quite reassuring. It indicated that despite the stock market turmoil, the evolution of China's growth dynamics in the real economy may actually be improving.

Goods exports momentum improved in December, reflecting some pick up in global demand and the depreciation of the RMB since early August. Better import data is driven by recovering "normal imports", used in China's own economy, pointing to a pick-up in domestic demand.

Key data elements

China's goods exports momentum improved in December – the decline of 1.4 percent year-on-year in USD terms suggests an increase of 0.6 percent year-on-year in volume terms (see table, based on our estimates). In 2015 as a whole, this leaves export volumes up by an estimated 0.8percent.

Headline goods imports data was down 7.6percent in USD terms a year ago, due to year-on-year import price declines that we estimate at 14percent. But, as we signaled a month ago, import volumes have started to improve - they were up 7.5percent year-on-year in December.

The trade surplus of $60.1 billion in December brought the whole-year surplus to $599 billion for 2015 according to the trade data (it is lower according to the balance of payment definition), up 56percent from 2014.

Impact and outlook

The export data suggests that global demand picked up some momentum at the end of 2015, after displaying weakness over most of the year. The most recent estimates from the Dutch CPB suggest that global imports still grew at only 1percent year-on-year in October, in volume terms.

However, the improvement in China's export momentum in December also reflects the favorable impact of the depreciation of the RMB since early August. China's exporters had been losing global market share in much of the second half of 2015 because of the lagged effect of substantial earlier depreciation of many currencies against the USD.

But, since early August the trade weighted RMB depreciated 4.8percent, according to the CEFTS currency basket. Going forward, amid a modest pick-up in global trade growth and aided by the weaker RMB, we expect China's export growth to rise to around 2percent in 2016, in real terms, with risks on the upside.

The improvement in imports that started in November has been driven by better "normal" imports, used in China's own economy. In USD terms, normal imports fell 3.3percent year-on-year in December, compared to 16.1percent in the first 10 months of 2015. Given the double digit year-on-year import price declines, this implies solid growth in real terms last month and points to a pick-up in domestic demand growth at the end of 2015.

In all, the December trade data was quite reassuring, indicating that, despite the stock market turmoil, the evolution of China's growth dynamics in the real economy may actually be improving somewhat.

The better export data and high trade surplus will provide some support to the balance of payments and the RMB. However, given the recent turbulence, we expect financial capital outflows to remain high in the early months of 2016 and the RMB to depreciate further against the USD to 6.8, before medium term forces drive a recovery thereafter.