China’s trade surplus shrank for a second straight month to US$14.5 billion last month, with both imports and exports lower than expected, reflecting global economic weakness and a domestic cooling that is set to deepen the policy quandaries facing Beijing.
The trade data issued yesterday laid bare trends at the heart of Beijing’s debate about how to handle US pressure for a higher yuan, while seeking to protect export-driven jobs and to tame inflationary pressures.
Moments after the data was released, a deputy chief of China’s customs agency staked out one position in that debate, saying a higher yuan is hurting exports.
“The rise in the yuan exchange rate may limit the room for export growth,” Lu Peijun (魯培軍), the deputy head of the Chinese customs administration, said at a press conference about the data. “China is still facing relatively big imported inflationary pressure and trade conditions are also deteriorating.”
Many traders are already wagering Beijing will tighten its leash on the yuan, which fell against the US dollar yesterday after the central bank set a sharply weaker mid-point for daily trading. Forwards markets are pricing in depreciation of the currency in the year ahead, but other influential Chinese voices, including an official newspaper, said Beijing may be preparing for a widening of the yuan’s daily trading band to help fend off speculators and inflation.
Last month’s trade surplus was smaller than August’s US$17.8 billion and less than half of the US$31.5 billion recorded in July. The annual pace of exports to the troubled EU more than halved from August.
“It is now certain that external demand is falling. Chinese export growth will continue to slow in the rest of the year,” said Shi Lei, an analyst for Pingan Securities in Beijing, who said the figures were unlikely to prompt swift policy shifts.
China’s annual inflation stood at 6.2 percent in August and its leaders have said taming price rises remains a priority.
“As falling external demand is expected by Chinese policymakers, any broad-based loosening of monetary policy is unlikely in the short term until we see a clear fall in inflation,” Shi said. “The window for possible policy easing is around November and December.”
Imports and exports were weaker than forecast by economists in a Reuters poll and several analysts said no rebound was in sight.
Exports rose 17.1 percent last month from a year ago, slowing from a 24.5 percent gain in August, while imports rose 20.9 percent, compared with August’s 30.2 percent increase.
Still, the value of China’s imports and exports are near record highs.
“The trade surplus is narrowing on a trend basis. I think this shows that the Chinese economy is [in the midst] of rebalancing,” said Jian Chang (常建), an economist for Barclays in Hong Kong. “Going forward, the effect of weakening external demand will slow export growth to mid to lower teens. We expect import growth to hold up better.”
China’s overall balance of trade with the US remained unchanged last month from August — in both months China recorded a US$20 billion surplus.
China’s trade surplus with the EU was US$12.9 billion last month, down from US$14.8 billion in August.