China exports, imports slump in January

Chinese trade slumped in January, authorities said Monday, as both exports and imports tumbled with feeble domestic and global demand dragging on the world's second-largest economy.

Exports dropped 11.2 percent year-on-year to $177.5 billion in dollar terms, Customs said, while imports plummeted 18.8 percent to $114.2 billion.

Tremors in overseas markets and weakness in partner economies have weighed on the Asian giant, a main driver of the world's economic growth, and the globe's largest trader in goods.

Rock-bottom prices for commodities such as oil and slowing growth in infrastructure spending have hit China's import values, while exports have been hurt by frail overseas demand, along with rising labour costs and the increasing competitiveness of rival economies.

"We believe the slump in trade growth mainly reflects weakening investment demand, possibly from weaker property investment and measures to reduce overcapacity," wrote Nomura analyst Zhao Yang.
Imports were hammered, falling in both volume and value terms, which a BofA Merrill Lynch research report said was "due to weakness in domestic demand and further downward adjustments in commodity prices".

The figures were far worse than expected, with economists forecasting a 1.8 percent fall in exports in a Bloomberg News survey, and a 3.6 percent slide in imports.

"The sharp drop of trade in January was a reflection of weak external demand," ANZ analysts wrote in a note, citing feebleness in trade partners Korea and Taiwan, although they added seasonal factors may have been an issue.

China's economy grew 6.9 percent in 2015 -- the lowest rate since 1990 -- and is expected to slow further this year, with the darkening perspective a contributory factor to plunges in global stock markets in recent weeks.

China's leaders are looking to retool the economy to one focused more on consumer spending, but the BofA Merrill Lynch report said the lack of investment in fixed assets -- such as the big-ticket infrastructure projects that long fuelled China's growth -- would drag on imports.

"Given the dimmer global economic outlook, China's export growth is likely to remain constrained by lacklustre external demand," it added.

- Happy new year? -
The export figures were sharply lower than the 1.4 percent slide in December, when imports had declined 7.6 percent.

The monthly trade surplus reached a new record in dollar terms at $63.3 billion.

Despite the worsening economic environment, the record surplus gives Chinese officials some breathing room to cope with the floods of cash that have flowed out of the country in recent months on expectations of further weakness in the yuan, also known as the renminbi (RMB).

The large positive trade balance "should help offset some of the capital outflow and alleviate some depreciation pressure on the RMB", said the ANZ analysts.

Capital outflow from China was nearly $160 billion in December alone, according to Bloomberg Intelligence.   
Over the weekend China's central bank chief blamed foreign speculators in part for volatility in the yuan currency and said there was no further basis for depreciation.

"China has the world's largest foreign exchange reserves," People's Bank of China governor Zhou Xiaochuan said, according to a transcript of the interview posted on the bank's website Saturday.

On Monday the yuan surged by the most since authorities stopped pegging it to the dollar more than a decade ago, according to Bloomberg News.

“RMB depreciation has failed to lift China's export growth so far,” wrote researchers with China International Capital Corporation, adding that authorities should make clear their plans for the currency.

The benchmark Shanghai index was down 1.57 percent at the noon break Monday, as Chinese investors returned from the week-long Lunar New Year holiday and responded to the rout in world markets last week.

While the trade figures were shakier than expected, Julian Evans-Pritchard of Capital Economics said in a research note that "things may not be quite as bad as they look" due to distortions in the data resulting from the shifting Lunar New Year holiday and capital flows.

Seasonal volatility meant it was "arguably too early to jump to conclusions" before the February figures became available, he said.

Customs earlier gave the figures in yuan terms, which showed exports down 6.6 percent, imports falling 14.4 percent, and a trade surplus of 12.2 percent.