China trade decline signals more stimulus measures coming

China’s exports fell for a fourth straight month and imports matched a record stretch of declines, signaling that the mounting drag from slower global growth will push policy makers toward expanding stimulus.
Overseas shipments dropped 6.9 percent in October in dollar terms, the customs administration said yesterday, a bigger decline than estimated by all 31 economists in a Bloomberg survey. Weaker demand for coal, iron and other commodities for China’s declining heavy industries helped drag imports down 18.8 percent in dollar terms, leaving a record trade surplus of USD61.6 billion.
The report signals that policy makers may need to unleash more fiscal stimulus to support growth even after the People’s Bank of China cut the main interest rate six times in the last year to a record low and devalued the currency. The government has already relaxed borrowing rules for local authorities, and the top economic planning body has stepped up project approvals.
“The October trade data keep pressure on for more domestic easing,” said Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong. “Measures are likely to continue to focused on shoring up domestic demand rather than weakening the currency. And over time the role of fiscal policy expansion should rise.”
Fiscal stimulus this year includes more infrastructure spending and expanding the lending capacity for the China Development Bank and other policy banks. The PBOC has also made repeated reductions to the amount of reserves required of lenders.
Exports to Japan slumped 9 percent in the first 10 months from a year earlier, while those to the European Union declined 3.7 percent. Shipments to Hong Kong dropped 11.7 percent during the same period.
“Exports continue to face structural headwinds,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. “With recent economic data continuing to indicate some moderation in Chinese economic growth during the second half of 2015, the Chinese government may utilize additional monetary and fiscal stimulus measures to boost gross domestic product growth in 2016.”
Exports to the U.S., China’s largest trading partner, jumped 5.8 percent in the first 10 months from a year earlier, while those to the Association of Southeast Asian Nations increased 4.2 percent. Shipments to India rose 8.9 percent.
Output this year is on pace for the slowest expansion in a quarter century. The world’s second-largest economy grew 6.9 percent in the three months through September from a year earlier, the slowest quarterly increase since the first three months of 2009. Fourth-quarter growth will be at the same 6.9 percent pace, according to economists surveyed by Bloomberg.
The International Monetary Fund last month cut its outlook for global growth this year to 3.1 percent from a July forecast of 3.3 percent. The world economy will expand 3.6 percent next year, the IMF said, less than the 3.8 percent it projected in July.
China’s imports declined for a 12th month, matching a record-losing streak from 2009. Yesterday’s report showed the value of imported iron ore, crude oil and coal all slumped more than 40 percent in the first 10 months of 2015 from a year earlier, highlighting lackluster demand from Chinese factories and construction sites.
Imports from all 10 of the major trade partners listed by the customs administration declined in the first 10 months. Imports from Australia, a major source of China’s iron ore during the real estate boom, plunged 25.7 percent.
Top leaders have signaled that they won’t tolerate a sharp slowdown. President Xi Jinping said last week that average annual growth should be no less than 6.5 percent in the next five years to realize the nation’s goal to double 2010 GDP and per capita income by 2020.
China still has ample ammunition, with a relatively small fiscal deficit and a central government with a light debt load. The central bank still locks up 17.5 percent of bank deposits from the biggest lenders as required reserves, even after recent reductions.
The record trade surplus helped spur a surprise increase in foreign-exchange reserves in October despite an erosion of holdings after the PBOC intervened to boost the yuan. The central bank’s stockpile rose to $3.53 trillion last month from $3.51 trillion at the end of September, the PBOC said Saturday.
“The large trade surplus could offset capital outflow” and curb expectations for the yuan’s depreciation, Liu Ligang, chief Greater China economist at Australia & New Zealand Banking Group Ltd. in Hong Kong, wrote in a note. Bloomberg