China December trade data bad, but likely to get worse this year
China’s export and import figures were much worse than expected in December, underscoring the rapid weakening of the Chinese economy.
Monday’s figures suggest the negative impact of the trade war may be greater than Chinese authorities previously estimated, and point to the need for a more rapid and larger economic stimulus to stabilise growth.
However, overall Chinese exports last year were the largest in seven years and the trade surplus with the US reached a record high, boosted by strong gains in the first half of the year and the effects of order front-loading in the second half.
Trade results this year could be quite different, depending on whether China and the US are able to reach a trade deal that rolls back tariffs.
In December, total exports fell to US$221.25 billion, down 1.4 per cent from November and 4.4 per cent from the same month in 2017, according to data from China’s General Administration of Customs.
The December drop – the biggest since December 2016, when China grew at its slowest pace since 1990 – was unexpected, with analysts forecasting a 2 per cent rise, according to a Bloomberg survey.
The December figures give the first indication of the full impact of the US-China trade war.
Exports in previous months were supported by “front-loading” of orders by Chinese producers to beat the planned rise in US tariffs to 25 per cent, scheduled to go into effect on January 1 before Chinese President Xi Jinping and his US counterpart Donald Trump agreed to a 90-day tariff ceasefire in their meeting on December 1.
Total imports fell to US$164.19 billion in December, a drop of 10 per cent from last month and down 7.6 per cent a year earlier.
Analysts had expected a 4.5 per cent rise, according to the Bloomberg survey. The December drop was the biggest since July 2016.
The drop in imports is another bad sign for the Chinese economic outlook, indicating a rapid weakening of Chinese domestic demand.
China’s total trade surplus rose US$57.06 billion, above the Bloomberg survey estimate of US$51.6 billion.
However, analysts expect the worst is yet to come for the Chinese economy, especially in the first half of this year, due in part to sagging demand from its domestic market.
“In all, the import slowdown is consistent with other signs that growth in China’s domestic economy continued to weaken,” said Louis Kuijs, head of Asia economics at Oxford Economics in a note published Monday.
Nomura’s analysts said the impact of order front-loading was almost over and that a significant slowdown in export growth could mean weaker growth in Chinese intellectual property filings and a rapidly rising unemployment rate.
The weaker-than-expected export numbers suggest that the yuan, which depreciated more than 10 per cent last year, might come under renewed downward pressure, giving Beijing another reason to strike a trade compromise with the US, according to Nomura.
“Policymakers will need to take more aggressive measures to stabilise GDP growth. We continue to expect growth to worsen in the first half of 2019 before stabilising in the second half,” Nomura said.
Liu Liu, an analyst at China International Capital Corporate, said that a significant slowdown in global trade growth would hurt China’s overall economic performance this year, as already indicated by the purchasing managers index for December.
The PMI showed that manufacturing activity contracted last month for the first time in 19 months as domestic and export orders continued to shrink.
“Domestic and foreign demand is facing downward pressure in 2019, and the growth rate of Chinese imports and exports is expected to decline compared with 2018,” Liu said.
In particular, China’s private companies, heavily weighted towards producing goods for foreign trade, have already been hit by sluggish growth.
The contribution of private enterprises to the growth of China’s total foreign trade – the combination of imports and exports – exceeded 50 per cent last year, well above state owned firms’ share of 17.4 per cent, according to customs spokesman Li Kuiwen at a media briefing on Monday.
Beijing has promised to boost its support for the private sector, through measures such as reducing import duties on certain products used in R&D, launching an insurance product that help firms to pay taxes, reducing social taxes for firms that agree not to lay off workers, and cutting down on licensing and administrative procedures.
For the full-year 2018, China’s total trade reached US$4.62 trillion, a 12.6 per cent rise from 2017, according to the customs data. Total exports rose to US$2.46 trillion last year, gaining 9.9 per cent from previous year, while total imports in 2018 reached US$2.14 trillion, up 15.8 per cent from 2017.
The overall trade surplus in the world’s second-largest economy fell 16.2 per cent to US$351.76 billion in 2018.
However, China’s trade surplus with the US expanded to US$323.32 billion, an increase of 17.2 per cent year-on-year, according to the Customs Administration’s Li.
Given order front-loading, China’s trade gap with the US grew even as the world’s two largest economies engaged in their tit-for-tat trade war.
Washington started to levy its first round of tariffs on Chinese imports in early July, over allegations that Beijing was engaged in unfair trade practices, forced technology transfer and intellectual property theft.
China has denied the accusations, hitting back with tariffs on billions of dollars’ worth of US goods.
The Chinese government will reportedly set a growth target this year of 6 to 6.5 per cent, down from the “about 6.5 per cent” target for last year, due to the effects of the trade war and the government’s campaign to cut debt and risky lending.
Most private economists are predicting growth at the low end of that range, although they warn that a failure to resolve the trade conflict could push growth below 6 per cent if the US follows through with its threat to raise tariffs further.
Last week, officials from the world’s two largest economies held three days of talks to try to agree to a trade deal to avoid a rise in US tariffs from March 2.
While negotiators said the talks went well, they offered few details indicating how much progress they had made.
Source: SOUTH CHINA MORNING POST