China warns of "grim" trade outlook after surprise exports fall

China warns of "grim" trade outlook after surprise exports fall

BEIJING - China warned on Wednesday of a "grim" outlook for trade after a surprise fall in June exports, raising fresh concerns about the extent of the slowdown in the world's second-largest economy and increasing the pressure on the government to act.

China's reform-minded new leaders, including Premier Li Keqiang, have shown a tolerance for slower growth, while pressing ahead with efforts to revamp the economy for the longer term, but any continued slide in economic performance could test their resolve.

The customs data showed that exports fell 3.1 per cent in June against forecasts for a rise of 4 per cent, casting a shadow over second-quarter GDP figures due on Monday that are already expected to show growth slowed down to 7.5 per cent as weak demand dented factory output and the pace of investment.

"Next week will be a testing time for the government in revealing just how much of a growth slowdown it is willing to tolerate," Zhiwei Zhang, China chief economist at Nomura in Hong Kong, said in a client note.

The fall in exports was the first since January 2012. Imports fell 0.7 per cent versus expectations for an 8 per cent rise, while China had a trade surplus of US$27.1 billion (S$34.6 billion), the customs administration said, in line with the US$27.0 billion expected.

The Australian dollar fell about a third of a cent after the data, reflecting worries about Chinese demand for Australia's commodities, such as iron ore and coal.

The MSCI Asia-Pacific ex-Japan index also pulled back before recovering to stand up 0.77 per cent in late Asian trade.

The June export figures followed a government crackdown on the use of fake invoicing that had exaggerated exports earlier this year, and may now reflect the true trade picture, customs officials said.

However the external environment remains weak and rising labour costs and a stronger yuan currency were discouraging exporters, customs said.

"China faces relatively stern challenges in trade currently," customs spokesman Zheng Yuesheng told a news briefing. "Exports in the third quarter look grim."

Exports to the United States, China's biggest export market, fell 5.4 per cent in June, while exports to the European Union dropped 8.3 per cent.

HSBC Global Research said in a note that the external headwinds buffeting China will likely intensify, adding to the risks facing the economy.

"Beijing will likely fine-tune policy to avert a hard landing," it said in a note.

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