• Sun
  • Dec 28, 2014
  • Updated: 2:39pm

Fall in imports raises fresh fears about economic growth in China

Fall in imports raises concerns about domestic demand, despite moves to stabilise stuttering growth after slowdown at start of the year

PUBLISHED : Sunday, 08 June, 2014, 4:00pm
UPDATED : Monday, 09 June, 2014, 10:53am

Official trade figures have triggered fresh doubts about the stability of mainland economic growth, with a surprising drop in imports last month signalling weakness in domestic demand.

Data yesterday showed imports fell 1.6 per cent in May from a year ago. Analysts had been predicting a rise of 6 per cent.

It was seen as a troubling development despite a 7 per cent year-on-year surge in exports that came on the heels of a tepid 0.9 per cent increase in April.

Everbright Securities chief economist Xu Gao said yesterday: "It suggests that the outlook remains murky."

Economists had expected a steady rise in imports after indications that government efforts to stabilise stuttering growth had taken effect.

A string of measures were introduced after growth fell to an 18-month low of 7.4 per cent in the first three months of this year.

The effect of those measures was seen in the official Purchasing Managers Index survey for last month.

A drop in inventories in both finished goods and raw materials suggested companies had drawn down stocks to meet rising orders. But Zhang Zhiwei, chief China economist for Nomura, said that while Beijing's measures had probably halted a further weakening of domestic demand, a slowdown in the property market would weigh on economic growth into next year.

Zhang, who last week raised his forecast for growth this year to 7.5 per cent from 7.4 per cent, said: "We do not believe the recovery is sustainable in the medium term and continue to forecast a growth slowdown to 6.8 per cent in 2015."

Exports totalled US$195.47 billion last month, data yesterday from the General Administration of Customs showed.

Imports were US$159.55 billion, pushing the trade surplus out to US$35.92 billion from US$18.5 billon in April.

Total trade volume in the first five months of this year saw a year-on-year increase of 0.2 per cent to US$1.68 trillion.

Liu Li-gang, chief economist for Greater China at ANZ Bank, attributed the weak import numbers to a recent crackdown on using commodities as collateral to finance business deals.

Chinese regulators have been investigating commodity financing at Qingdao , China's third largest foreign trade port, where companies are suspected of using imports of copper, aluminium or iron ore as collateral.

The result is that several companies may be claiming ownership of the same metal shipment.

Liu said: "China's commercial banks will likely further tighten rules in the commodity financing business, which will pose significant pressure on imports going forward."

He said weak import growth would keep the yuan under pressure in the coming months

Meanwhile, customs department spokesman Zheng Yuesheng said export growth had "returned to a normal level and will continue to improve".

