Decline in exports knocks confidence in Chinese growth

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br CHINA-ECONOMY Reuters An employee arranges stock under price tags at a supermarket in Huaibei, China. As the nation chases a 7.5 percent annual growth target, set at last week's meeting of the National People's Congress, officials need to contain stresses in the financial system from the credit boom that began with stimulus measures in 2008. China's inflation slowed more than estimated to a 13-month low last month while factory-gate deflation deepened as prices cooled following a week-long holiday. The consumer price index rose 2 percent from a year earlier, according to the National Bureau of Statistics, compared with the 2.1 percent median estimate in a survey of analysts. Decelerating inflation and falling producer prices may give leaders more space to push ahead with the broadest economic policy changes since the 1990s. Photo: Reuters

Hong Kong and Beijing - China’s exports fell last month by the most since the global financial crisis, dealing another blow to confidence as Communist Party leaders meeting in Beijing assess the risk from the nation’s first onshore bond default.

Shipments abroad dropped 18.1 percent from a year earlier in February, the customs administration said at the weekend, trailing the median estimate for a 7.5 percent rise in a survey of 45 economists.

Distortions in the data from the Lunar New Year holiday and fake invoicing that inflated data last year make it harder to assess the true picture. As China chases a 7.5 percent annual growth target, set at last week’s meeting of the National People’s Congress, officials need to contain stresses in the financial system from the credit boom that began with stimulus measures in 2008.

“People see a lot of negative news coming out of China: growth momentum is slowing and when there is a default of one company they tend to think it’s going to be a systemic problem and spill over into the rest of the economy,” said Ding Shuang, a senior China economist at Citigroup in Hong Kong. “These numbers may support their negative views, that even external demand may not be that strong.”

Even so, the drop in exports was not as bad as it appeared when taking into account the holiday, the inflated base of last year’s numbers, as well as a weather-related “soft patch” in the US economy, said Ding, whose forecast of an 8.5 percent decline in sales was closest to the customs figure.

Imports rose 10.1 percent, more than projected.

Shanghai Chaori Solar Energy Science & Technology, a maker of solar cells, on Friday became the first company to default in China’s onshore bond market after failing to pay full interest due.

The number of publicly traded non-financial Chinese firms whose debt-to-equity ratios exceed 200 percent has jumped 57 percent since 2007, according to data compiled by Bloomberg.

China’s benchmark Shanghai Composite index had its first gain in three weeks last week, rising 0.1 percent after a 2.7 percent drop the previous week. The yuan posted its biggest weekly increase since October last year, following a record decline of 1.4 percent last month, on speculation the central bank ceased engineering a decline in the currency to discourage appreciation bets.

Trade would be a “clear drag” on growth in the first quarter and the yuan should weaken this week, said Dariusz Kowalczyk, a senior economist and strategist at Credit Agricole in Hong Kong.

“The trade data explain some of the downward pressure on the yuan in February – it can be justified not only by central bank guidance but by actual deterioration of demand and supply in the forex market,” he said.

Analysts’ estimates for last month’s exports ranged from a drop of 8.5 percent to a 14.4 percent increase. The decline, after a 10.6 percent gain in January, was the biggest since August 2009. The rise in imports compared with the median forecast for a 7.6 percent gain and a 10 percent advance in January. - Bloomberg


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