Tue, Sep 09, 2014 page15

• China posts record trade surplus

  DIVERGENCE: Although exports rose 9.4 percent last month on solid shipments to the US and Europe, imports slid 2.4 percent due to faltering domestic demand

  • Bloomberg
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  China’s trade surplus climbed to a record last month, as exports rose on the back of increased shipments to the US and Europe, while imports fell for a second month as a property slump hurt domestic demand.

  Exports increased 9.4 percent from a year earlier, China’s General Administration of Customs said yesterday, compared with the 9 percent median estimate in a Bloomberg survey. Imports unexpectedly dropped 2.4 percent, leaving a trade surplus of US$49.8 billion.

  The divergence in exports and imports shows that China is some way from providing the global growth boost that IHS Inc this month forecast will see it eclipse the US economy in 2024. Languishing domestic demand underscores risks to the government’s economic growth target this year of about 7.5 percent, as home prices and construction fall, boosting chances of additional stimulus.

  “A targeted cut in mortgage rates is more and more likely,” said Shen Jianguang (沈建光), chief Asia economist at Mizuho Securities Asia Ltd in Hong Kong. “If the weakness in the property market can’t be reversed, it’s difficult for the government to reach its annual growth target of 7.5 percent.”

  Sustaining export gains may also be challenging because geopolitical risks are weighing on Europe’s economic outlook, said Shen, who formerly worked at the European Central Bank.

  The increase in exports follows a previously reported 14.5 percent jump in July and compares with analysts’ estimates for gains ranging from 4.9 percent to 17 percent. The median projection for imports was a 3 percent increase, after a 1.6 percent drop in July, and the trade surplus was forecast at US$40 billion, following a previous record of US$47.3 billion in July.

  Exports to the US climbed 11.4 percent last month from a year earlier, while shipments to the EU increased 12.1 percent, according to government data compiled by Bloomberg. Imports from the US declined 3.1 percent.

  “We expect exports to remain healthy as conditions in developed markets continue to improve,” Julian Evans-Pritchard, China economist at Capital Economics Ltd in Singapore, wrote in a note. “Meanwhile, subdued commodity demand is likely to remain a drag on import growth going forward. As a result, we expect China to continue to post large trade surpluses, which should put further upwards pressure on the renminbi.”

  China’s exports are being helped by US economic growth, which rebounded to a 4.2 percent annualized pace in the second quarter, with measures of consumer confidence and manufacturing rising last month, and construction spending increasing in July from the previous month by the most in two years.

  The trade surpluses will add to pressure for the yuan to appreciate “in order to avoid international tension,” Louis Kuijs, chief Greater China economist at Royal Bank of Scotland Group PLC in Hong Kong, said in a note.

  China’s leaders have taken steps to support growth this year, including expediting railway spending, cutting some taxes and freeing up money for loans for agriculture and small businesses. At the same time, they have shied away from stronger measures such as lowering interest rates and reserve requirements for banks nationwide.

  Should downward pressures on growth intensify in coming months, “we would not rule out a shift to a bolder approach, with more general and higher profile measures” to support expansion, wrote Kuijs, who formerly worked at the World Bank.
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