It News: Chinese Export Growth Tumbles

Chinese Export Growth Tumbles

By BETTINA WASSENER
Published: August 10, 2012
HONG KONG — Signs that the Chinese economy is sputtering mounted Friday, in the form of dismally feeble trade data that fanned expectations that Beijing would soon step up its efforts to buttress growth before a key leadership transition this autumn.
China’s giant economy has emerged as a key driver of global growth, and hopes are high that rising affluence, urbanization and development will help mitigate the weakness of the European and U.S. economies.

The turmoil in Europe and the anemic pace of economic growth in the United States have, however,
increasingly dragged down exports from China and other export-oriented countries in Asia, prompting rate cuts and other economy-bolstering steps from governments across the region in recent months. More steps are likely to follow.

Data released Friday showed that the growth in overseas shipments from China had ground to a near halt in July, with exports up just 1 percent from the same month a year earlier, far below expectations and well beneath the 11.3 percent in June.

Imports, too, disappointed, with an increase of 4.7 percent, underscoring that domestic demand had not been buoyed as much as hoped by efforts to foster bank lending and infrastructure building.

On Thursday, other government numbers painted a similarly disappointing picture: Industrial production, retail sales and fixed-asset investment all grew less rapidly than economists had projected.

“Things really aren’t going China’s way,” Alistair Thornton, an economist at IHS Global Insight in Beijing, said in a note. “Those looking for signs of resilience in China’s economic data were merely disappointed yesterday, but they are going to be distraught today.”

Combined, the July data show that Beijing’s efforts to shore up growth in the face of the global economic downturn have so far proved insufficient, and that a much-anticipated growth pickup is unlikely to materialize for another few months.

The central bank cut interest rates twice in quick succession in June and July, and has also progressively lowered the reserve requirement ratio for banks, freeing up more cash for lenders to extend as credit. Central bank data released Friday, however, indicated that those moves had not translated into as much new lending as hoped.

Chinese banks extended 540.1 billion renminbi, or $85.86 billion, of new local-currency loans in July. The amount was larger than during the same month last year, but fell short of the roughly 700 billion renminbi analysts had expected.

“There cannot be a sufficient infrastructure spending boost without stronger lending, and we expect Beijing to push banks to extend more credit,” said Dariusz Kowalczyk, an economist at Crédit Agricole in Hong Kong.

“Demand is still there, and the economy is still growing at between 7 and 8 percent; it is not heading for a hard landing,” he said.

But, he added, the poor external demand and softer domestic demand are likely to prompt Beijing “to roll out additional policy measures to turn the economy around.”

At the same time, lower inflation, which dropped to less than 2 percent in July, has given the authorities more leeway to act now. Moreover, the leadership transition this year could provide extra impetus to step on the accelerator sooner rather than later.

“It’s important for the political transition to take place in an environment of growth,” Mr. Kowalczyk said. “They will want to do more to make the economy feel better; they have that time pressure breathing down their necks, and it is logical for them to use more levers to move the economy.”

As a result, many analysts believe a further cut to the reserve ratio for banks is imminent; some also believe the central bank may lower interest rates, too, in a bid to ignite more growth.

More spending and a push to bolster infrastructure spending are also likely.

“They have been doing a lot of incremental things, such as accelerating infrastructure investment and lending, and there will be more,” said Yao Wei, an economist at Société Générale in Hong Kong.

“It won’t be like 2008,” she said, referring to a 4 trillion-renminbi stimulus package announced late that year. “But they can push harder, and they will. There is still some space.”

Meanwhile, China could try to weaken its currency — or at least avoid letting the renminbi climb further — in a bid to support exports, analysts believe. Such a move would erode some of the gradual climb the renminbi has staged against the U.S. dollar since 2010, and would risk raising the hackles of some policy makers in the United States, who argue that the renminbi’s current level places U.S. exporters at a disadvantage.

On Friday, the central bank set its key daily reference rate for the renminbi at 6.3447 to the U.S. dollar, its weakest level since late November.

“Any unilateral action, such as export subsidies and currency depreciation, could risk trade disputes,” cautioned Ms. Yao of Société Générale. “The hope that external demand will underpin China’s economy is ever more diminished, which makes the task of domestic economic rebalancing ever more urgent.”