China’s trade performance last month was far worse than economists had expected, with exports tumbling the most in more than six years, days after top leaders sought to reassure investors that the outlook for the world’s second-largest economy remains solid.
Exports fell 25.4 percent year-on-year — twice as much as markets had feared — as demand skidded in all of China’s major markets, while imports slumped 13.8 percent, the 16th straight month of decline.
The export drop was the biggest since May 2009, but economists said it might not necessarily point to a significant worsening in economic conditions due to sharply reduced business activity during the Lunar New Year holiday.
However, on a combined basis, January and last month’s exports fell 17.8 percent, while imports declined 16.7 percent, pointing to persistently weak demand at home and abroad that is weighing on the economy of the world’s largest trading nation.
“Exports were very strong last year in February because the Lunar New Year started so late and much of the usual disruption from the holiday was pushed into March. So the implication is that we’ll probably see a significant reversal and a stronger number next month,” Capital Economics Singapore-based China analyst Julian Evans-Prichard said.
“We suspect that overall exports remain weak but we don’t see much evidence of marked deterioration, for instance there was no sudden drop-off in export orders in the Markit PMI [purchasing managers’ index] and they generally do a pretty good job of adjusting for seasonality,” he said.
Analysts polled by Reuters had expected China’s exports to fall 12.5 percent last month, with imports predicted to decline 10 percent.
China posted a trade surplus of US$32.59 billion last month, down from US$63.29 billion in January, China’s General Administration of Customs said yesterday.
After missing trade goals repeatedly in recent years, China’s leaders did not give an estimate for trade growth this year when they set out key economic targets in parliament on Saturday last week, reflecting deep uncertainty about global demand.
Chinese Minister of Commerce Gao Hucheng (高虎城) last month said he was confident that China’s trade conditions would stabilize and improve this year, although most analysts see no improvement in sight.
“The sharp drop in imports also shatters the hope that China is rolling out a stimulus package that would boost the demand for commodities,” Commerzbank Singapore-based emerging markets economist Zhou Hao (周浩) said. “The recent rally in bulk commodities, led by iron ore, might be only short-lived.”
Spot iron ore prices rocketed nearly 20 percent to the highest in more than eight months on Monday, buoyed by expectations that Chinese steel mills are planning an output boost ahead of an expected crackdown on air pollution.
China’s iron ore imports rose 6.4 percent in January-to-last month compared with the same period last year, although anti-dumping measures are squeezing steelmakers that are trying to keep mills running by increasing sales overseas.
However, Goldman Sachs said the iron ore rally would not last in the absence of a significant improvement in Chinese domestic steel demand, sticking to its bearish take on one of this year’s biggest commodity comebacks.
China’s leaders set an economic growth target of 6.5 percent to 7 percent for this year as they opened the annual session of parliament last week, compared with 6.9 percent last year, the country’s slowest expansion in a quarter of a century.
As part of efforts to stimulate activity, policymakers have proposed raising this year’s fiscal deficit to 3 percent of GDP, from last year’s budgeted 2.3 percent.
Economists also expect further reductions this year in interest rates and the amount of money that banks must hold in reserve, extending a year-long stimulus blitz.
Late last month, the central bank cut bank reserve ratio requirements, releasing an estimated US$100 billion in cash for lending.
“Overall, today’s trade data, together with high-frequency data and leading indicators, suggest that growth momentum weakened further in January-February,” Nomura Bank economists said in a research note. “We maintain our forecast of real GDP growth slowing to 5.8 percent in 2016 from 6.9 percent in 2015.”
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