Record China trade surplus exposes fragile domestic demand

A record trade surplus last month offers no comfort for policymakers in Beijing facing the prospect that a fall in imports shows fragile domestic demand weakening even further.

Slower export growth and an unexpected fall in imports pushed the mainland’s trade surplus to a record US$54.5 billion last month, adding to fears of a sharper dip in fourth-quarter economic growth, even after the central bank cut interest rates for the first time in two years last month.

Wang Tao, head of China economic research at UBS Securities, predicted that gross domestic product growth on the mainland would ease to 7.0 per cent this quarter, with full-year growth likely slowing to 7.3 per cent, compared with 7.7 per cent last year.

“Despite some monthly volatilities, export growth in the past few months has maintained a moderate recovery trend,” she told the South China Morning Post. “The falling imports reflected quite weak domestic demand, although it was also affected by easing prices of major commodities such as crude oil, iron ore, and copper.”

Wang said she expected more interest rate cuts would be rolled out as authorities sought to ease soaring funding costs exacerbated by easing inflation.

The trade surplus widened by 61.4 per cent from a year earlier, after hitting US$45.4 billion in October, Customs Bureau data showed on Monday, as 4.7 per cent year-on-year growth in exports was offset by an unexpected decline of 6.7 per cent in imports, both trailing market expectations.