China Trade Suffers on Global Fears

Chinese exports slowed sharply in November in a reminder of the external headwinds that are blowing against the country’s economic recovery.

Exports increased 2.9 per cent year on year, down from an 11.6 per cent pace in October and well short of forecasts for another similarly strong performance. Imports were unchanged from a year earlier, slowing from a 2.4 per cent increase in October, though a pick-up in the volume of key commodity imports was consistent with more positive domestic investment and consumption data.

That resulted in a $19.6bn trade surplus in November for China, its lowest in five months. The weak trade figures were a reminder that for all of Beijing’s efforts to rev up the economy, China is still exposed to the risks of sluggish demand in Europe and the US. Smaller inflows through trade channels will act as a drag on the Chinese recovery, which has been driven primarily by a boost in government spending on infrastructure projects in recent months. But the negative impact may be limited since the role of exports in powering Chinese growth has steadily diminished since the global financial crisis.

Domestic demand, both from investment and consumption, now accounts for more than 90 per cent of China’s gross domestic product. The numbers reinforced expectations that after slowing for seven straight quarters, the world’s second-largest economy is on track to finish 2012 with a moderate rebound towards 8 per cent annual growth.

Ma Xiaoping, an economist with HSBC, said the weak export reading would encourage the Chinese government to continue its fiscal and monetary support for the economy. “ Lacklustre exports pose the biggest downside risk to China’s ongoing recovery,” she said.

While the export outlook will continue to remain shaky in the coming months, a sustained recovery of the Chinese economy is expected to filter through into stronger imports.

The Financial Times, December 2012.