China’s trade recession eases with signs of stabilization

BEIJING (Reuters) – China’s exports and imports continued to fall in August as the twin pressures of slumping external demand and weak domestic consumer spending weighed on companies in the world’s second-largest economy, although the declines were slower than expected.

While the trade figures follow a series of other indicators that show a possible stabilization in China’s economic downturn, they are still far short of growth economists’ forecasts earlier this year when the government abandoned its tough coronavirus restrictions.

Customs data on Thursday showed that exports fell 8.8 percent in August year-on-year, beating forecasts for 9.2 percent growth in a Reuters poll and less than the 14.5 percent drop in July. Meanwhile, imports contracted by 7.3%, slower than the expected decline of 9.0% and last month’s drop of 12.4%.

China’s economy faces the risk of missing Beijing’s annual growth target of around 5% as officials grapple with a deepening real estate downturn, weak consumer spending and slumping credit growth, prompting analysts to cut forecasts for this year.

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“Trade data is marginally better, but I don’t think we should overdo it: trade is still contracting,” said Frederic Neumann, chief Asia economist at HSBC.

“There are some signs of stabilization here, but I think there is still a long way to go,” he added.

Beijing has announced a series of measures in recent months to support growth, with some borrowing rules eased last week by the central bank and top financial regulator to help homebuyers.

But analysts warn that these steps may have little impact with a slowdown in the labor market recovery and uncertainty about household income prospects.

Containers at the Yangshan deepwater port in Shanghai, China, October 19, 2020. REUTERS/Ali Song/File Photo Obtains licensing rights

“The numbers indicate that the headwinds remain, despite some marginal improvement,” said Zhu Hao, chief economist at Guotai Junan International. “Looking to the future, whether China’s trade growth really bottoms out will depend on several factors, the most important of which is obviously domestic demand.”

Governments around the world are concerned about China’s economic slowdown as many exporting countries rely heavily on the country’s market for growth.

South Korean shipments to China, a leading indicator of the latter’s imports, fell by just a fifth last month, slowing from a 27.5% drop in the previous month, marking another sign of stabilizing conditions in China.

Declines in trade with the United States, Southeast Asia and Australia also narrowed.

However, trade with Japan fell sharply, as outbound shipments from China to its neighbor fell 20% in August year-on-year, while imports worsened 17%.

Policymakers in Tokyo fear that China’s worsening economic problems could affect Japan’s fragile recovery, especially if Beijing fails to support demand with real stimulus.

Crude oil shipments to China rose 31% in August from the same period last year, and by 21% in July, while soybean imports in August also jumped 31% from a year ago, encouraged by cheaper prices in Brazil.

While some analysts saw signs of stabilization in the data, investors were less impressed by the yuan’s decline near a 10-month low and the decline of the Australian dollar, which is seen as an indicator of Chinese growth, after the data.

China recorded a trade surplus of $68.36 billion in August, compared to an expected $73.80 billion and $80.6 billion in July.

“Given the low base at the end of last year, it is very likely that exports will return to growth at the end of this year,” said Ni Win, an economist at Huabao Trust.

(Reporting by Joe Cash, Elaine Chang, Liangpeng Zhao, and the Beijing Newsroom; Reporting by Mohamed for the Arabic Bulletin) Editing by Sam Holmes

Our Standards: The Thomson Reuters Trust Principles.

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Joe Cash reports on China’s economic affairs, covering domestic fiscal and monetary policy, key economic indicators, trade relations, and China’s growing engagement with developing countries. Prior to joining Reuters, he worked on UK and EU trade policy in the Asia Pacific region. Gu studied Chinese at Oxford University and speaks Mandarin.

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