Sharp drop in China's trade raises fears about its economy

Much of China's imports are commodities and raw materials going into factories that turn them into goods for sale overseas, so the fall in imports could be an ominous sign for exports.
Much of China's imports are commodities and raw materials going into factories that turn them into goods for sale overseas, so the fall in imports could be an ominous sign for exports.PHOTO: REUTERS

SHANGHAI • China's imports tumbled last month, adding to concerns about the health of the world's second-largest economy and its contribution to global growth.

Imports dived 13.8 per cent from a year earlier, far more than the dip of 8.2 per cent forecast by analysts, and the 10th consecutive monthly drop, reflecting both lower global commodity prices and sluggish demand.

A surprise devaluation in the yuan early last month, combined with slowing consumer demand, will dent the prospects of imports picking up significantly soon.

Much of China's imports are commodities and other raw materials going into factories that turn them into goods for sale overseas, so the fall could be an ominous sign for exports in the coming months.

Exports fell less than forecast, sliding 5.5 per cent, but analysts were still doubtful that China can now achieve its year-end trade growth target of 6 per cent.

The data suggest global demand will slow for the rest of the year, the Financial Times reported.

China's customs administration tracks the imports that are processed in China for re-export, a sector that makes up just under a third of China's total trade.

"Generally the trade data has shown that the world economy is on a downward trend," said Mr Tu Xinquan, associate director of the China Institute for WTO Studies at the University of International Business and Economics in Beijing.

"The US economy grew last year but it wasn't enough to lift global demand," he added.

Weak exports mean China must do more to stabilise growth.

"The government is already trying hard to boost infrastructure spending, and that will be more important than exports for overall growth," Mr Liu Xuezhi, a macro- economic analyst at Bank of Communications, told Bloomberg.

China's foreign exchange reserves posted their biggest monthly fall last month, reflecting Beijing's efforts to stabilise the yuan following its devaluation.

Chinese policymakers have been trying to reassure financial markets that their currency is stable and the recent turbulence in stock markets is easing.

Stocks have fallen around 40 per cent since mid-June, with the Shanghai Composite Index hovering around the 3,000-point level, having been above 5,000 less than three months ago.

Shares fell early yesterday before rallying for the first time in five days on speculation that state- backed funds bought shares after data showed signs of a weakening economy.

The Shanghai Composite Index advanced 2.9 per cent to 3,170.45 at the close, with almost all of the gains coming in the last hour of trading.

This follows remarks by People's Bank of China governor Zhou Xiaochuan, who told financial leaders from the world's biggest economies last weekend at the Group of 20 meeting that the correction in Chinese equity markets is almost over.

"We think he (Zhou) meant that the panic selling was over. Sentiment is terrible and our baseline scenario is that the index declines to 2,000, which was support during the 2010-14 bear market," Mr Tim Condon, head of Asia research at ING Bank in Singapore, told Reuters.

Meanwhile, in neighbouring Japan, the economy contracted last quarter less than initially estimated, thanks to a build-up in inventories that risks damping a rebound.

Gross domestic product shrank at an annualised 1.2 per cent pace in the three months through June from the first quarter, less than the 1.6 per cent drop reported last month, the Cabinet Office said yesterday in Tokyo.

Economists had estimated a 1.8 per cent contraction.

A version of this article appeared in the print edition of The Straits Times on September 09, 2015, with the headline 'Sharp drop in China's trade raises fears about its economy'. Print Edition | Subscribe