Additional reporting by Reuters, Bloomberg


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another 50 cents comment (in US dollars)
The 4-trillion-yuan investment binge that happened a few years ago in China had mainly been carried out through the countries’ SOEs.
The binge can be said to be a SOE Great Leap Forward.
In the subsequent two years, China was suffering greatly from the problem of high inflation.
Only until the end of 2011 had the CPI dropped back to below 5%.
“High inflation rate, low interest rate” means an implicit exploitation --- every year the inflation tax implicit in the banks’ deposits amounted to more than a trillion yuan !
(Thanks to the linked exchange rate mechanism, and the financial repression caused by it, I think most Hong Kong bank depositors have also been suffering from the same tax for many many years.)
The tax reduced the real wealth of most Chinese residents, and hurt greatly the country’s ability to expand internal demand.
Also, the binge made the state enterprises stronger and the private enterprises weaker.
Private capital was massively crowded out of the economy.
Massive amount of capital was mainly allocated to the inefficient SOEs, especially the central enterprises.
What’s more, the multiplier effect of the 4 trillion yuan directly led to the local governments’ investment binge, exacerbating the local region's debt crises.
The overall effect of the investment binge is frightening indeed.
Enough is enough.
From now on, it seems that this kind of SOE Great Leap Forward will seldom be seen again.
(From ‘China 2013: What Matters Most’)
It was announced tonight that, starting from 16 June, 2014, a targeted RRR reduction of 0.5 percentage point will be enacted to help China’s farming industries and small and micro businesses.
It is said that both China Banking Regulatory Commission (CBRC) and National Development and Reform Commission (NDRC) suggested the use of interest rate reduction as the stimulative policy, but China’s central bank, People’s Bank of China (PBOC), made the above policy suggestion which was finally chosen by the State Council.
(Chinese readers: ****wallstreetcn.com/node/93926)
The private enterprises should also carry out their social responsibilities.
Integrity really matters.
Credit is one of the society's most important resources.
Today, the yuan's mid-price in the FX market was set at 6.1485 (6.1623 last Friday), the highest since 27 March this year.
It seems that the PBOC is guided in large part by the performance of the country's trade surplus.
From my point of view, the size of the country's trade surplus is a misleading guide to whether the yuan is currently overvalued or undervalued.
Based on the country's overall economic performance at present, I think the yuan is still overvalued.
For one thing, the country's rail freight transport has been declining in the first 5 months of this year.
The yuan should be guided further downward, not upward, to sustain the country's coming economic growth and employment level.
('PBoC lifts renminbi, suggests policy success'
Perhaps China can do a controlled experiment, by stabilising the mid yuan rate at a certain level for a certain period of time, witness how the trade data fare, make the right conclusions and act accordingly.
Can we really claim that the yuan has more or less achieved the equilibrium level when the country's trade surplus increased from US$18.5 billion in April to US$35.92 in May this year ?
Or is China's trade surplus an inherent feature of the economy and is more dictated by the country's excess savings and relatively low marginal cost of manufacturing production relative to the high fixed cost of production ?
Young and old people tend to spend more than the middle-aged people, the latter tends to save more to prepare for their retirement.
China is now dominated by the middle-aged people.
The amount of savings is even more in China, thanks to the previous one-child policy.
The parents know that, when they retire, they are mostly on their own.
This is more so when we consider the relative lack of social security provided by the Chinese government.
How can the country quickly rebalance her economy to become one propelled mainly by domestic consumption, especially when her overall income level remains relatively low ?
Chinese manufacturers' technology upgrade seems to be going faster than we think, owing to the country's persistent rise in labour wage rates and keener competition from the newly emerging economies.
In 2013, China bought 36,560 industrial robots, an increase of 60% relative to 2012, making China the fastest growing robot market in the world.
(Chinese readers: ****www.hkcd.com.hk/content/2014-06/09/content_3347502.htm)
Cheaper funds should be provided to the manufacturers to help them climb up the value chain.
The funding-for-lending scheme can also reduce the Chinese manufacturers' reliance on foreign loans, thereby reducing the country's exposure to foreign debts.
If China's property market is really overheated, the funding-for-lending scheme should exclude the country's property developers.
It's time for the house prices to go back to normal.
China's manufacturers should do their own businesses, not tapping the property and virtual-economy markets.
Small businesses in Mexico have the same problem as their Chinese counterparts:
‘... small businesses lack access to credit. At 33 per cent of GDP, outstanding loans are extraordinarily small. They are also expensive.
… The solution must include improvements in property rights, legal processes and, perhaps, targeted guarantees.’
(From ‘Legitimate business unlocks Mexico’s growth’ by Martin Wolf
For the recovery to be sustainable in the medium and long term, China can imitate Britain and enact a similar funding-for-lending scheme for the SMEs.
The country’s policy banks should be encouraged or forced by the PBOC to provide cheap funding to the qualified SMEs who are in need of fund (not just the farming industries).
(Please read ‘Britain announces 'funding for lending' growth scheme’
To me, helping the most efficient, innovative and providing-lots-of-jobs SMEs is the best targeted stimulus that Beijing can use at present.
Using an across-the-board RRR reduction will only further benefit the already-very-strong SOEs, make them even more powerful than before and more difficult to control, and worsen the problem of wealth distribution.
This funding-for-lending scheme can reduce greatly the cost of capital of the SMEs, and fully satisfy all their demand for loans.
The resulting overall lower-cost-of-capital environment will also help China’s businesses to deleverage --- deleveraging in a high-interest-rate environment is like having a surgery without using anaesthetics.
This also helps subdue the precarious shadow banking market.
As time goes on, some of those SMEs will grow large and strong enough to become good candidates for the stock market’s IPOs. This helps reinvigorate the country’s stock market by supplying it with really good IPO candidates.




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