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February 15, 2016

Economists React: China’s Weak January Trade Data Points to Shaky Start for 2016

China Real Time ReportToday, 15:14


A man rides a bicycle past containers at a port in Shanghai in this December 10, 2008 file photo.

China posted a worse-than-expected January trade data Monday, pointing to a shaky start for the year and more downward pressure on the economy. Both imports and exports weakened last month in the world’s second-largest economy, while China’s trade surplus widened.

Figures from China’s General Administration of Customs show that exports, traditionally an important growth engine for the economy, slid 11.2% last month from a year earlier following a drop of 1.4% in December. Imports in January fell 18.8% from a year earlier, compared with a 7.6% drop in December, suggesting that cooling demand in China may continue to affect economies in Asia. Both figures missed expectation by a significant margin.

Following are excerpts from economists’ views on Monday’s trade data, edited for style and length:

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The Chinese economy will probably slow further from last quarter’s 6.8% expansion in the first quarter of this year, judging from today’s much softer-than-expected foreign trade data. The figures should be better than December based on seasonal factors and base effects but today’s data turned out to be much worse than our expectations. Exports to emerging markets were particularly bad, and apart from weak demand, competitive weakening of currencies by these countries may have also played a role. –Ma Xiaoping, HSBC

China’s international trade outlook remained weak, suggesting there’s little prospect of a major upturn in the near future. Imports were affected by soft commodity prices, while trade in both directions was hurt by weak demand. It’s definitely weaker than the market expected.  There’s still no improvement from the trade account. –Ding Shuang, Standard Chartered

At face value, the weak trade data seem to suggest a marked weakening of both external and domestic demand going into 2016, butthere are a few reasons to treat these latest figures with a degree of caution. The seasonal distortions due to the Lunar New Year made the trade growth notoriously volatile. Moreover, the recent government crack-down on trade disguised capital flow may also be a reason for the weak trade data. It is arguably too early to jump to conclusions and we’ll have to wait until we get the February data and can iron out some of the seasonal volatility before we can get a clearer idea of how trade is performing. –Julian Evans-Pritchard, Capital Economics

In general, January trade numbers indicate that the recovery in December’s figures is largely due to a front-loading effect, rather than an improving demand. Imports surprised the market by a large margin, suggesting  that the demand for commodities is still falling. Notably, import numbers are in line with the “supply-side economics,” with a focus on cutting outdated overcapacity. They also imply that domestic investment is likely to remain weak. Today’s numbers hint that the Chinese currency is still under pressure to weaken. That said, recent strength in the yuan is largely due to the central bank’s effort to dampen speculative positions. –Zhou Hao, Commerzbank AG

China’s trade surplus rose to a record high of $63.3 billion in January, indicating that the world’s second-largest economy continued to run a large current-account surplus. This should help offset some of the capital outflow and alleviate some depreciation pressure on the yuan. There were signs of doctored transactions in January to mask capital flight and circumvent China’s capital restrictions, as China’s trade with Hong Kong continued to outpace its trade with other economies. While China’s exports to Hong Kong fell 2.6% year on year, imports surged 108.1% in January, suggesting that imports channels could have been used for some financial arbitrage activities. –Li-Gang Liu and Louis Lam, ANZ Research

–Pei Li

http://blogs.wsj.com/chinarealtime/2016/02/15/economists-react-chinas-weak-january-trade-data-points-to-shaky-start-for-2016/?mod=WSJBlog