Both China's exports and imports were stronger than expected in December. The headline import growth rate of 6 percent year-on-year in US dollar terms does not appear to suggest a strong pick-up in the country's domestic growth momentum. However, the headline data are misleading in this regard.

Correcting for price changes and, importantly, looking at seasonally-adjusted month-on-month changes, we will get a more convincing picture. After having been very weak in the first three quarters of 2012, import volumes recovered in October. They remained robust through December and grew 8.4 percent in the fourth quarter of 2012.

The sequential changes in import volumes are correlated to quarter-on-quarter GDP growth. Thus, the import strength in the fourth quarter is indicative of a further recovery of quarter-on-quarter GDP growth in that quarter. We will find out the exact strength of China's growth at end-2012 when the government releases the fourth quarter GDP data on January 18.

Exports were also stronger than expected in December. This improves the sequential momentum after weakness earlier in 2012. Exports expanded 14.1 percent year-on-year in US dollar terms during the month, more than the Bloomberg consensus expectation of 5.0 percent. Meanwhile, imports increased 6.0 percent, implying a trade surplus of $31.6 billion in the month.

For the whole year of 2012, the trade balance came out at $231.2 billion, compared to $154.9 billion in the previous year, with most of the increase accounted for by an improvement in the terms of trade of 2.4 percent in 2012 due to lower raw commodity prices.

Total international trade was $3,867.3 billion, up 6.2 percent from 2011. This is much lower than the 10-percent growth target set by the government in early 2012.

The weak export performance in 2012 was mainly because of weak demand conditions in high-income countries. With exports growth to the European Union (EU) particularly weak, the share of exports to that region decreased to 16.3 percent in 2012 (as of November), from 18.7 percent in 2011. As exports to the US were less weak, the US surpassed the EU to retake its position as China's largest export destination in 2012 with a share of 17.3 percent (as of November).

However, exports to emerging markets held up well. Exports to emerging markets grew at a double-digit rate since early 2012, while exports to developed markets weakened. One notable region is the Association of Southeast Asian Nations (ASEAN). China's exports to ASEAN boomed in 2012, with year-on-year growth peaking in October at 45 percent. As a result, ASEAN took up 9.9 percent of China's exports in the first 11 months of 2012.

In terms of other major emerging market countries in the Top 20 export destinations, exports to Mexico and Russia did well in 2012. Strong demand is not universal across emerging markets, though. Exports to countries like India and Brazil suffered from a slowdown in their economy.

The author is chief China economist at Royal Bank of Scotland. The views expressed here are entirely his own.

(HK Edition 01/11/2013 page2)