China is on track to record one of its weakest quarters of growth since the global financial crisis, despite a fresh pledge from Premier Li Keqiang to ensure economic stability, after official trade data showed the first annual fall in exports in 17 months.
An unexpected 3.1 per cent fall in June exports from a year earlier to 1.09 trillion yuan (HK$1.38 trillion) and a 0.7 per cent fall in imports left in tatters official forecasts of an 8 per cent growth in total trade this year and prompted economists to revise their overall economic growth calls.
"This will not only bring about downside risk to the GDP growth for this year but also place severe pressure on employment," ANZ Bank economists Liu Ligang and Zhou Hao said in a research note.
The mainland's economic growth data for the second quarter is due on Monday, and many analysts believe the annual rate of growth may have slipped to, or below, 7.5 per cent. It last did so in the third quarter of last year, dropping to 7.4 per cent in the worst three months of growth since the 2009 financial crisis.
The gloomy assessment of private sector analysts came as Li vowed to keep economic growth "within a reasonable range" and not let the "growth rate and employment slide below a bottom line and the rise in consumer prices exceed an upper limit".
Li made the remarks at a meeting on Tuesday with provincial leaders from Guangdong, Hunan and Shaanxi, at which he vowed to prevent "large fluctuations" in the economy.
Li did not specify the range but the remarks were widely interpreted as a signal that Beijing may allow economic growth to miss the government's official annual target of 7.5 per cent, but try to prevent any sharp slide.
"With rising downside pressures, Premier Li's recent statement to avoid growth from sliding below the 'bottom line' (our house view is 7 per cent) suggests that Beijing will likely fine-tune policy to avert a hard landing," said HSBC economists Qu Hongbin and Sun Junwei in a research note.
Shanghai stocks gained more than 2 per cent to close above 2,000 after Li's comments were reported by Xinhua, despite the poor trade figures and the International Monetary Fund's downward revision of its global growth forecast for this year to 3.1 per cent, from 3.3 per cent it had predicted in April.
The consensus forecast for mainland economic growth before the trade data was published was for second-quarter expansion of 7.5 per cent, down from 7.7 per cent in the first quarter.
Many investors started the year banking on a gradual recovery of growth, but those hopes have been replaced by the risk that it will be even slower than 2012's 7.8 per cent - the weakest full year of growth since 1999.
HSBC expects the government to increase fiscal spending and make a modest interest rate cut in the coming months when needed to support growth.
Wang Jun, a researcher at the China Centre for International Economic Exchanges, said there was a chance for this year's growth rate to fall slightly below the annual target of 7.5 per cent but it is "unlikely to lose speed dramatically to touch or even breach the level of 7 per cent".
Wang said 7 per cent may be treated as a "psychological bottom line", in line with the official growth target for the 12th five-year plan for 2011 to 2015.
Customs bureau spokesman Zheng Yuesheng blamed the poor trade performance on weakness in external demand, rising yuan and labour costs and slowing domestic industrial production, as well as the recent crackdown on hot money inflows through inflated trade deals.
Exporters are reeling from both the rising costs of hiring workers and an appreciating yuan. Minimum wages in 20 provinces and cities have been raised by an average of 18 per cent this year.