Monday 5 December 2016

China's trade slow down adds to fears over growth target

Pete Sweeney and Samuel Shen

Published 09/09/2015 | 02:30

Much of China's imports are commodities and other raw materials going into factories that turn them into goods for sale overseas, so the fall could be an ominous sign for exports in the coming months.
Much of China's imports are commodities and other raw materials going into factories that turn them into goods for sale overseas, so the fall could be an ominous sign for exports in the coming months.

China's imports tumbled in August, raising concerns about the health of the world's second-largest economy and its contribution to global growth.

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The data will add to the pressure on Beijing policymakers trying to ensure China's economy avoids a hard landing, though authorities will take some comfort that their efforts to steady the country's stock markets were rewarded with a late rally yesterday.

Imports dived 13.8pc from a year earlier, far more than analysts had forecast, and a tenth consecutive monthly drop reflected both lower global commodity prices and sluggish demand.

A surprise devaluation in the yuan early last month combined with slowing consumer demand will dent the prospects of imports picking up significantly anytime soon.

Much of China's imports are commodities and other raw materials going into factories that turn them into goods for sale overseas, so the fall could be an ominous sign for exports in the coming months.

Exports fell less than forecast, sliding 5.5pc, but analysts were still doubtful that China can now achieve its year-end trade growth target of 6pc.

"The yuan devaluation will have limited impact on exports, which are falling because demand is weak, not because the price is not good," said Li Jian, head of foreign trade research at the Chinese Academy of International Trade and Economic Cooperation, the Commerce Ministry's think-tank. China's foreign exchange reserves posted their biggest ever monthly fall in August, reflecting Beijing's efforts to stabilise the yuan following its devaluation.

Chinese policymakers have been trying to reassure financial markets that their currency is stable and that the recent stock market turbulence is easing.

Stocks have fallen around 40pc since mid-June, with the Shanghai Composite Index hovering around the 3,000-point level, having been above 5,000 less than three months ago.

Shares initially declined yesterday but rallied later in the day to finish almost 3pc higher - though trading volumes in both stocks and futures were down sharply.

The CSI300 index of the biggest stocks listed in Shanghai and Shenzhen closed up 2.57pc, while Shanghai was up 2.93pc.

Volume in the Shanghai market was the lowest since February, a month when trading is usually thin due to the Chinese New Year Festival.

The stock futures market was hit by an abrupt reversal in policy that caused trading volumes to collapse.

Last Wednesday, China raised the margin requirements for futures not being used for hedging purposes to 40pc of the contract's value from 30 percent.

The futures contract for the CSI300 index maturing in September has seen volumes dive, logging 28,957 transactions yesterday, down almost 100pc from a week ago.

On August 25, when markets were in a major sell-off, the contract saw a total of 2.43m transactions.

Chinese authorities have rolled out a series of measures to bring a sense of calm back to their stock markets and reduce short-term speculation.

On Monday, the finance ministry dangled incentives to encourage longer-term investments, saying it would remove personal income tax on dividends from shares held for more than a year, and halve it on those held for between a month and a year. (Reuters)

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