BEIJING • China's exports unexpectedly fell the most in two years last month, while imports also contracted, pointing to further weakness in the world's second-largest economy this year and deteriorating global demand.
Adding to policymakers' worries, data yesterday showed that China posted its biggest trade surplus with the United States on record last year, which could prompt President Donald Trump to turn up the heat on Beijing in their bitter trade dispute.
Softening demand in China is being felt around the world, with slowing sales of goods from iPhones to automobiles, prompting warnings from the likes of Apple and from Jaguar Land Rover, which last week announced sweeping job cuts.
The dismal December trade readings suggest China's economy may have cooled faster than expected late in the year, despite a slew of growth-boosting measures in recent months, ranging from higher infrastructure spending to tax cuts.
Some analysts had speculated that Beijing may have to speed up and intensify its policy-easing and stimulus measures this year after factory activity shrank last month.
China's December exports unexpectedly fell 4.4 per cent from a year earlier, with demand in most of its major markets weakening. Imports also saw a shock drop, falling 7.6 per cent in their biggest decline since July 2016.
Analysts had expected export growth to slow to 3 per cent, with imports up 5 per cent. "Today's data reflect an end to export front-loading and the start of payback effects, while the global slowdown could also weigh on China's exports," Nomura economists wrote in a note, referring to a surge in shipments to the US over much of last year as companies rushed to beat further tariffs.
"The export growth print also suggests that the recent strength of the yuan might be short-lived; Beijing will perhaps be more eager to strike a trade deal with the US; and policymakers will need to take more aggressive measures to stabilise GDP growth."
Net exports had already been a drag on China's economic growth in the first three-quarters of last year, after giving it a boost in 2017.
Asian shares and US stock market futures fell as the surprisingly weak Chinese data added to fears of weaker corporate profits and investment, while the yuan currency gave up some of its early gains.
China's politically sensitive surplus with the US widened by 17.2 per cent to US$323.32 billion (S$438 billion) last year, the highest on record going back to 2006, according to Reuters calculations based on Customs data.
However, Beijing's export data had been surprisingly resilient to tariffs for much of last year, possibly because companies ramped up shipments before broader and stiffer US duties went into effect.
As many market watchers predicted, that boost has faded in the last few months. China exports to the US fell 3.5 per cent last month, while its imports from the US were down 35.8 per cent for the month.
China's total global exports rose 9.9 per cent in 2018, its strongest performance in seven years, while imports increased 15.8 per cent. But December's gloomy data, along with several months of falling factory orders, suggest a further weakening in its exports in the near term.
"A trade recession is likely, in our view," Mr Raymond Yeung, chief economist at ANZ, said in a note, predicting a period of export contraction similar to 2015-16. "The global electronics cycle remains the key driver of Chinese exports. A potential downturn in the sector poses the real risk to China's external outlook, even if China and the US reach a resolution on their trade dispute."
ING said a fall in electronic shipments could be related to foreign companies avoiding the use of China-made electronic components, adding that exports and imports of electronic parts and goods will likely shrink this year.
The higher tariffs China levied on US supplies also hit overall import growth. For all of 2018, soya beans, the second largest import from the US, fell for the first time since 2011.
Even if Washington and Beijing reach a trade deal in their current round of talks, it would be no panacea for China's slowing economy, analysts say. "The import slowdown is consistent with other signs that growth in China's domestic economy continued to weaken," said Mr Louis Kuijs, head of Asia economics at Oxford Economics.
Chinese policymakers are widely expected to roll out more support measures in the coming months if domestic and external conditions continue to deteriorate.