Dismal China trade figures raise fears

CHINA - China has warned of "grave challenges" in its foreign trade after latest data showed a surprise fall in its exports and imports, and raised fears of a deeper slowdown in the world's No. 2 economy.

The poor trade performance could increase pressure on Chinese Premier Li Keqiang to roll out measures - such as stabilising the yuan currency's appreciation - to maintain a growth rate crucial to social stability while pushing longer-term economic reforms.

China's Customs said on Wednesday that exports last month dipped 3.1 per cent to US$174.32 billion (S$224.5 billion) - the first drop in 17 months - while imports fell more sharply, from 0.3 per cent in May to 0.7 per cent, to US$147.19 billion.

Economists had forecast exports to grow 4 per cent and imports to rise 8 per cent. Previously, China's exports had been growing but at a slowing pace, registering a 1 per cent increase in May.

Customs spokesman Zheng Yuesheng on Wednesday cited "prolonged sluggish foreign demand" as the main cause, along with other reasons like a strengthening yuan and rising trade disputes.

Economists had predicted poorer trade figures due to a clampdown by the authorities on fake export claims by exporters to evade currency controls and bring extra yuan into China.

Inflated export data is believed to account in part for exports rising 10.4 per cent to US$1.05 trillion in the first half of this year, which saw imports grow by 6.7 per cent to US$944.87 billion.

Declines in both exports and imports last month led to a 14 per cent plunge in the trade surplus to US$27.7 billion.

But even so, observers say the latest figures could reflect weaker-than-expected global demand as they are way below market forecasts and thus raise the chances of China missing its 8 per cent trade growth target this year.

China had missed its trade target of 10 per cent last year, with a 6.2 per cent growth rate.

Mr Zheng said yesterday that exports in the third quarter "look grim", noting that 43.8 per cent of respondents polled by the Customs Bureau were not optimistic about their exports in the next two to three months.

The poor import figures also reflect weak domestic demand. This should worry countries such as those in South-east Asia like Singapore, which supply raw materials and consumer goods to China, said OCBC bank economist Tommy Xie.

Analysts believe the need to prevent widespread job losses might lead the government, which has signalled its tolerance of slower growth, to change course and boost lending or spending to stimulate growth instead.

All eyes are now on China's release of growth figures for the second quarter next Monday. Bank of America Merrill Lynch analysts said in a note that while big stimulus plans are not expected, the State Council may do something on the margin such as speeding up fiscal spending.

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