Stimulus measures to boost slumping imports
The worsening decline in mainland imports over the past two months has presented a headache for top policymakers, but there is a silver lining.
At a time when recession is savaging the United States, European Union and Japanese economies, China has not escaped unscathed. Its imports have contracted two consecutive months, by 21.3 per cent in December to US$72.2 billion and 17.9 per cent in November.
Shrinking imports are partly due to waning demand from the mainland's industrial-led economy as too many manufacturers chased after too few orders and too few overseas shoppers bought Chinese-made products.
However, the mainland does have some strategy to battle the slowdown in imports, including growth stimulus measures such as the 4 trillion yuan (HK$4.54 trillion) spending spree announced on infrastructure, education, real estate and environment-related projects.
Morgan Stanley chief economist Wang Qing said last month's import declines had not been as disastrous as he thought, and expected the pro-growth measures to fuel demand for commodities, particularly in the second half of this year.
'The situation will get worse before getting better,' he said yesterday. 'I am positive about the outlook on imports, which will return to the growth track in the second half of the year on the back of the powerful measures.'
The implementation details of the central government's spending programme and a fresh round of economic measures were expected to be available around the time of the Chinese People's Political and Consultative Conference meeting in early March, he said.
A key reason behind the poor imports is slumping exports as many factories sought to reduce inventory and consumed less imported materials and components.
Mr Wang expected the 'de-stocking' process to prevail in the first quarter of this year.
Mainland exports fell 2.8 per cent in December to US$111.2 billion after a 2.2 per cent drop in November, leaving a trade surplus 71.8 per cent higher year-on-year to US$39 billion last month.
Johnson Chan, head of structured trade finance, North Asia, of OCBC Bank, said the central government-led spending spree would prompt strong demand for such commodities as copper, steel and iron ore.
Prices of these commodities took a dive in the final two months on expectation that a looming global recession would pare demand.
A sharp drop in prices of crude oil, copper and iron ore was another reason for the weaker imports.
'Prices of certain commodities have rebounded recently, and the upward trend will accelerate in the second half,' Mr Chan said. 'The mainland will have to bring in more basic commodities if its economic stimulus measures are to be implemented.'
A case in point is crude oil. The mainland bought 11.6 per cent more of the commodity last month.
However, a 40 per cent drop in global oil prices led to a 33 per cent decline in the bill.
The smaller oil bill alone knocked off 3 per cent in growth from last month's imports.