The number that matters in China’s trade figures, published on Tuesday, is for imports. With the global economy slowing, all eyes are on the Middle Kingdom to see whether it can once again help pull the world out of trouble.
The June data are far from reassuring. Imports grew by just 6.3 per cent, around half the 12.7 per cent recorded in May and half the forecast rate. Monthly figures fluctuate, but if June sets the trend for the coming months, China faces challenges avoiding a hard landing. And if China lands hard, so will much of the rest of the world.
The import figures eclipsed a more moderate deceleration in export growth to 11.3 per cent from 15.3 per cent in May.
The resulting huge increase in the trade surplus to $31.7bn from $18.7bn could generate the usual grumbles in Washington and Brussels. But, given the slowing global economy, the upswing in export growth isn’t expected to last for very long, and Chinese officials are talking openly of missing their 2012 target of 10 per cent growth in trade. First-half exports rose 9.2 per cent over the same months in 2011, while imports gained 6.7 per cent.
But, it’s imports, not exports, that are the real headache.
“There’s something bad for everyone in this,” said Tim Condon, chief Asia economist at ING Financial Markets in Singapore, told Bloomberg. “On the import side the news is just bad,” with evidence of weak investment spending, which “reinforces hard-landing worries.”
Some of the slow down isn’t wholly negative. In the post-2008 surge in commodities, many Chinese companies accumulated huge stocks of metals and fuels, often for speculative reasons, which they are now busy running down. The coal trade is in a particularly acute position, with terminals overflowing, as beyondbrics has reported.
But the general evidence of economic slowdown – with, for example, a big drop in foreign companies’ imports of capital equipment – is unmistakeable.
Beijing has already responded, with two interest cuts in the space of a month and talk of further monetary easing to come. It has allowed the renminbi to weaken this year against the US dollar to boost exports. The renminbi dropped 0.88 per cent from April through June, the biggest quarterly decline since its peg to the dollar ended in 2005.
As Simon Rabinovitch reported for the FT, The government has started to accelerate approvals for new investment projects and Wen Jiabao, the premier, vowed at the weekend that the government would take additional policy actions to shore up growth.
Presumably officials know that more bad data is the pipeline. On Monday, Beijing said inflation had dropped to 2.2 per cent, its lowest since early 2010. On Friday, it will publish industrial production, retail sales and GDP data.
Barclays said in a note earlier this week:
We do not expect a decisive pickup of activity in this round of data… and investors are likely to end the week with lingering concerns over growth in EM in general.
Lingering concerns may even turn out to be an understatement. As Joseph Leahy wrote in the FT on Tuesday, Brazil too is slowing rapidly. Meanwhile, India started flagging a year ago. Oil-fuelled Russia is the last of the Brics to be growing at a decent clip, thanks to the recent price surge. But that too has come to a halt. The second half won’t be easy for the Brics.
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